I am very pleased to report that Stockland has continued to deliver good value for securityholders with another strong profit performance in FY16.
Funds from operations grew by 12.5% to $740 million and underlying profit rose 8.5% on FY15, to $660 million. Funds from operations per security grew 11.1% on the prior year, exceeding the target growth range of 9–10%. Underlying earnings per security rose by 7.3%, at the top end of the target range of 6.5–7.5%. Statutory profit was $889 million.
These excellent results show the progress we have made over the last three years in our disciplined pursuit of sustainable growth.
All three of our core businesses are realising the benefits of our strategy, underpinned by our strong balance sheet and our focus on operational excellence. Progress includes more than $681 million retail property developments underway, seven medium density residential projects launched across four states, the launch of our unique Retire Your Way selling proposition, and several new greenfield developments that demonstrate our ability to create outstanding masterplanned communities.
We also achieved international recognition for our sustainability leadership, being named the 2015–2016 Global Real Estate Industry Leader in the Dow Jones Sustainability Index, and we retained our Employer of Choice for Gender Equality citation from Australia’s Workplace Gender Equality Agency.
As forecast, our full year distribution was 24.5 cents per security, representing a payout ratio of 88% of underlying profit.
Looking ahead, from FY17 funds from operations will replace underlying profit as our primary reporting measure, recognising the importance of this measure in enabling comparison across the Australian property industry.1
Accordingly, our distribution policy from FY17 will be the higher of 100% of Trust taxable income or 75–85% of funds from operations. This is equivalent to our current distribution policy to pay the higher of 100% of Trust taxable income or 80–90% of underlying profit.
In recognition of our consistent profit growth over the last three years, we are targeting to increase distributions to 25.5 cents per security in FY17, assuming there is no material change in market conditions.1 Funds from operations (FFO) has been determined with reference to the Property Council of Australia’s voluntary disclosure guidelines to help investors and analysts compare Australian real estate organisations. FFO is calculated by adding back tenant incentive amortisation and non-cash tax benefit/expense to underlying profit and deducting straight line rent from underlying profit.
DISTRIBUTION PER SECURITY (¢)
I am delighted to report that the Stockland CARE Foundation has made a real impact in its first full year of operation, contributing much needed funds in the areas of health, wellbeing and education and also boosting volunteering and giving among our employees, business partners and the broader community.
In addition to the $200,000 donated by the CARE Foundation Trust in FY16, Stockland and its employees, customers and residents donated over $100,000 and more than 2,200 hours of support to chosen charity partners, Redkite and Touched by Olivia Foundation (TBO). Through these efforts 72 families who have children or young people with cancer gained access to Redkite’s suite of programs in FY16, and four inclusive playspaces and four social enterprise cafés based in our communities were added to TBO’s expanding national network. As Chair of the Foundation, I congratulate all involved.
Following more than 10 years of service, director Peter Scott retired from the Stockland Board in August 2016. With his engineering and construction background and his broad business management experience, Peter has brought many insights to us and contributed enormously throughout his time on the Board. I thank Peter sincerely for his long and dedicated service.
As part of the Board renewal process, we were delighted to welcome Stephen Newton to the Board in June 2016. Stephen is a highly experienced director with an extensive career history in the property and investment sectors. His deep experience across real estate development, property management and infrastructure investment makes him an excellent addition to our team and we look forward to his contribution. Stephen will offer himself for election by securityholders at the 2016 Annual General Meeting (AGM).
As announced in August 2016, I will conclude my current term as a director at the AGM on 26 October 2016 after 11 years as Chairman. I am delighted that my Board colleague Tom Pockett has been elected to succeed me. Tom joined the Board in September 2014 and has served with distinction as a director and as Chair of our Audit Committee and as a member of our Risk and Sustainability Committees.
I would like to thank my Board colleagues and Stockland’s talented employees for their continued dedication in supporting our many achievements over the past year. The strong fundamentals we have established over the last three years will allow Stockland to sustain solid growth in the year ahead.
In closing, I thank all securityholders for their support during my term on the Board. It has been my great privilege to serve as your Chairman over the past 11 years. I am proud of our many accomplishments, our team, and our corporate values. I am confident that my successor will continue to build upon these foundations.
Graham Bradley AM