Heavy winds flatten Stockland's growth prospects

Stockland managing director Matthew Quinn said investors in the diversified property developer could have to wait as long as 2010 before profits returned to a historic average of at least 5%. "We are budgeting for a nominal increase in earnings per security in 2008-09, but it is going to be tough and we are assuming that market conditions do not deteriorate further," he said.

"Looking through the current cycle, we expect to achieve higher earnings-per-security growth from financial year 2010 onwards."

Stockland's net profit for the year to June 30 was $705.2 million, a 58.9% decline on 2006-07. Revenue for the period was also weaker, down 19.5% to $2.684 billion.

The 2006-07 profit result was boosted by an $800 million increase in the value of property held in Stockland's portfolio, which includes commercial, retail, office and residential property. In 2007-08, that portfolio only contributed $200 million to the bottom line.

Billions of dollars in shareholder funds have been burnt in the property sector over the past few months as the global downturn in credit markets and souring property valuations forced many listed property trusts to issue write-downs and painful profit downgrades.

Bearish outlook statements from sector leaders such as Lend Lease, GPT and Mirvac have led to plummeting prices for property stocks this year.

Stockland's shares fell 31, or 6.2%, to $4.68. They are down 44.4% for the year .

Mr Quinn said yesterday investors should focus on the company's operating profit excluding significant items, which rose 10.3% in 2007-08 to $674 million.

"We are very pleased with these results given the unprecedented volatility in capital and property markets over the past 12 months," he said.

"Our ability to deliver 5% growth in earnings per security in this environment is testament to the strength of our business model, the quality of our people and our long-term strategic focus."

Stockland declared a final distribution of 23.9 per security, up from 22.8 for the previous corresponding period, payable to shareholders on August 29. The total distribution for 2007-08 was 46.5, an increase of 5% on 2006-07.

During the year Stockland sold $787 million of commercial property. The proceeds were directed to paying debt, with gearing now at a sector low of 28.9%, and to fund the development pipeline.

Stockland's retail property business lifted its operating profit to $260 million for the year, while the office and industrial property business also increased its operating profit to $305.9 million.

The residential communities business had an operating profit of $326.1 million.

"We remain of the view that the medium-term prospects for the Australian residential market are favourable due to high immigration and significant supply constraints," Mr Quinn said.

Its British operations posted a lower than expected operating profit of $11.6 million due to poor market conditions.