This article is from the Australian Property Journal archive
DEVELOPER Peet will wear a $45 million one-off hit from the sale of non-core projects and company restructure, resetting the focus of the business on key growth corridors away by undertaking a review of its circa 48,000-lot portfolio to find opportunities to recycle capital.
Peet said the impact of COVID-19 on the economy since early March has presented a range of challenges across the group and it has implemented a number of cost saving initiatives including the deferral of the commence of new projects; a freeze on remuneration; voluntary 20% reduction in directors’ fees and the fixed salaries of leadership team members for a three-month period commencing in May which is subject to further review in July 2020; and a temporary 20% reduction in working hours across the balance of the Peet Team.
Managing director and CEO Brendan Gore said sales activity continued to improve in the first two months, however the impact of COVID-19 and associated restrictions contributed to lower sales in April on the back of lower customer traffic and enquiry levels during the latter part of March 2020.
But since restrictions were gradually relaxed, Gore said there has been significant improvement in customer enquiry levels since the introduction of federal and state government stimulus packages.
“The introduction of government stimulus (including the federal government’s HomeBuilder grant and the WA state government’s Building Bonus package) has resulted in a significant increase in enquiries and sales across the group’s portfolio in the latter half of the June 2020 quarter.
“Enquiry levels increased by 75% during the quarter ended 30 June 2020, compared to the quarter ended 31 March 2020. Sales increased 57% compared to the quarter ended 31 March 2020 and 25% compared to the quarter ended 31 December 2019. Settlements are completing within similar timeframes to pre-COVID-19 levels and the cancellation rate is normalising,” he said.
As at 30 June 2020, there were 1,786 contracts on hand, with a gross value of $427.7 million, compared with 1,257 contracts on hand as at 30 June 2019, with a gross value of $335.5 million. This represents an increase of 42% in contracts on hand and a 27% increase in contract value, providing positive momentum as the group enters FY21.
Gore said Peet enters FY21 with cash and debt facility headroom of more than $130 million as at 30 June 2020. But the group continues to remain cautious on the outlook for FY21 and is seeking to position itself positively to a post COVID-19 environment.
Gore said Peet is focussed on reducing its fixed corporate overhead and efficiently managing its asset base with a view to maximising returns on invested capital. As a result, restructure and sale of non-core projects of $45 million after tax is expected in FY20.
“At the same time, the group continually reviews its c.48,000-lot portfolio to identify opportunities to recycle capital. With a view to resetting the focus of the business on key growth corridors around the country, Peet will seek to divest non-core projects, including regional and sub-regional projects.
“The expectation is that this will result in the recycling of c.$75 million of capital over the next 18 to 24 months to further strengthen the group’s balance sheet. This will assist in streamlining the business and simplifying its operating structure.
“The efficiencies arising from the investment in internal system improvements and the divestment of a number of projects have meant making some difficult decisions, including reducing the number of people employed by the group. This is an unfortunate outcome and is in no way a reflection of their value or contribution to the Group. These decisions are difficult but necessary to ensure the group is well positioned for the post-COVID-19 environment and to consider investment opportunities should they arise,” he added.
It is expected that these measures will result in annualised overhead and fixed cost savings of $5-7 million once fully implemented in 2H21.
“Although low interest rates, accommodating credit conditions and government stimulus are positive for the residential sector, the group continues to adopt a cautious approach as it enters FY21.
“There remain uncertainties around the impact of the roll-off of Government stimulus, including on the rate of unemployment and the short to medium term impact of COVID-19 on the federal government’s immigration policy.
“While Peet is well placed to respond and is responding to the increase in demand resulting from the federal government’s HomeBuilder and various other state governments’ residential-focused initiatives, Peet will continue to defer commencements of new projects, subject to more clarity on the sustainability of a market recovery,” Gore said.
FY20 earnings are lower than FY19 and subject to final audit, the FY20 operating profit after tax is expected to be in the range of $14-$16 million.
