Strategic priorities
 
  • Maintain a strong balance sheet to support future growth
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  • Maintain diverse funding sources
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  • Maintain disciplined capital allocation
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FY18 progress
 
  • Maintained S&P A-/stable credit rating for 17 years and Moody's credit rating of A3
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  • 22.2% gearing remains within our target range of 20 - 30% 
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  •  Reduced average cost of debt to 5.2% for FY18
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  •  Increased our access to diverse funding sources
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  •  66% of land payments made relate to land purchased on capital efficient terms
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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

BALANCE SHEET ($M) FY18FY17Change %
Cash333 238 39.9% ↑
Real estate assets:1 

  • Commercial Property
10,599 10,2553.4% ↑
  • Residential
3,432 2,45339.9% 
  • Retirement Living
4,167 3,8488.3% ↑
Other assets760 7018.4% 
Total assets19,291 17,945
Interest bearing loans and borrowings3,938 3,52911.6% 
Retirement Living resident obligations2,741  2,6294.3% ↑
Other liabilities2,236  1,41058.6% 
Total liabilities8,915  7,568
Net assets/total equity10,376  9,9274.5%

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 

CASH FLOWS ($M)FY18FY17Change %
Operating cash flows 
(excluding payments for land)
1,224  1,204 1.7% ↑
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 equivalents95  30 
Cash at the end of the period333  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.

 

Equity

Distribution/Dividend Reinvestment Plan (DRP)

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. 

 

Distributions

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:

Stockland (cents)FY18 FY17
Corporation dividend, fully franked
 - -
Trust distribution26.525.5
Total dividend/distribution26.525.5

 

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. 

 

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Find out more

For more information see our Annual Report 2018.

 

Tax strategy - our approach to tax

Stockland’s tax strategy is to conduct all its tax affairs in a transparent, equitable and commercially responsible manner, whilst having full regard to all relevant tax laws, regulations and tax governance processes, to demonstrate good corporate citizenship.

Consistent with the Board approved low tax risk appetite, Stockland maintains a low tax risk profile to ensure we remain a sustainable business and an attractive investment proposition, in both the short and long term.

Tax Control and Governance Policy Framework

Stockland maintains a Tax Control and Governance Framework (TCGF), reviewed and approved by our Board Audit Committee, which outlines the principles governing Stockland’s tax strategy and risk management policy.

Our Tax Control and Governance Framework is consistent with the guidelines published by the Australian Taxation Office (ATO) regarding tax risk management and governance processes for large business taxpayers.

We undertake periodic reviews of the TCGF to test the robustness of the design of the framework against ATO benchmarks and to demonstrate the operating effectiveness of internal controls to stakeholders.

The key principles of our TCGF are summarised as follows:

  • A tax strategy that ensures all tax affairs are conducted in a transparent, equitable and commercially responsible manner, whilst having full regard to all relevant tax laws, regulations and tax governance processes, to demonstrate good corporate citizenship;
  • A balanced tax risk appetite which is consistent with the Board approved risk appetite, to ensure Stockland remains a sustainable business and a reputable and attractive investment proposition;
  • A commitment to engage and maintain relationships with tax authorities which are open, transparent and co-operative, consistent with Stockland’s Code of Conduct and Ethical Behaviour policy; and
  • An operating and trading business based in Australia, with no strategic intentions of engaging in any tax planning involving the use of offshore entities or low tax jurisdictions.

Voluntary Tax Transparency Code

As part of Stockland’s commitment to tax transparency and demonstrating good corporate citizenship, Stockland has adopted the Australian Federal Government’s Voluntary Tax Transparency Code (TTC), which provides a set of principles and minimum standards to guide medium and large businesses on public disclosure of tax information.

Tax disclosures and information

For information and detailed reconciliations of Stockland’s tax expense, effective tax rate and deferred tax balances please refer to Section (B3) in the Annual Report 2018.


Tax contribution summary

As one of Australia’s largest diversified real estate groups, which owns, develops and manages commercial property assets, residential and retirement living communities, Stockland contributes to the Australia economy, through the various taxes levied at the federal, state and local government level.

For 2018 these taxes totalled more than $228 million, and were either borne by Stockland as a cost of our business or collected and remitted as part of our broader contribution to the Australian tax system.

The chart below illustrates the types of taxes which contributed to the taxes paid and/or collected and remitted for the 2018 year:

FY18 total tax contribution | Stockland Annual Review 2018

 

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