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Stockland warns of blow to earnings

5 Dec 2012 SYDNEY MORNING HERALD - CAROLYN CUMMINS COMMERCIAL PROPERTY EDITOR



STOCKLAND has issued another warning on the housing market's prospects, saying next year could see earnings come in at the lower end of current forecasts.

Tim Foster, Stockland's chief financial officer, who is awaiting the arrival next year of new chief executive Mark Steinert, said conditions, particularly in Victoria, had shown no improvement since October.

However, analysts said yesterday's 25 basis point cut in interest rates to 3 per cent would give home buyers a boost.

The chief executive of Raine & Horne, Angus Raine, said Christmas had arrived early for many home owners with mortgages, in the guise of Glenn Stevens and the Reserve Bank board.

"The savings generated by the rate cut will help ease the pressure on many families as they face up to the usual costs associated with the festive season," Mr Raine said.

But Mr Foster said for Stockland, unless the Victorian market improves soon, "which seems unlikely, underlying earnings per security [EPS] for the 2013 financial year will be at the lower end of our previously guided range of 10 to 15 per cent below 2012.

"EPS decline will be even greater in the first half, primarily due to a large skew to the second half in the residential business," he said at the group's quarterly update in Townsville.

"Our confidence that 2013 will be the low point in our earnings with improvement from 2014 is demonstrated by the decision to hold our 2013 distribution at 24? per security, even though this will be above our target payout ratio."

Mark Hunter, the group executive and chief executive of Stockland's residential business, said despite recent interest rate cuts and the reintroduction of first home buyers' grants in NSW and Queensland, market uncertainty and a lack of consumer confidence presented challenging conditions, which were particularly apparent in the Victorian residential market.

The head of research in Australia at CBRE, Stephen McNabb, also said while a lowering of interest rates was positive, an improvement in confidence in growth prospects for the non-mining economy was required before there is any defined recovery.

"Many of the indicators are still moving in a sideways direction. Rate cuts will support that, although it does appear to be a medium-term rather than short-term timing for a recovery," Mr McNabb said.

"If we strip out mining investment from headline GDP, the broader economy is growing at below its long-run average.

"The cash rate is being lowered to support a recovery in housing and commercial property building activity which has been notably weak in recent years."