This article is from the Australian Property Journal archive
A NET valuation fall of $250 million drove developer Stockland’s full-year profit down from $1.38 billion to $440 million, while it believes its master-planned communities division is well-placed to capitalise on high migration levels and low supply.
Stockland’s result in FY22 was heavily padded out by $725 million in property valuation uplifts.
It delivered pre-tax funds from operations of $883 million, up 3.8%, and FFO per security was up 3.9% to 37.1c, towards the upper end of guidance range.
FY24 pre-tax FFO per security guidance is set at 34.5 to 35.5 cents, with tax expense expected to be a high single-digit percentage of pre-tax FFO.
A distribution of 26.2c per security was declared for FY23, representing a payout ratio of 74% of post-tax FFO.
Master-planned communities (MPC) settlement volumes fell from 5,964 lots to 5,403 lots, with development operating profit margin lifted from 24.3% to 26.0%.
“MPC business delivered a resilient performance over FY23 in a rising interest rate environment and is positioned well to capitalise on the strong residential market fundamentals as the interest rate environment stabilises,” said managing director and chief executive officer, Tarun Gupta.
Net sales for the period totalled 3,770 lots, down from 6,922 lots, which it said reflecting continued uncertainty in the interest rate environment and affordability constraint. It said enquiry levels for the second half were stronger than those achieved in first and slightly above pre-COVID-19 levels.
“The medium-term MPC market fundamentals remain strong, with increasing net overseas migration, low rental vacancy rates, and a chronic undersupply of new product across key eastern seaboard markets,” said CEO, communities Andrew Whitson.
“We are positioning the business for the recovery phase of the residential cycle with the expected launch of up to six new communities over FY24, while also leveraging the scale and breadth of our landbank to provide more affordably priced product.”
He said the rate of construction cost escalation continues to moderate.
Saranga Ranasinghe, vice president, Moody’s Investors Service Stockland’s strong results were in line with expectations and “reflected the strength of the group’s diversified portfolio of good quality assets”.
“The communities segment, which is more volatile than the commercial property segment, will likely face headwinds until the interest rate environment stabilizes. Still, Stockland’s communities business continues to maintain strong development operating margins despite default and cancellation rates increasing slightly above historical averages. While consecutive interest rate rises have moderated sales volumes, we expect Stockland’s master planned communities to benefit from long-term fundamentals for residential property, including relatively low unemployment, population growth and a rebound in net overseas migration amid still-limited land supply.”
Stockland has been encouraged by the performance of its land lease communities, which delivered a funds from operations increase from $17 million to $58 million. Development settlement volumes for FY23 totalled 382 homes, at a development operating profit margin of 29.6%. The FY23 net sales rate of 270 homes, versus 405, reflected a deliberate slowing of releases to allow production to catch up.
The average sale price per home in FY23 was about 11% above FY22 levels. There are 387 contracts on hand at an average price of about 7% above FY23 settlement pricing.
The town centre portfolio delivered funds from operations of $379 million, up 8.2%.
On a moving annual turnover basis, total comparable sales grew by 14.7% and comparable specialty sales was up by 19.8%, versus the corresponding period which was affected by COVID-19 trade restrictions.
Leasing spreads remained positive, at 3.1% versus 1.5% for FY22.
CEO, commercial property, Louise Mason said that as expected, the cumulative effect of successive interest rate increases led to a slowing of sales growth in discretionary categories such as apparel, jewellery and homewares over the June quarter, while sales growth for the essentials categories is tracking in line with inflation.
Portfolio occupancy is over 99%.
Industrial FFO up 11.5%
Stockland’s $3.4 billion logistics portfolio delivered funds from operations of $139 million over the period, up 11.5%, reflecting high levels of occupancy at 99.2% and accelerated rent growth across the portfolio. Rental increases relating to new leases and renewals negotiated during the period accelerated from 19.6% over the first half to 23.9% over the second.
It has a $6.4 billion logistics development pipeline. About $450 million of developments have been delivered since June 2022, and Stockland expects to deliver a similar quantum of logistics developments over FY24, taking the end value of total completions over FY23 and FY24 to approximately $900 million. This compares with a previous target of circa $1.2 billion over the same timeframe, with the difference due to planning delays on expected delivery timing, in particular relating to its project at Kemps Creek, Sydney, it said.
Stockland said the majority of its $2.0 billion workplace portfolio is being positioned for future development, including mixed-use opportunities, reflected in the portfolio’s weighted average lease duration of 4.2 years.
The workplace portfolio delivered funds from operations of $108 million, down from $110 million in FY22.
