Managing Director and CEO
We’ve delivered another positive performance this financial year across our diversified business, by reinforcing our position as the leading creator of communities in Australia, strategically repositioning our assets, and restocking the portfolio.
We continue to see the benefits of our disciplined approach to implementing our strategy – to grow our asset returns and improve customer experiences, deliver operational excellence, and improve our capital strength.
Commercial Property accounts for around 70% of our assets and remains a key profit driver, delivering comparable growth in funds from operations of 3.4% across the portfolio, with 3.5% in Retail, 3.6% in Logistics and Business Parks, and 2.3% in Office.
In a challenging environment, our retail business delivered positive income growth, maintained high occupancy and continued to focus on remixing our portfolio in line with our customer needs and trade area dynamics.
Our centres combine traditional, everyday shopping needs with food, entertainment, lifestyle and services, and are the ‘town centres’ of their communities. Specialty store sales productivity grew 1.9% to $9,072 per square metre, which exceeds the Urbis sub-regional average by 8.3%.
Our Logistics and Business Parks business had an outstanding year. Occupancy increased to 99% and the portfolio now represents 15% of our total assets.
The Sydney office portfolio also performed well this year, where the majority of our assets are located. The Perth and Canberra markets remain challenging, but we are seeing positive leasing momentum at our properties.
Our Residential business settled a record 6,604 lots, up 7.6% on FY16, achieved significant operating profit (FFO) growth of 17.4%, and lifted return on assets to 20.8% on the core portfolio. Importantly, strategic metropolitan acquisitions with strong transport links added around 9,900 lots to inventory during the period. We commence FY18 with record pre-sales of 5,811 lots.
We have continued to expand our medium density business, with 213 homes settled this year and close to 600 currently under construction. Medium density development is a key growth driver for our residential business as we extend our focus on community creation into the important “missing middle” of our major capital cities.
Our leadership in housing affordability initiatives, and commitment to delivering a range of options for first home buyers and families, places us in a preferred position for residential lending trends and government growth initiatives.
Our Retirement Living business also delivered its fourth consecutive year of double-digit growth. Operating profit was up 11.1% on FY16, reflecting strong sales, active management of our portfolio and improved margins.
Our developments are progressing well and we are broadening our customer reach through our new non-deferred management fee communities for over 55s, called ‘Aspire’, with two projects underway.
We take pride in our retirement living business, and we are committed to open, transparent and respectful relationships with our residents. Every year, we run independent surveys of residents to better understand their satisfaction levels with our service. Last year, more than 6,800 residents responded to this survey, and rated their overall satisfaction with Stockland as 8.4 out of 10.
Our focus on maintaining a strong balance sheet has underpinned this solid result and sets a good platform for future growth.
Gearing at the end of FY17 was 22.7%, at the lower end of our 20-30% target range, due to disciplined capital management and operating cash flows.
We retained an A-/stable credit rating from Standard and Poor’s and also obtained a new comparable A3 rating from Moody’s in August 2017. This confirms the strength of our balance sheet and provides access to a broader range of debt markets, positioning the business well to continue to grow in the future.
We continue to progress implementation of new systems, including Salesforce and SAP, which will improve efficiencies across our business.
We have also introduced new digital technology in our assets, including virtual masterplans at some of our new communities and our Geni app trial at Stockland Balgowlah. We will continue to look at ways to introduce technology to enhance our customers’ experience across our assets.
Once again, we were recognised as a global leader for our sustainability credentials and we remain committed to excellence in this space. Stockland has been a signatory to the United Nations Global Compact since 2015, and we remain committed to its principles and to promoting the Global Compact where we operate. I am pleased to confirm our continued support of this important initiative.
In the year ahead, we expect positive economic conditions to continue, and interest rates to remain fairly stable. We commence the financial year well placed to meet our goals of sustainable profit growth on a through the cycle basis, with strong occupancy and pre-sales.
While lending conditions to investors and foreign buyers are tightening, owner occupiers remain our core focus and represent 75% of our net residential sales, with less than 3% of total buyers requiring Foreign Investment Review Board approval.
We expect FY18 FFO growth to be slightly lower than FY17 primarily due to non-Sydney office let-up assumptions, higher Commercial Property outgoings, particularly electricity prices, and lower Retirement Living development profit reflecting project timing.
Our disciplined approach to acquisitions and our focus on creating the most liveable and connected communities and their town centres set us up well for the future.
Assuming no material change in market conditions, we are targeting growth in FFO per security of 5.0-6.5% in FY18, with growth skewed to the first half due to timing of residential settlements, with distribution per security growth targeted at 4%, representing 26.5 cents per security.
Managing Director and CEO