It is my pleasure to report another strong year of performance for Stockland. The overall results demonstrate the resilience of our diversified business in this variable trading environment.
The execution of our strategy over the last five years has yielded some outstanding outcomes for communities across Australia.
In this time, we have delivered sustainable and competitive profit growth with 10.8 per cent per annum compound earnings per security growth. In driving our vision to create sustainable communities we have built an exemplar residential portfolio which has grown its return on assets from 8.7 per cent in FY13 to 22.0 per cent in FY18, and is delivering impressive operating profit margins of 18 per cent. We have also extended our capabilities through the creation of a built-form business, tripling our townhome volumes.
Close to $1.3 billion of capital has been recycled over the last five years to fund the redevelopment of market leading retail town centres and to renew our retirement communities with a concentrated focus on enhancing customer choice and services. The success of these initiatives is demonstrated by 90 per cent customer satisfaction in our retirement communities and specialty retail sales 10 per cent above national benchmarks in our retail town centres. Our major redevelopments, including Green Hills and Wetherill Park in New South Wales, are prime examples of our strategic direction as we remix our portfolio and create high quality shopping experiences with dining, lifestyle, services and entertainment options tailored to the communities we serve.
Our Logistics portfolio has also grown strongly, supported by well-timed acquisitions and accretive development. Logistics now represent 15 per cent of our portfolio, up from 12 per cent five years ago.
We are proud of our position as the leading creator of liveable and affordable communities and the important role we play in bringing communities together at our retail town centres and workplaces across Australia.
Our strategy to maximise value from community creation, coupled with a disciplined approach to capital management, continues to deliver strong results.
Funds from operations (FFO) grew by 7.5 per cent to $863 million and FFO per security grew 6.6 per cent in FY18 to 35.6 cents per security, reflecting our community building capabilities. Statutory profit was $1,025 million, down 14.2 per cent, largely due to lower unrealised gains from asset revaluations and financial instruments.
The residential portfolio delivered a standout performance with profit growth up 24.3 per cent on FY17, underpinned by solid demand from owner occupiers. Our focus on owner occupiers and a broad range of housing and land options will position us well in this environment, as illustrated by our increase in market share over the year.
Our Retirement Living portfolio had a challenging year largely due to negative sector media coverage earlier in the year. We are starting a see some positive sales momentum underpinned by our ongoing commitment to deliver contract choice, renew our villages and provide valuable services to residents. It is pleasing to note that we already complied with the majority of recommendations coming from the Greiner Review Report which examined and provided recommendations for improvements in the New South Wales retirement living sector.
The Commercial Property business achieved another solid result with comparable FFO growth of 2.3 per cent on FY17. Our Workplace and Logistics portfolio (previously Office, Logistics and Business Parks) continued to perform well with 6.0 per cent comparable FFO growth in logistics, high occupancy, strong leasing and good progress on our development pipeline.
We are confident in our diversified business model with high recurrent earnings and conservative leverage. This enables us to create high quality masterplanned communities and retail town centres and remain focused on a disciplined approach to executing on our strategic priorities in the year ahead.
Last year I observed how a strong culture delivers benefits to both employees and securityholders. This year the importance of culture has become front of mind for all boards across Australia as corporate culture dominates media headlines.
The governance of corporate behaviour is an essential part of business and our expectations as a Board are high. We remain focused, together with the Leadership Team, on promoting a strong culture; one concentrated on our customers and ensuring employees are a strong first line of defence for risk management.
We continue to enjoy a high level of employee engagement, above the Australian National Norm as measured by the annual, independently conducted employee engagement survey. We also recently conducted an internal review of our culture which has identified key strengths that we want to preserve, such as respect, customer focus and engagement, as well as areas for further focus and improvement including encouraging diversity of thought.
Importantly, all our businesses receive high customer satisfaction ratings, with very strong 90 per cent satisfaction results in our residential and retirement living communities and at our logistics assets. Our retail tenants rated us as top two in the industry, however our overall score decreased in line with our peers to 72 per cent, largely due to the challenging retail sales environment.
We have retained our global sustainability leadership credentials, upholding our listing on the World Dow Jones Sustainability Index for a decade. These credentials reflect our focus on managing non-financial risk and finding the right balance of social, environmental and economic outcomes for our business, investors, customers and the community. To further our commitment to transparency and sustainability, this year we were amongst the first Australian corporates to disclose our climate-related risks with our financial reporting.
In maintaining and enhancing the right mix of skills on our board, we welcomed Melinda Conrad to the Board in May 2018 and Christine O’Reilly will be joining us on 23 August. Both are highly regarded directors and bring extensive executive expertise across the retail, utilities and infrastructure sectors. Ms Conrad and Ms O’Reilly will further complement and strengthen the Board’s experience and I look forward to their contribution.
As required by the Stockland Constitution, Ms Conrad and Ms O’Reilly will offer themselves for election by securityholders at the 2018 Annual General Meeting on 24 October 2018.
As forecast, our full year distribution was 26.5 cents per security, representing a payout ratio of 75 per cent of funds from operations.
We expect to achieve FFO growth of 5 – 7 per cent for the full year and are targeting a distribution per security of 27.6 cents, representing 4 per cent growth on FY18, assuming no material change in market conditions.
Thank you to my Board colleagues and our employees for their continued enthusiasm and dedication to delivering exceptional outcomes for communities across Australia. The Board and I are confident the business is well positioned for the future and look forward to discussing these results with you at our Annual General Meeting in October.