Diversified real estate investment trust Stockland has reported a 79 per cent drop in full-year earnings due to impairments in its residential business, but remained confident the worst of its restructuring was over.
Based on uncertainty over the federal election ending in September, better housing affordability due to lower interest rates and a general uplift in the economy, the group is forecasting growth in earnings in the coming year of 4 to 6 per cent.
A write-down of $306 million on 13 residential projects slashed net profit to $104.6 million, from $487 million the previous year.
Excluding one-off items, the profit was $494.8 million, down 27 per cent from $676.1 million last time, 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 this year in January, called the 2013 financial year 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 landbank 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 growth in return in assets 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 the 2014 financial year.
The decline in housing markets in Victoria and Queensland, combined with an increase in settlements of low-margin and impaired projects, also affected 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," he said.
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 occur at the right price. Stockland had about $1.5 billion earmarked for retail developments and was also committed to increasing its industrial portfolio.
Macquarie Equities analysts retained their underperformance rating, saying that while encouraging signs had emerged for residential markets generally, the recovery was patchy and working through impaired and low-margin inventory would restrain margins.
"Investment into the industrial sector and retail development projects faces the risk of generating inadequate returns," analysts said.