We maintained our focus on prudent balance sheet management, continuing to utilise diverse funding sources throughout the year. During the current year Stockland repaid USD 204 million ($311 million) of notes that were issued in the US private placement market. In January 2018 new US private placement notes equivalent to $286 million were issued with tranches of between 10 and 15 years. In addition, a $478 million Euro bond and a $51 million Asian bond were executed in the year to replace maturing US private placement facilities. The new notes were issued at a competitive rate and demonstrate continued strong support from debt investors and acknowledgement of our robust credit profile. Our gearing level decreased marginally to 22.2 per cent at 30 June 2018 (FY17: 22.7 per cent). Gearing remains within our target range of 20 – 30 per cent and we retained our A-/Stable credit rating from S&P and obtained an A3 rating from Moody’s (equivalent to S&P’s A-).
We manage our exposure to financial markets, including movements in foreign exchange rates and interest rates, through the use of derivative financial instruments in order to provide greater certainty over future financing costs, taking advantage in particular of the current historically low interest rate environment. Through actively managing our debt portfolio and hedging positions, the fixed/hedge ratio is now back within our target range at 95% (June 2017: 109%) and we continue to look for opportunities to lock in favourable rates for the Group going forward. The weighted average cost of debt for the year has decreased to 5.2 per cent (FY17: 5.5 per cent) as we draw down on new lower cost debt and older, higher cost hedges continue to expire. We have extended our weighted average debt maturity further to 6.2 years (from 5.5 years as at 30 June 2017) as we continue to take advantage of our ability to source longer dated funding across a variety of debt capital markets.
Interest cover has remained stable at 4.8 : 1 (30 June 2017: 4.8 : 1).
|BALANCE SHEET ($M)||FY18||FY17||Change %|
|Real estate assets:1|
|Other assets||760||701||8.4% ↑|
|Interest bearing loans and borrowings||3,938||3,529||11.6% ↑|
|Retirement Living resident obligations||2,741||2,629||4.3% ↑|
|Other liabilities||2,236||1,410||58.6% ↑|
|Net assets/total equity||10,376||9,927||4.5%|
1 Includes non-current assets held for sale, inventory, investment priorities, equity-accounted investments and certain other assets.
The value of the Commercial Property investment portfolio has increased by $344 million to $10,599 million primarily due to net valuation uplift (up $143 million including equity-accounted joint venture investments) and capital and development expenditure of $421 million, partially offset by the $172 million of disposals including 77 Pacific Highway (NSW) and Stockland Wallsend (NSW).
Valuations for the Retail Town Centre portfolio were mixed, with a net $61 million reduction. This is primarily due to more conservative rental growth assumptions and capitalisation rate expansion at some of our non-metropolitan retail town centres, particularly in central and north Queensland where economic conditions remain soft. Our Logistics and Workplace portfolios delivered valuation gains of $117 million and $83 million respectively during the period driven by rental growth and continued capitalisation rate compression across several assets. Valuation gains across the portfolio saw our weighted average capitalisation rate reduce marginally from 6.2 per cent to 6.0 per cent.
The increase in capital and development expenditure predominantly reflects continued investment in the Logistics development pipeline including the redevelopment of Willawong (Qld), Ingleburn (NSW) and Yennora (NSW).
Residential assets, which represent mainly land under development, increased to $3,432 million at 30 June 2018 as we successfully re-stocked our portfolio through land acquisitions including land previously acquired on capital efficient terms settled during the year and new capital efficient acquisitions entered into during the year.
New capital efficient acquisitions in FY18 were made through put and call options, whereby an asset and a corresponding liability included within other liabilities, relating to future payments for this land which results in a nil Net Funds Employed impact until some future point if and when the options are exercised. By way of example, the 2018 operating cash flows include cash payments for land acquisitions 66 per cent of which had been bought under capital efficient terms, in locations which have seen strong capital appreciation in the time since the original contract was signed. In the same way, a large portion of the options booked this year relate to the Sydney market, which remains fundamentally undersupplied for new housing land. This includes a contract for land at Marsden Park (NSW) signed in December 2017, payments for which will only commence in 2020 and under the option agreement extend out as far as 2024.
