Second-Half Skew to Prop Up Stockland Results

Australia's largest residential developer Stockland said it will meet guidance with the help of a second half skew despite its residential arm underperforming in the first half of the financial year.

The ASX-listed housing developer, led by Mark Steinert, announced its funds from operations fell 5.6 per cent to $384 million in the six months to December while statutory profit lifted 68.1 per cent to $504 million.

Stockland's residential operating profit margin fell to 17.2 per cent from 21.6 per cent a year earlier as it settled 2,158 home but said it will meet its full-year target of 5,200 homes before the end of the financial year.

Stockland's residential property and retirement portfolios helped the developer deliver a 68.1 per cent increase in profit to $504 million.

Stockland also increased the market share of its residential business from 15 per cent to 16 per cent over the six months to December.

▲ Stockland specialises in building master-planned townhouse communities near rail corridors, as well as retail, office and logistics properties. Image: Stockland's head office designed by BVN

The company's workplace and logistics pipeline accounts for 26 per cent of its portfolio by asset value, doubling in value from $2 billion a years ago to $4.3 billion currently.

Stockland completed $1.2 billion worth of new logistics and workplace developments over the period accounting for approximately 45,000sq m being brought online.

Steinert said the decline in residential earnings was impacted by the timing of project completions and the coming upturn was equally clear in an improving residential market.

“Broader market fundamentals remain supportive for our business, with a continued low interest rate environment, strong population growth, increased infrastructure investment and low unemployment.

“We are well positioned to take advantage of the improving residential cycle, deliver a series of exciting new workplace and logistics developments, and to deal with structural changes in the retail sector.”

Stockland's commercial arm delivered $308 million, down 1.7 per cent with the company highlighting it would continue to divested non-core retail properties due to the tough retail environment and re-weight its portfolio towards workplace and logistics.

“The REIT reported negative average rental growth in its retail segment, and expects this weakness to continue over the next 12-18 months as it continues to update its tenant mix,” Moody's commented on Stockland's results.

“The segment was also impacted by a higher-than-normal number of tenants going into administration.”