Diversified developer Stockland has been hit with a dose of reality from the weak retail sector, sagging housing market and soft apartment values.
As a result, these factors helped trigger a near 70% drop in net profit for the year to just over $300 million from a because of mark to market write-downs and a tax charge.
And 2019-20 is shaping up as a low or growth year, according to the company, helping explain the near 7% slide in the market value of the company;’ securities to $4.29.
While funds from operations – a better measure for how real estate and retail trusts perform – rose 4% in the year to June, the company’s optimism about the underlying performance in 2018-19, obscured the weak outlook with little growth expected in 2019-20.
Stockland said it expected flat growth in funds from operations per security, which is a measure of profitability, in fiscal 2020.
The weaker retail sector was offset by strength in logistics and office rents (as other developers such as Mirvac and Dexus have pointed to).
While Stockland yesterday claimed residential had seen some signs of improvement since the federal election in May, it has been inconsequential compared with the sharp falls since 2017.
Stockland CEO Mark Steinert said in yesterday’s release “I’m pleased to announce our Funds from operators, the more accurate measure for real estate investment trust, per security growth for FY19 was in line with expectations at 5.1 percent, despite challenging market conditions.
“Funds from operations (FFO) were $897 million, an increase of 4.0 percent on FY18. This reflects a strong performance in our residential and workplace and logistics businesses.”
The company’s statutory profit plunged 69.6% to $311 million reflecting non-cash adjustments arising from devaluations in its retail town
centre and retirement living portfolios, a retirement living goodwill write down, mark-to-market on financial instruments and a tax expense change.”
The statutory profit in 2017-18 was boosted to $1.03 billion by mark to market valuation rises – now they are being partly reversed in the company’s retail and retirement living businesses.
Retail shopping centre devaluations totaled $474 million for the year due to sluggish growth in the sector (retail volumes grew by the lowest rate in 30 years in the year to June according to Australian Bureau of Statistics data).
The company declared a distribution for each security of 27.6 cents and said it expects distribution payouts at the bottom end of the 75% 85% target ratio. That tells us that the coming year will be hard-going for Stockland.