We maintained a disciplined approach to development expenditure and finished goods levels remain appropriate. Excluding acquisitions, the underlying asset value of Residential has fallen, because of the significant settlements of 6,438 recorded during the year.
The value of the Retirement Living real estate related assets, net of resident obligations, was $1,426 million, an increase of $207 million from June 2017. This primarily reflects capital expenditure on the development pipeline at Birtinya (Qld), The Residences – Cardinal Freeman (NSW) and Willowdale (NSW), fair value uplift on the Retirement Living portfolio, partly offset by an increase in resident loan obligations created on first sales of development units.
Total debt increased by $409 million to $3,938 million at 30 June 2018 as a result of increased operating activity during the year funded by the drawing down of bank debt.
New US private placement notes equivalent to $286 million were issued with tranches of between 10 and 15 years. In addition, a $478 million Euro bond and a $51 million Asian bond were executed in the year to replace maturing US private placement facilities. The new notes which broaden our funding sources were issued at a competitive rate and demonstrate continued strong support from debt investors and acknowledgement of our robust credit profile. During the year, Stockland repaid USD 204 million ($311 million) US private placement notes on maturity.
|CASH FLOWS ($M)||FY18||FY17||Change %|
|Operating cash flows |
(excluding payments for land)
|Payments for land||(496)||(283)||75.3% ↑|
|Investing cash flows||(426)||(380)||12.1% ↑|
|Financing cash flows||(207)||(511)||59.5% ↓|
|Net change in cash and cash equivalents||95||30|
|Cash at the end of the period||333||238|
Net operating cash inflows (excluding payments for land) increased as a result of $81 million higher property development sales revenue. Despite 166 fewer residential lots settled compared to FY17, the average price per lot increased due to a change in product mix to NSW and Qld. In addition, $50 million was received relating to deferred settlements, offset by $91 million lower net receipts from Retirement Living residents due to lower turnover events.
Payments for land have increased significantly driven by deferred settlement payments for acquisitions made in previous years and a number of payments relating to strategic acquisitions to restock the portfolio. These capital efficient purchases are expected to deliver strong profit margins given capital growth since contract signing.
Net cash outflows from investing activities reflect our continued commitment to growing our asset base and mainly comprises payments for and development of Commercial Property investment property assets of $463 million, with the largest individual contribution relating to development at Green Hills. Investment in Retirement Living totalled $213 million with main villages including Cardinal Freeman (NSW), Willowdale (NSW) and Birtinya (Qld). Investing cash inflows includes $25 million return of capital received from our investment in BGP (FY17: $71 million final dividend from BGP) together with proceeds from sale of investment properties of $278 million (FY17: $74 million). A further $65 million of contracted investment property sales is due to complete post year end.
Net financing cash flows reflect the net proceeds from borrowings to fund acquisitions and development expenditure, offset by dividends and distributions paid during the year.
In the current year, Stockland issued 16,069,134 securities (FY17: 26,357,840) under the DRP. The DRP security price for the 30 June 2017 distribution was determined by the average of the daily volume weighted averages over a 15-day trading period and applying a 1.0% discount.
On 21 February 2018 we announced the suspension of the DRP in respect of the half year distribution for the six months ended 31 December 2017. On 22 May 2018 we announced the continued suspension of the DRP in respect of the 30 June 2018 distribution. On 23 August 2018 we announced the termination of the DRP.
The dividend and distribution payable for the year ended 30 June 2018 is 26.5 cents per security. Our distribution policy is to pay the higher of 100 per cent of Trust taxable income or 75 – 85 per cent of FFO.
The distribution for the full year comprises:
|Corporation dividend, fully franked||-||-|
Registers closed at 5.00pm (AEST) on 29 June 2018 to determine entitlement to the year end dividend/distribution, which will be paid on 31 August 2018.