Stockland has experienced a $150 million dip in profits and expects earnings in the second half to fall as much as 12.4 per cent from a year earlier.
The ASX-listed developer reported a statutory profit of $350 million for the half year to December following a raft of revaluations across its commercial property and retail town centre portfolio.
The residential arm of the business, buoyed by government incentives and low interest rates, had its strongest half in four years.
Upwards of 3800 sales, up 53 per cent on the previous corresponding period, were completed over the six month period as it produced more lots and brought forward stages in its estate to capitalise on rising demand.
Residential settlements also jumped 43.7 per cent to 3101 as customers poured into estates and demand was spurred by government stimulus, with the company optimistic that buying will continue.
Settlement volumes were skewed in the first half to Queensland, Victoria and Western Australia, and the average operating profit margin remained stable at 17.4 per cent.
Residential property accounts for about one-third of Stockland's funds from operations.
Stockland now expects the roll out of vaccines and recommencement of global travel and international migration to drive settlements to more than 6000 lots across the year at an average margin of 19 per cent.
Outgoing chief executive Mark Steinert—who will be replaced by Tarun Gupta of Lendlease at the beginning of June—said the company's main focuses for the remainder of the financial year were to divest non-core assets, increase capital allocation to workplace and logistics, and restock its residential landbank.
“Despite the continued impact of Covid-19, our half year operating profit has exceeded that of the prior corresponding period, a period not impacted by the global pandemic.
“Business and consumer confidence is improving slowly, and growth opportunities are emerging which Stockland is well-positioned to pursue, especially in the restocking of the communities landbank,” Steinert said.
Stockland has continued to reweight the commercial property portfolio to balance its exposure between retail, workplace and logistics asset classes in order to maximise risk adjusted returns and improve longer term income growth.
Shopping centres were hit by the health crisis and funds from operation fell 9.9 per cent to $185 million.
Stockland called out the “significant improvement” in market conditions, including a return to close to pre-pandemic store opening and foot traffic levels, but noted some rental income, from a small number of retail smaller tenants, remains under pressure.
Last year its malls suffered from the pandemic, with significant falls in foot traffic, non-essential store closures and sharp sales declines in specialty stores.
The group collected 90 per cent of billings during the half year compared to 61 per cent over the six months to June 2020, while abatements for tenants halved from $29 million to $11 million.
The company divested $402 million of smaller regional centres, $185 million was reinvested back into investment properties, and has been pumping additional proceeds into its $5.9 billion office and industrial project pipeline.
This increased its weighting in workplace and logistics to 31 per cent of portfolio asset value, from 28 per cent six months prior.
During the period Stockland completed a number of site acquisitions including 110 Walker Street in North Sydney—where it has plans for a $500 million commercial tower, two logistics fund-through agreements to acquire developments at Truganina and Cranbourne West, and Logistics development sites at Leppington and Willawong.
Stockland said funds from operations—its preferred earnings measure—would fall to between 16.3¢ to 16.9¢ per security in the six months ending June 30 compared with 18.6¢ in the year-earlier period.