Looking at the results of leading property groups and those recent trading updates from three major banks, plus the full year figures of the Commonwealth, one common factor emerges.
That is the way the absence of bad debts and lower loan loss provisions in 2010 have been a major factor in producing better profits (or a return to profits in the case of the property groups).
Trading conditions have been more confident for both sectors than a year ago, but not dramatically so.
In fact the banks have helped finance any improvement in demand for property, especially residential in the 2010 year.
As well, for property groups with retail in their portfolios (such as Stockland, Westfield, and yesterday’s major reporters in Mirvac and GPT), the subdued trading conditions in the June half have been quite different to the stimulus-driven back half of the 2009 financial year.
All in all, the property sector is back in the black in a substantially better way than a year ago.
The results from Stockland earlier this month and from CFS and Commonwealth Property last week confirmed the turnaround, as did yesterday’s 12 month report from Mirvac and the interim from GPT.
Both companies were among those most deeply scarred by the downturn and financial crunch, they were forced to ask shareholders on at least two occasions for massive capital injections, changed their payout policies (along with all property and infrastructure groups) and went for conservative growth projections.
GPT had the added burden of being in bed with some ill-timed joint ventures with Babcock & Brown, which the group said yesterday were now behind it.
But now the sector should settle down to being low growing property utilities, shorn of leverage and debt driven growth strategies.
GPT told the ASX yesterday that not only had it improved earnings, but it had signed a new funding deal, and was lifting profit guidance for the full year.
The group’s securities rose 3%, or 11c, to $3.02 yesterday as a result.
That was in a market off more than 1% on the day and looking sour.
GPT said it earned an after tax profit of $145.2 million in the first six months of 2010, compared with the $1.196 billion loss in the prior corresponding period, which was due to asset impairments and write-downs.
The property trust said realised operating income increased 12.5% to $205.8 million.
GPT said the difference between the group’s underlying realised operating income of $205.8 million and the statutory net profit of $145.2 million reflected the impact of non-cash items, largely in movements in the valuation of financial instruments.
The company said realised operating income per ordinary security was 10.4c for the six months to June 2010 and the cash distribution will be 7.6c per ordinary security.
GPT chief executive Michael Cameron said the company had moved swiftly through the stabilisation phase and now had the business focused on Australia.
"In the first half of this year we completed a security consolidation, established new debt lines, grew our wholesale funds and increased our focus on driving returns from the business," Mr Cameron said in yesterday’s statement.
"As a result of the significant progress made on non-core divestments, the asset sale program is largely complete and the core Australian portfolio now represents over 90 per cent of investments."
Mr Cameron said the Group’s near term aim was to achieve average earnings per security growth of the consumer price index plus 1% a year over three years, with long term results providing a total return of more than 9%.
"We have increased guidance for 2010 and expect realised operating income to exceed $400 million with a distribution of at least 15.9 cents per ordinary security (assuming post consolidation for the full year)," he said.
GPT also said that it had secured commitments for three new bank bilateral facilities, totalling up to $800 million.
"All facilities will be in place by October 2010 when the first tranche of GPT’s bank syndicated facility matures. This tranche will not be refinanced.
"Up to $200 million of the total extends an existing bilateral facility maturing in September 2011," the company said.
GPT is planning to cut its 33% stake in the $5.1 billion funds with the aim of eventually owning 20% of the wholesale office and retail trusts it manages on behalf of major super funds and institutional investors.
Mr Cameron said that to reach the target, GPT may sell some of the stake, and may not participate in the distribution reinvestment plans or in capital raisings.
And rival group Mirvac Group says it rebounded to a full year profit and is forecasting "strong growth" in 2010-11.
The Sydney-based group revealed in its filing with the ASX yesterday that net profit was $237.4 million for the 12 months to June 30, compared with a $1.08 billion loss in the prior year. (Like GPT that loss was driven by asset impairments and write-downs.)
The group’s securities rose half a cent to $1.31 in early trading, but then lost that half a cen
