Just as rival Centro was nailing down its future (hopefully), its more viable peer, Stockland Holdings, was downgrading 2009 earnings guidance by a rather large 25%.
Lower earnings, returns and some big hits to asset values were the main drivers, especially in the UK and in the group’s residential division.
All up total asset value write downs of over $500 million (and as much as $555 million) were trundled out by the company in the market update.
The bulk of these in the development division, are below the line and won’t affect distributions, but they will hit asset backing at December 31.
And the company made clear it will sit on its stakes in struggling GPT, plus developers FKP and Aveum and do nothing except review them and participate in reviews by the groups concerned.
It has invested hundreds of millions in these three groups, for not much return. even for Stockland, that situation can’t continue for long.
And the company held out the possibility of a further cut in the 2010 financial year when a review of distribution policy is completed in the first half of 2009.
Directors indicated that it was possible distribution policy would be more aligned with operation earnings: a move most property and infrastructure players have been forced to move to because the market no longer likes debt and companies paying distributions from borrowings, no matter how tax-effective that might be.
Rival developer Mirvac was forced to move this way earlier in the year when its shares tanked on debt and stability concerns, while infrastructure players like Transurban were very early off the mark in aligning earnings with distributions.
The moves sent the Stockland Holdings share price to a day’s low of $3.30, 2c off its 52 week low, before the securities recovered in the afternoon to end off 3% at $3.53.
And another property group, Valad raised more than $138 million from the sale of assets in Australia, New Zealand and elsewhere. The money will be used to pay down debt.
Given that both Centro and Valad are stricken companies, the downgrade from Stockland was of greater importance to investors.
It is at least a fairly viable group, but under some earnings pressure, especially in the US.
Stockland cut 2009 earnings guidance 25%; from 46.7c a security to 35c, following write-downs in its residential (6.8c off earnings) and UK inventories (3.7c per security off earnings).
Both are savage hits, and taken with small costs for the stakes in Aveum, FKP and the $300 million funding move in October, it’s going to be a glum time for investors who have backed this property and retail mall giant through the crunch.
"We recognise that market conditions in Australia are getting tougher and we are managing our business prudently, with a strong focus on capital management to ensure we come through the downturn in sound shape," Stockland managing director Matthew Quinn told the ASX in a statement.
"We are also adapting our strategy in response to the changing market dynamics to ensure we maintain our position as a leading Australian property group, delivering high quality, sustainable returns to our security holders."
The company told the ASX that it had conducted a review of its business operations and asset carrying values as part of the determination of its estimated first half distribution/dividend and in light of current market conditions.
"Stockland’s underlying operating profit remains in line with previous forecasts, although there is downside risk if residential sales momentum declines. The previous forecast was for a nominal increase in EPS for FY09 to 46.7 cents.
"Stockland’s policy is to take inventory write-downs above-the-line in its net profit, which is used for determining its distribution/dividend."
The company said EPS would be cut to around 35c per security by the residential and UK inventory write-downs, combined with other adjustments post 30 June 2008.
Therefore, "Based on Stockland’s current policy of paying out 100% of Trust operating profits and 90% of Corporation operating profits, the estimated distribution/dividend for FY09 is 34 cents per ordinary stapled security.
"The timing of residential sales will result in a skew in profits to the second half of the year. However, Stockland will pay an interim distribution/dividend equal to half of the total estimate for FY09, or 17 cents per security.
"The record date for determining entitlement to Stockland’s interim distribution/dividend is 31 December 2008 and securities will trade ex distribution/dividend from 23 December 2008. Payment of the interim distribution/dividend will be made on 27 February 2009."
Stockland said it has proactively managed its refinancing risk since 30 June 2008 and all necessary debt refinancing for FY09 has been completed.
"Stockland continues to comply with all of its debt covenants and has approximately $1.1 billion of debt headroom, with circa $500 million of available committed facilities currently in place.
"The Stockland Board can confirm that while the current distribution policy will remain in place for FY09, the policy for FY10 and beyond will be reviewed in the first half of 2009.
"It is expected that this review will result in future distributions more closely aligned to funds generated from operations (AFFO).
"The distribution/dividend reinvestment plan (DRP) will be operational for the interim payment and will be underwritten to about 50% in addition to natural tak
