Stockland sent a shiver through the property sector yesterday with another sharp downgrade involving more than $400 million in new asset impairment charges and lower profits.
But in the end the collective nerves held and losses were small.
Stockland securities fell more than almost 6% to $3.05, a drop of 19c on the day. The fall accelerated in afternoon trading
With the overall market up 2% or thereabouts yesterday, Stockland’s fall and the generally easier tone about other property groups was judgment enough.
Stockland was forced to slash its earnings outlook by up to 70% because of the new round of asset value write-downs and the volatile national housing market.
It also has strategic stakes in three competitors: 13% in GPT, 15% in FKP and 13% in Aevum. These holdings continue to be hit as their respective prices tumble.
In a third quarterly update, Stockland’s managing director, Matthew Quinn, said there would be close to $400 million taken off asset values through what he termed "inventory impairments" .
In addition, the weakening office market, where rents are flat and vacancies are rising, has led to a "valuation decrement" in the order of $650 million to $700 million for Stockland’s office sector
Stockland lowered its 2009 earnings per security forecast to $0.39 before inventory impairment.
That will fall to an estimated 10c a security after more than $350 million in fresh impairment charges here and in the UK and a $60 million fall in pre tax profits in the one part of the business doing reasonably well, its residential division.
Stockland said the new inventory impairments would total $350 million to $400 million, and it revised its earnings guidance down to 10 cents per share, post-inventory impairments.
Stockland managing director Matthew Quinn said current operating and capital market conditions were "challenging and we will continue to manage our business prudently through the downturn".
"As such, we have conducted a rigorous review of our business operations and carrying values, adapted our strategy in response to the changing market dynamics and revised our future distribution policy," Mr Quinn said in a statement to the ASX.
"Our continued focus on the property fundamentals of sales, management and leasing will ensure we are well positioned for an even more profitable future."
Mr Quinn said Stockland’s residential sales performance has remained "extremely strong, particularly due to first home buyers".
In a presentation to the ASX, the company said:
"The first home buyer (FHB) market still very buoyant and is likely to further strengthen pre 30 June following the Govt’s announcement of likely end to First Home Owners Boost.
"The second home buyer market improving thanks to lower interest rates, improving affordability and sentiment. The First Home Buyers’ support for established market allowing owners to trade up.
"But the top end of market still very soft. There is early signs of investors re-entering market, thanks to low interest rates, increasing rents, improving yields.
"But super lots / project disposals very challenging as buyers struggle to obtain finance."
The company said its commercial property business was on track to achieve its full-year profit targets and 4% to 4.5% rental growth.
Economic conditions had deteriorated further and Stockland would not be beginning any new projects in the UK.
It would take an additional $100 million to $120 million impairment in the second half and would also write off $33 million in goodwill.
The UK division would continue to break even next year.
Stockland said it had a sound capital position, with gearing of 38.9% and net tangible assets per security of $4.10.
Stockland said earnings per security after inventory impairments would be 10c, compared with the guidance of 31.8c given in February in the company’s first-half results.
Before impairment, the earnings guidance was 46.7c a security (down to 31.8c after impairment, now higher).
Stockland maintained the guidance for its full-year distribution at 34c, approximately equal to the trust taxable income.
