STOCKLAND has become the latest victim of the weakening housing market after it was forced to issue a 3.5 per cent, or $32 million, earnings downgrade for the year to June 30.
Investors were swift to react with the shares sold down 4 per cent amid concerns that residential market conditions may get worse before they improve.
Stocklands full-year earnings per security forecast has fallen from 31.6? to 30.5?.
Bank of America Merrill Lynchs analysts said while Stocklands downgrade was small, the sentiment impact is large given market commentary surrounding residential.
Stocklands chief executive, Matthew Quinn, blamed the action on lower residential settlements stemming from slower sales and weather delays.
The brokers said a more telling aspect was that the move represented a 13 per cent downgrade to the residential portfolio earnings, which is a main plank in Stocklands three R strategy of retail, residential and retirement.
Morningstars head of property research, Tony Sherlock, said that while he believed there was scope for further softness, the bigger question is how long will this last, particularly given the RBAs reluctance to cut rates with inflation and unemployment both apparently in check.
While the remaining parts of Stockland appear sound, we are not forecasting a material recovery in the residential division for at least 18 months, he said.
Mr Quinn said he made the decision to inform investors of the small downgrade as it related specifically to one business unit and as a percentage of that unit it was considered material.
He said that continuous disclosure requirements were more onerous because of Stocklands active share buyback scheme.
When we provided [earnings] guidance in February we noted that it was dependent on residential conditions at the time continuing. Unfortunately the residential market has deteriorated since banks lifted interest rates independent of the RBA and March sales have been lower than expected. The revised guidance assumes sales will continue to be slow for the balance of the financial year. Severe wet weather in the Illawarra has delayed production and also pushed settlements into the 2013 financial year.
Analysts issued warnings that they will be reviewing their forecasts, saying the downgrade in housing comes amid the weakness in retail.