Stockland 1Q16 Market Update

Stockland has reported strong performance across all key business areas in the first quarter of FY16 and is on track to deliver underlying earnings per security growth of 6 – 7.5% and FFO per security growth of 8.5 – 10% for the year, assuming no material change in market conditions.

Residential sales remained robust with a further 1,557 net deposits for the quarter, with project release timing in Sydney influencing the NSW result. First quarter deposits combined with the deposits already on hand at the end of FY15, total 5,299. The majority of these will settle in FY16, with the balance in FY17.

Managing Director and CEO Mark Steinert said the group was very well placed to achieve its target of around 6000 residential settlements this year.

“This result provides a high level of confidence for our earnings outlook this financial year and confirms that the markets where we operate remain healthy, underpinned by 73% owner occupier demand,” Mr Steinert said.

“Residential markets around the country are at different stages, however, our active projects are generally well placed in high demand, low supply corridors. We also offer a clear affordability advantage, coupled with our reputation for creating desirable, liveable communities.

“In line with our previous commentary, we expect markets in Sydney and inner Melbourne will moderate with a more normalised level of growth. Brisbane is showing improvement, Melbourne growth corridors remain sound and Perth has continued to slow as anticipated.

“We remain confident we are well placed for these conditions and will continue to capitalise on strong demand for our differentiated and affordable offerings. Our new projects continue to strengthen our returns with operating profit margins over 14%.

“We are also starting to see the benefits of our strategy to broaden our market reach with our medium density offerings and completed homes selling well.”

Stockland launched two new residential projects in the first quarter which have both attracted a positive response from customers. Aura on the Sunshine Coast, the largest project in Australia under single ownership, has attracted over 900 leads since launching earlier this month. Stockland’s first stand-alone medium density project, Arve in Ivanhoe Melbourne, is already 80% pre-sold.

Stockland’s Retail business, the single largest contributor to the Group’s earnings, also continued to perform well in the quarter with comparable specialty sales up 2.8% on the prior corresponding quarter, and comparable specialty moving annual turnover up 4.2%. Total MAT was up 4.8%. 

The strongest performing categories were communication technology, food catering, retail services and homewares. 

Mr Steinert said Stockland’s substantial retail development program was progressing very well with flagship project Wetherill Park in Sydney, on track to open ahead of schedule before Christmas, reflecting a 7.3% stabilised FFO yield and 14% incremental IRR.

“Our development program overall is progressing on time and in line with feasibility,” Mr Steinert said. “Point Cook opened during the first quarter and is fully leased, H&M will open at Glasshouse in the Sydney CBD this month, ahead of schedule, and Harrisdale in WA is leasing well and on track to open in the second half of FY16.” 

Stockland continued to grow its Logistics and Business Parks portfolio in the first quarter with the acquisition of an asset at Eastern Creek in Sydney on an 8% initial yield. Development of new buildings at the Oakleigh Distribution Centre in Victoria is now underway. 

The performance of the Office portfolio is benefiting from Stockland’s strong weighting to Sydney. Around 65% of the portfolio is now located in the Sydney market, following the settlement of its 50% share in Waterfront Place and Eagle Street Pier in Brisbane during the quarter. 

Retirement Living delivered a strong first quarter with both established and development reservations substantially higher than the same period last year, reflecting a successful sales campaign.

“The continued growth of our Retirement Living returns is underpinned by development. In the first quarter we commenced construction on our new village at Willowdale in Sydney which will launch in 2Q16,” Mr Steinert said.

“Cardinal Freeman, in Sydney’s inner west, continues to sell very well with over 85% of the first two buildings released now reserved, ahead of forecast. These are due for completion in the fourth quarter of FY16.”

The Retirement Living business is expected to have a stronger than usual profit skew to the second half, due to the timing and mix of sales.

During the quarter, Stockland received substantial recognition for its sustainability and operational excellence initiatives. Stockland was recognised as the most sustainable real estate company in the world in the Dow Jones Sustainability Index and also received the top ranking for a diversified property group in the region in the GRESB survey. The group also won the CIPS Australasia Award for best procurement process improvement and was the winner of the NSW Government’s Green Globe Award for energy efficiency for the solar installation at Stockland Shellharbour.

Mr Steinert said the outlook for FY16 remained positive and he reconfirmed Stockland is targeting a full year distribution of 24.5 cents, assuming no material changes in market conditions.

“Our diversified portfolio continues to deliver growing returns for our investors, with a strong foundation of recurring income from our Commercial Property portfolio, enhanced by good growth in our Residential business and continuing improvement in Retirement Living,” Mr Steinert said.

“Our disciplined focus on implementing our strategy has enabled us to capture the opportunities in the market and improve the resilience of our portfolio, positioning us well through the cycle.”