Stockland clears the decks
Diversified real estate investment trust Stockland has reported a 79 per cent drop in full-year earnings owing to impairments in its residential business.
However, the company is confident the worst of its restructuring is over.
The group is forecasting earnings growth of between 4 per cent and 6 per cent in the year ahead based on political uncertainty disappearing after the elections, better housing affordability thanks to lower interest rates, and a general improvement in the economy.
A write-down of $306 million on 13 residential projects slashed net profit to $104.6 million, from $487 million in the previous year. Excluding one-off items, the profit was $494.8 million, down 27 per cent from $676.1 million, which was marginally ahead of broker consensus.
The group, which focuses on retail, residential and retirement property development and management, kept the annual distribution at 24¢, to be paid on August 30.
Chief executive Mark Steinert, who joined the group in January this year, said 2012-13 was a "trough" year.
"This has been a challenging year and we have responded with a number of important strategic decisions that position our business for stronger future returns," he said.
"We significantly restructured the business to reduce costs and improve core processes and skill sharing.
"We reviewed our residential land bank to create a clear classification of 'core' and 'workout' projects, and also maintained our strong balance sheet and credit rating."
The retirement living sector generated operating profit of $38.3 million, up 6.1 per cent on the previous corresponding period. The group expects increased volumes in established villages and developments to support return on assets growth of about 8 per cent, although this would be tempered by cautious consumer sentiment.
Mr Steinert said the new residential estates at Willowdale, East Leppington and Marsden Park in Sydney would provide a boost to earnings in the second half of 2013-14.
The decline in Victoria and Queensland's housing markets, combined with an increase in settlements of low margin and impaired projects, also had an impact on earnings.
"Protracted market downturn and more conservative assumptions led to project impairments, but exit of these will accelerate recycling of capital," Mr Steinert said.
"We have a number of drivers for our forecast improvement in earnings for 2014, being the full year profit from the redeveloped malls in Shellharbour, Merrylands and Townsville, moderate market improvements in the general economy and the new residential communities.".
The group will maintain a small interest in the office sector, but asset sales of the Piccadilly Centre in Pitt Street and 135 King Street, Sydney, could take place if the price is right.
Stockland has about $1.5 billion earmarked for retail developments and is also committed to increasing its industrial portfolio over time.
Macquarie Equities analysts retained their underperform rating, saying that while encouraging signs had emerged for residential markets generally, the recovery remained patchy.
They also said working through impaired and low-margin inventories would keep margins under pressure.