|Commercial Property||Residential||Retirement Living|
|4.5% growth in comparable FFO in our Commercial Property portfolio
||A record 6,135 settlements and 4,567 contracts on hand in our Residential business
||A record 1,013 Retirement Living settlements|
|$681 million Retail development under construction and a pipeline of $1.0 billion
||Improvement in return on assets on our core Residential portfolio to 19.6%, excluding impaired projects
||19.7% increase in Retirement Living operating profit|
|$400 million Logistics and Business Parks future development pipeline
|| Over 90% of Residential capital employed in projects actively selling
||Launched our unique selling proposition, Retire Your Way
|Broadening our customer reach in Residential, with seven medium density projects launched across four states
Stockland’s Retail portfolio performed well in FY16, with high occupancy and positive leasing spreads.
The Retail portfolio recorded 3.7% growth in comparable FFO and continued sales growth, with total Moving Annual Turnover up 4.6%, driven by 6.0% growth in specialty retail. The best performing categories continued to be communication and technology, retail services, food catering and fast casual dining.
Some areas of specialty retail, such as apparel, slowed in the June quarter due to unseasonably warm weather. Comparable growth in supermarket sales has been impacted by strong competition in pricing.
While the number of retailer closures in the last six months has been slightly elevated and retail trade at some centres has moderated, we have continued to produce sales growth and our centres are highly productive. Comparable specialty sales per square metre is 9.8% above the Urbis average.
We have made good progress on major redevelopment projects. We opened Stage 3 of the $228 million Wetherill Park redevelopment in Sydney, which is trading well. We completed construction of the $51 million Harrisdale neighbourhood centre, which is a key part of our Newhaven community development in Perth, and opened the remodelled Pitt Street Mall asset in the Sydney CBD, incorporating flagship H&M and Zara Home stores.
We also commenced the $372 million redevelopment of Green Hills in New South Wales, which will be anchored by David Jones, JB Hi-Fi Home and a new Harris Scarfe department store, and is targeting an accretive FFO yield of 7.0% and IRR of 12.6%.
During FY16, we also commenced and completed a number of relatively small but important projects, creating new casual dining precincts at Rockhampton in Queensland and Shellharbour in New South Wales, and undertaking anchor retailer redevelopment and remixing activities at Point Cook in Melbourne and Cairns in Queensland.
The Retail business maintains its focus on creating market leading centres, redeveloping its most productive assets to create community and entertainment hubs and maximise trade area share. We have $681 million of retail development under construction and a future pipeline of $1.0 billion, targeting incremental internal rates of return (IRR) of 11–14%* and stabilised FFO yields of 7–8% from this activity.
Stockland’s retail mix continues to evolve, underpinned by supermarkets, mini majors, food catering and fast casual dining and speciality food and retail services. The business will continue to focus on tailoring its offering to each specific trade area, cultivating retailer relationships and long-term sustainable rent, and investing in industry research and technology to adapt to an evolving retail landscape.* Forecast unlevered 10 year IRR on incremental development from completion.
Our Logistics and Business Parks portfolio delivered good profit growth, with comparable FFO up 3.7%, reflecting positive leasing momentum.
We have been very active in our asset management, executing leases on more than 300,000 square metres in FY16, representing more than 25% of our Logistics and Business Parks portfolio.
We have been disciplined in our acquisition strategy, buying three new assets including Wonderland Drive in Sydney on an 8.0% initial FFO yield, Mulgrave in Melbourne on a 7.1% initial FFO yield and a development site at Erskine Park in Sydney. We are also making good progress on our development pipeline, with more than $67 million worth of accretive projects underway and a further development pipeline of $400 million, also targeting IRRs of 11–14%1 and stabilised FFO yields of 7–8%. Our Logistics and Business Parks business is well positioned to achieve solid growth and deliver consistent returns.
Our focus is on growing a quality portfolio of logistics centres and business parks. We will leverage our existing assets and land, strong tenant relationships and asset management skills to become a scale player in this market.
Comparable Office FFO increased 9.9%, reflecting the strength of the Sydney market where the bulk of our assets are located. We also completed the sale of Waterfront Place and Eagle Street Pier in Brisbane in October 2015, reducing net income from our Office portfolio.
Our exposure to the office sector remains tactical, reflecting our view on the state of the market. The majority of our portfolio is located in the improving Sydney market, with our assets in this market currently fully occupied. The Perth and Australian Capital Territory markets remain very challenging.
In Office we continue to focus on optimising returns from the portfolio while managing our exposure tactically. We intend to retain the majority of our residual Office portfolio whilst we maximise returns and highest and best use over time. Joint-ventures (or part sales) will also be considered as appropriate.
Our Residential business settled a record 6,135 lots in FY16, achieved significant operating profit growth of 38.8% and lifted return on assets (ROA) to 19.6% on the core portfolio.
This strong performance is a direct result of our strategy to activate the highest possible proportion of our Residential portfolio. More than 90% of our net funds employed are in projects that are actively selling, up from 60% in FY13.
The results also reflect our repositioning of the business over the last three years to enhance our community creation capabilities and capitalise on supportive market conditions in key growth corridors as well as the positive impact of new projects, efficiency improvements and our broader product range.
We launched five major projects in FY16 including Aura, Pallara and Newport in Queensland, Altrove in Sydney, and Cloverton in Melbourne.
We have also broadened our market reach with the introduction of medium density homes and completed homes within a number of our communities. We settled 110 completed homes and 74 medium density homes in FY16. We are now exploring mixed use apartment opportunities within our portfolio, including at our Sydney asset at Merrylands, adjacent to our regional shopping centre.
We continue to focus on affordability and community creation within our Residential business; over 75% of our buyers were owner occupiers in FY16. We commenced FY17 with 4,567 residential contracts on hand, a record for the Group.
Our Residential business is making good progress on its plans to make the portfolio more resilient and profitable in the future by continuing to focus on:
Operating profit in the Retirement Living business was up 19.7% on FY15, reflecting strong sales, active management and improved efficiency.
Retirement Living sold more than 1,000 homes and apartments in FY16, which is a record number of settlements. We also lifted our cash ROA by 50 basis points in the last 12 months to 5.8%, reflecting our continued focus on operational efficiencies and growing our development pipeline. Our development margin was 16.8% in FY16, which is at the top end of our target range.
We completed and sold the first 57 apartments in two buildings at Cardinal Freeman The Residences in Sydney, with the next building of 40 apartments due for completion in the second half of FY17. We also launched a new village within our Willowdale community in Sydney in the second half of FY16.
We have continued to reshape our business, embedding the eight new South Australian villages acquired in FY15 into our portfolio, and selling five relatively small, low ROA villages in Western Australia in July 2016. We will continue to recycle capital, drive our development pipeline, which currently comprises 400 homes under development, and grow profits and returns.
The business remains focused on being a preferred operator and developer of retirement living villages. The business has a clear strategy to continue to improve its return on assets by: