Australia’s major residential developer, Stockland Holdings has attempted to reassure investors that the slowing pace of growth in home loan approvals and housing finance and the recent wet weather, hasn’t hurt the company.
But there was a large hint at yesterday’s AGM in Sydney that investors should expect a weak December half, although the company claimed in a release that it still expected "positive per security growth" for the December half year.
But investors were nevertheless warned of an "earnings skew" to the second half caused by delays and the wet weather.
That means revenue and earnings that had been budgeted for in the six months to December, now won’t appear in Stockland’s books until the June half.
A number of analysts and property investors have been wondering how Stockland was feeling the impact of the slowdown in demand for new homes and the wet weather, especially in Queensland, NSW and Victoria in the past two months.
The company also revealed the slowdown would impact its retirement business as well, where it is in the process of completing the takeover of smaller rival, Aevum.
Stockland told securityholders at its AGM in Sydney that its residential business has posted a record quarterly sales result and confirmed it is on track to achieve its FY11 guidance of 7% EPS growth.
Stockland said its residential business started FY11 with a record 2,249 contracts on hand and has achieved 1,767 net deposits for the three months to 30 September 2010, outperforming the national building approvals rate.
Stockland Managing Director Matthew Quinn told the meeting "We have outperformed the market, delivering a record Residential sales result for the quarter".
But Mr Quinn did acknowledge the impact of the increasing pressure on the sector, plus the wet weather "In a number of states" would "skew" earnings to the second half of the year.
And he also acknowledged that the record first quarter pace can’t continue, especially if the Reserve Bank lifts rates, as is possible in the next two months.
"We do expect broader residential market conditions to continue to soften and our sales results are not expected to continue throughout FY11 at the record levels of the first quarter, particularly if mortgage rates increase further.
"It is important to acknowledge that, following a rapid recovery in 2009, the residential market is now coming under pressure with interest rate rises impacting affordability.
"Further increases in bank variable mortgage rates remain the most significant threat to a sustained recovery and have led to concern about a downturn in the housing market," Mr Quinn said.
"However, as residential market conditions continue to soften, we do not expect our sales results to continue at their current levels.
"Further increases in bank variable mortgage rates remain the most significant threat to a sustained housing market recovery.
"Despite this, I am confident that our demonstrated ability to offer a variety of value-for-money products that cater for a range of buyer segments gives us the flexibility to meet this challenge," Mr Quinn said.
"We will have a high number of contracts on hand for some time, as we face production constraints due to wet weather in a number of States and registration delays with local councils.
"This is impacting on our ability to achieve titles and settle lots."
The production lag will also apply to Stockland’s Retirement Living business.
"These delays impact the Group’s ability to settle lots and will result in an earnings skew to the second half of the year, a release from the company said yesterday.
"Despite the earnings skew, the Group does expect to achieve EPS growth in the first half compared with the previous corresponding period and has confirmed its guidance of 7 per cent EPS growth for FY11."
Chairman Graham Bradley told the meeting that in 2011, "and going forward, we will pay out the greater of 75 per cent of our underlying profit or 100 per cent of our trust taxable income".
That’s a restatement of the new policy introduced a year ago and in tune with changes by other property groups to eliminate borrowing to pay investors distributions above what the company or trust actually earned in the relevant period (half or full year). Earnings will now come from what the group makes in profit each year.
Stockland shares rose before the meeting, peaking at $3.94; they closed down 2c for the day at $3.88 as the news of the "skew’ emerged from the meeting.
The wider market finished barely positive, closing a point higher on the day.
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