Land developer and mall operator, Stockland faces a cut in second half earnings even though it has seen a rise in housing settlements that has helped underpin earnings and its retail town centres bounce back from the pandemic.
The Sydney based company has cut interim distribution to its investors by more than 16% and it is looking at a smaller payout for this half and the full year.
Stockland on Thursday reported a statutory profit of $350 million for the half year to December, down from $508 million for the December 2019 half year.
The company revealed that it was reestablishing full year guidance and would pay a half-year distribution of 11.3c a security fully covered by cash flow.
The interim payout was down from the 2019 December figure of 13.5 cents a security.
The lower distribution was despite a small rise in Funds From Operations (FFO) in the half to 16.2 cents a security. FFO is the key measure for performance for investors in the real estate trust and investment company sector.
Stockland’s optimism about the future and the restoration of guidance came despite is revealing earnings in the current second half would fall as much as 12.4% from a year earlier.
Stockland said funds from operations – its preferred earnings measure – would fall to between 16.3¢ to 16.9¢ a security in the six months ending June 30 compared with 18.6¢ in the year-earlier period, as residential property picked up even while commercial property remained challenged.
It said FFO for the year would be in the range of 32.5 cents and 33.1 cents a security. That would be down on the 34.7 cents in 2019-20.
The company withdrew guidance it at the onset of the pandemic last year and its decision to restart it is a sign of renewed confidence in the future for the sectors it operates in.
CEO Mark Steinert said in Thursday’s statement “Despite the continued impact of COVID-19, our 1H21 operating profit has exceeded that of the prior corresponding period, a period not impacted by the global pandemic. FFO was up 0.4% to $386 million and FFO per security grew to 16.2 cents, 0.6% stronger than the first half of FY20,” said Mr Steinert.
“Our Residential business performed strongly, with over 3,800 sales, representing the strongest half in over four years, in part supported by increased production and the bring forward of stage releases to capitalise on strong demand. Residential settlements of 3,101, up 43.7% on 1H20, reflect our agile response to market movements, customer preference for masterplanned communities and demand driven by government stimulus.
“We have over 4,800 contracts on hand at 31 January 2021 and are on track to achieve over 6,000 settlements in FY21.
“Statutory net profit of $350 million includes net positive Commercial Property valuations and external revaluations of the entire Retail Town Centre portfolio. This result demonstrates the quality of our diversified core assets, the positive impact of our remixing strategy across our investment property portfolio and our commitment to maintaining a stakeholder-centric business model.
“Across the Retail Town Centre portfolio, 100% of properties were externally valued, realising a 1.7% devaluation of $104 million. In the Logistics portfolio 67%1 of properties were externally valued, realising a 5.5% increment of $157 million. And in the Workplace portfolio, 70% of properties were externally valued, realising a 2.7% decrement of $28 million,” he said.
The CEO said the distribution for the full year “is expected to be within our target payout ratio of 75% to 85% of FFO, albeit at the lower end of the range.”
The company’s total distribution for 2019-20 was 26.4 cents a security. So at best Stockland will go close to matching that if residential sales remain buoyant, or fall a bit short if they are not.
The securities fell 3% to $4.39.
