|Maintain a strong balance sheet to support future growth|
|Maintain diverse funding sources|
|Maintain disciplined capital allocation|
|Maintained S&P A-/stable credit rating over ten years and new equivalent Moody's credit rating of A3 (received August 2017)
|22.7% gearing remains within our target range of 20-30%|
|Reduced average cost of debt to 5.5% in FY17|
|Increased our access to diverse funding sources|
We maintained our focus on prudent balance sheet management, continuing to utilise diverse funding sources throughout the year. Our gearing level decreased to 22.7% at 30 June 2017 (30 June 2016: 23.8%), driven by strong operating cash flows allowing continued investment without needing to increase debt, and the impact of revaluation gains across the Commercial Property portfolio. This is comfortably within our target range of 20-30%. We continue to retain our A-/stable credit rating from S&P and obtained a new A3 rating from Moody’s (equivalent to S&P’s A-), in August 2017.
We manage our exposure to financial markets, including movements in foreign exchange rates and interest rates, through the use of derivative financial instruments in order to provide greater certainty over future financing costs, taking advantage of the historically low interest rate environment. The fixed/hedged ratio of 109% at 30 June 2017 (30 June 2016: 96%) represents the proportion of debt that has fixed interest based on drawn debt at 30 June 2017. The overhedged position resulted from strong operating cash inflows at the end of the financial year and is expected to revert to around 100%. The weighted average cost of debt for the period has decreased to 5.5% (2016: 5.8%).
Interest cover has increased to 4.8:1 (30 June 2016: 4.5:1) due to stronger performance across the business.
|Real estate assets:1|
|Other assets||701||922||24% ↓|
|Interest bearing loans and borrowings||3,529||3,800||7% ↓|
|Retirement Living resident obligations||2,629||2,427||8% ↑|
|Other liabilities||1,410||1,461||3% ↓|
|Net assets/total equity||9,927||9,254|
1 Includes non-current assets held for sale, inventory, investment priorities, equity-accounted investments and certain other assets.
The Commercial Property investment portfolio has increased by $549 million to $10,255 million, primarily due to net valuation uplift across all three asset classes (up $264 million including equity-accounted joint venture investments) and capital and development expenditure of $333 million.
Retail portfolio values benefited from income growth and capitalisation rate compression, including the following centres in NSW: Wetherill Park ($43 million), Glendale ($32 million), Shellharbour ($30 million), and Balgowlah ($21 million). Our Office portfolio recorded a net valuation gain of $67 million largely due to an uplift at 135 King Street, NSW ($52 million), while Logistics and Business Parks similarly delivered valuation gains of $18 million during the period. Valuation gains across the portfolio saw our weighted average capitalisation rate reduce marginally from 6.4% to 6.2%.
The increase in capital and development expenditure predominantly reflects continued investment in the Retail development pipeline including the redevelopment of Green Hills, NSW.
Residential assets, which represent mainly land under development, decreased slightly to $2,483 million at 30 June 2017. Strong settlement volumes in FY17 (up 8% on prior period) and the sale of some previously impaired land and capital efficient restocking led to a reduction in inventory, while a disciplined approach to development expenditure throughout the year ensured that production did not exceed sales. Whilst we settled 6,604 lots during the year we have added approximately 9,900 lots to the pipeline. Finished goods levels remain appropriate. Land acquisitions reflect our focus on acquiring land on capital efficient terms where possible.
The value of the Retirement Living assets, net of resident loan obligations, was $1,219 million, an increase of $57 million from June 2016. This primarily reflects capital expenditure on the development pipeline including the redevelopment of Cardinal Freeman, Sydney, and fair value uplift on the investment property portfolio, partly offset by an increase in resident loan obligations created on first sales of development units. We have identified potential to develop a further 2,970 Retirement Living units in our existing portfolio.
Total debt decreased by $271 million to $3,529 million at 30 June 2017 primarily as a result of favourable fair value movements on foreign denominated debt due to an appreciation in the AUD against the USD, EUR and HKD and largely offsets the net unfavourable movements in derivative financial instruments. Movements in other assets and liabilities mainly reflect the changes in value of the Group’s financial instruments, equity-accounted investments and intangibles.
|CASH FLOWS ($M)||
|Operating cash flows||921||787||17% ↑|
|Investing cash flows||(380)||(508)||25% ↓|
|Financing cash flows||(511)||(241)||112% ↑|
|Net change in cash and cash equivalents||30||38||21% ↓|
|Cash at the end of the period||238||208||14% ↑|
Operating cash inflows are up $134 million on the prior year, primarily as a result of increased FFO and favourable movements in working capital, partially offset by increased payments for Residential land.
Net cash outflows from investing activities reflects our continued commitment to growing our asset base and mainly comprises payments for and development of Commercial Property investment properties ($374 million), with the largest individual contribution relating to ongoing development at Green Hills. Investment in Retirement Living totalled $133 million with main villages including Cardinal Freeman, Willowdale and Mernda Village. Investing cash inflows includes $71 million in dividend receipts relating to our investment in BGP Holdings Plc together with proceeds from sale of investment properties of $74 million.
Net financing cash outflows primarily reflect dividends paid (net of DRP). The prior year included $335 million in net proceeds from borrowings to fund acquisitions and development expenditure and also included payments to terminate derivatives ($119 million), with no payments on terminations in the current year.
On 9 June 2017, Stockland announced that the DRP would operate for the final distribution to 30 June 2017 to help fund the accretive development pipeline. We achieved a take-up rate of 21.6%.
The DRP security price of $4.20 was determined by the average of the daily volume weighted averages of the selling price over a 15 day trading period immediately preceding 27 July 2017, with a discount of 1.0% on the securities acquired under the DRP.
The dividend and distribution payable for the year ended 30 June 2017 is 25.5 cents per Ordinary Stapled Security. Our distribution policy is to pay the higher of 100% of Trust taxable income or 75-85% of FFO.
The distribution for the full year comprises:
|Corporation dividend, fully franked||-||-|
|Total dividend and distribution||25.5||24.5|