Stockland earnings come up short

INVESTORS took the red pen to the property developer and manager Stockland Group yesterday after it reported a fall in net profit for the December 2011 half.

INVESTORS took the red pen to the property developer and manager Stockland Group yesterday after it reported a fall in net profit for the December 2011 half.

Although some of the 8 per cent drop was due to timing issues from settlements on residential properties last year, it also reflected the tough conditions being felt in its core areas of retail, residential and retirement property sectors.

Before one-off items of asset sales and an $85 million paper loss from financial derivative hedges, the statutory profit was down 28 per cent to $307.6 million. The shares fell 6? to $3.21 yesterday.

Due to a share buyback and money from house sales completed last year, the group forecast a stronger second half, but said overall the full-year earnings would likely be unchanged from the 2011 financial year, with a full-year distribution of 24?.

Its core residential development profit fell 8 per cent as earnings before interest and tax margins fell from 29 to 27 per cent, although lot prices per square metre were up.

The group says first-home buyers are active across all its project and prefer the smaller homes that Stockland now offers.

Real estate analysts said the result was below their consensus and many said they will now review their numbers for the full year.

Bank of America Merrill Lynch analysts said the result was 3.9 per cent below their forecasts, reflecting a greater than expected earnings skew to the second half, driven by slow residential sales in the first quarter.

Stockland's managing director, Matthew Quinn, told investors that he expected conditions to remain challenging with credit markets tightening, the economy under pressure and tough property markets.

"Our strategic focus on affordable products for the mass market segment and reweighting our recurring income portfolio from office and industrial assets to higher yielding and less volatile retail assets, provide resilience and opportunities for future growth," he said.

The retail division was under pressure, with incentives rising in lease contracts to attract tenants.

Jonathan Kriska from Patersons said there were notable drops in comparable net operating income [rent] growth for office, down 2.1 per cent, and retail down 2.3 per cent, reflecting the weak Sydney office market and deteriorating retail conditions.

Operating profit for Stockland's retirement business was flat. Mr Quinn confirmed he had not had any discussions concerning his 14 per cent strategic stake in FKP Property.

AT A GLANCE

Half-year 2011 2010

Revenue $1.31b $1.53b

Profit $350.8m $380.8m

EPS 14.9? 16?

Dividend 12? 11?

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