Stockland raises pressure on Australand

Australia's largest residential developer Stockland has raised the prospect of a guidance-beating full-year result as it ramps up the rhetoric against its uncooperative takeover target Australand.

Yesterday at its third-quarter earnings update Stockland again tightened its full-year earnings per share guidance to 6 per cent growth — at the top end of its previous range of 4 per cent to 6 per cent.

Stockland chief executive Mark Steinert left open the possibility of changes to Stockland’s $2.4 billion scrip bid for Australand by again refusing to rule out increasing either the merger terms or adding a cash component by selling assets to a co-investment partner.

“We have to look at our obligation to our shareholders in delivering the earnings accretion and the enterprise value accretion and making sure we maintain our A-1 credit rating and that we create a great combined business, and to the extent those things line up we keep an open mind.”

Stockland is maintaining a hard line publicly on the pricing of any deal. “But just because we have debt capacity, that wouldn’t give us any inclination to make a proposal at a higher price,” Mr Steinert said.

He also said it was possible that over time greater synergies could be achieved through the merger than the $15m Stockland pitched in its initial proposal. “We think there are a lot of good people at Australand. There may be some additional synergies beyond year one,” he said.

Buoying Stockland’s guidance was a strong quarterly result in its residential business, which achieved 1500 net deposits for the three months to March, led by the strongest result in Queensland since the first quarter of 2011.

Mr Steinert said the group was on track to settle slightly more than 5000 lots over the 2014 financial year, thanks to strong sales in its NSW estates.

“If Calleya (in Perth) was to come in with all the expected settlements then it would likely translate to earnings per security growth being a bit higher,” he said.

Stockland indicated it may top expectations of 5 per cent growth in EPS in 2015. It is now scaling up to be capable of producing and settling over 6000 lots in 2015 if the market remains strong, Mr Steinert said. “Anything around 6000 would take our growth rate above the broader targets,” he added.

A soft point in the results was the company’s retirement business, with Mr Steinert saying Stockland would now look to recalibrate its expectation of returns from the business.

Mr Steinert reiterated the company would not sell off its retirement business.

Stockland closed unchanged at $3.89, taking the value of its takeover proposal for Australand to just over $4.30 per share, up from an initial value of $4.20 and just ahead of that group’s $4.28 close.