Stockland’s Half-Year Net Profit Drops 66%, but Positive Signal for Residential Property Demand Emerges
Stockland, an Australian property developer, announced a significant decline in its half-year net profit, which fell by 66%. Despite this decrease, the company is sending a positive signal regarding the demand for residential property as interest rates are expected to have reached their peak.
The reported net profit for the six months through December was 102 million Australian dollars, down from 301 million Australian dollars during the same period last year. Additionally, funds from operations, considered Stockland’s preferred measure of ongoing operating profits, fell by 25% to 266 million Australian dollars.
Directors of the company declared an interim distribution of 8 Australian cents per security, compared to 11.8 cents last year, resulting in a payout ratio of 72% of funds from operations.
Stockland confirmed its guidance for annual funds from operations per security in a range of 34.5 cents to 35.5 cents before tax. Furthermore, the company stated that the total distribution for the year is likely to be within a target payout ratio of 75-85% of funds from operations after tax.
Chief Executive Tarun Gupta expressed optimism about the residential markets, stating, “We are seeing early signs of improvement in residential markets and are positioning our Masterplanned Communities and Land Lease Communities businesses for increased production rates to meet demand in future periods.”
Stockland believes that its Masterplanned Communities business will perform well as interest rates peak, and the central bank focuses on easing monetary policy, ultimately reducing borrowing costs for potential homebuyers. Additionally, the demand for residential property is being fueled by a large number of migrants coming to Australia and limited land availability for construction in and around cities.
In the first six months, Stockland settled a total of 1,614 residential lots and anticipates between 5,200 and 5,600 residential settlements for the entire fiscal year. The company expects a higher settlement and funds-from-operations concentration in the January-June period compared to FY 2023.
Andrew Whitson, head of Stockland’s Communities division, noted the positive impact of the stable interest rate environment on net sales and inquiries. “Positive momentum has continued in January 2024, with net sales of 371 compared with 343 sales in January 2023, and enquiries up 23% year-on-year,” Whitson added.
Demonstrating its confidence in the division’s future, Stockland joined forces with Supalai Australia Holdings late last year to acquire 12 masterplanned community projects from Lendlease for 1.3 billion Australian dollars.
Turning to its Commercial Property business, primarily comprising retail and logistics assets, Stockland acknowledged that interest rates are dampening demand for certain discretionary products in malls. Nonetheless, funds from operations in retail rose by 0.9% to 187 million Australian dollars during the half year.
In its logistics business, Stockland reported a 20% increase in funds from operations for the 3.7 billion Australian dollar portfolio, rising to 80 million Australian dollars.
Analyst comment
Neutral news.
As an analyst, the market is likely to respond cautiously to Stockland’s decline in net profit. However, the positive signal for residential property demand and the expectation of interest rates reaching their peak may increase investor confidence. Overall, the market outlook for Stockland will depend on the performance of its Masterplanned Communities and Land Lease Communities businesses, as well as the continued demand for residential property.
