By David Winning
SYDNEY--Stockland said its annual profit fell by 70%, as its residential property division grapples with longer settlement times for sales.
Stockland reported a net profit of 311 million Australian dollars (US$210.8 million) for the 12 months through June, down from A$1.03 billion a year earlier. The result reflected "non-cash adjustments arising from devaluations in our retail town center and retirement living portfolios, a retirement living goodwill writedown, mark-to-market on financial instruments and a tax expense change," management said.
Funds from operations, the company's preferred measure of ongoing operating profits, rose by 4% to A$897 million. Funds from operations per security lifted 5.1% to 37.4 cents, broadly in line with guidance.
Stockland forecast flat growth in funds from operations per security in fiscal 2020, and the same for its annual distribution. "Our distribution payout will be at the bottom end of our 75-85% target ratio," Chairman Tom Pockett said.
Stockland has faced pressure on multiple fronts over the past year, with falling house prices and tighter lending criteria affecting the performance of its residential property business and slack wages growth and the growing popularity of e-commerce weighing on its portfolio of shopping malls.
Still, Stockland's shares have recovered sharply since the developer's first-half result in February as investors began to bet on reductions in interest rates that would support demand for property. The reelection of the Liberal-National coalition in May also boosted the stock by eliminating a threat of an overhaul of tax breaks on investment properties.
Australia's central bank reduced interest rates in June and July, and industry surveys suggest these moves are helping to stem the slide in house prices. Recent auction data in Sydney have been stronger than for some time, although the spring selling season is key for setting expectations.
Stockland has cautioned that the impact of the housing downturn will be felt for some time yet, even if sentiment has begun to recover. Management said earlier that lower residential sales between January and June will have an impact on settlement volumes this fiscal year.
"We are well positioned to benefit from an improving market, however we expect conditions to take some time to normalize as customers continue to experience challenges achieving loan approvals," Chief Executive Mark Steinert said on Wednesday.
Some analysts are concerned that Stockland is exiting the downturn in worse shape than peers such as Mirvac Group. UBS last month warned that investors weren't taking into account a material shift in the composition of Stockland's residential earnings, as volumes reweight toward Victoria state from neighboring New South Wales where profit margins have been stronger.
Like many property developers, Stockland has been attempting to overhaul its real-estate portfolio to strengthen its balance sheet and protect earnings.
The March sale of malls in two suburbs of Brisbane in Queensland state for a combined A$143 million helped the company to beat a target for A$400 million in asset sales by the end of June next year. Stockland said it has so far sold retail assets worth A$505 million.
Last month, Stockland also agreed to sell a 50% stake in its Aura residential project in the Sunshine Coast at a 30% premium to book value.
"These initiatives are enabling us to accelerate our workplace and logistics development pipeline, which now exceeds A$2 billion, and the re-stocking of our residential landbank to position us effectively for the future," Mr. Steinert said.
-Write to David Winning at email@example.com