Stockland Full-Year Profit Drops 79% on Housing Weakness

Stockland, Australia’s biggest diversified property trust, said full-year profit fell 79 percent as conditions in its residential business remained challenging.

Net income slid to A$104.6 million ($95.4 million) in the 12 months to June 30, from A$487 million a year earlier, the Sydney-based company said today in a statement to the Australian stock exchange. Earnings per share in the year to June 30, 2014, will be between 4 percent and 6 percent above this year’s profit, assuming property markets don’t deteriorate, it said.

Stockland, which took A$355 million of writedowns on residential developments during the year, said it is focused on bringing more profitable projects to market, while adding that earnings in the division will remain constrained as it works through the impaired and low-margin projects. The company also said in May it will increase its exposure to retail and industrial properties, and raised A$400 million in the same month to repay debt and fund planned retail property developments.

“Management are setting conservative expectations due to a second-half skew to fiscal year 2014 earnings and to avoid the mistakes of the past few years, where Stockland (SGP) had to downgrade multiple times,” John Meredith, an analyst at Morgan Stanley, wrote in an e-mailed note. “Stockland could firm guidance toward the upper end of the range by February 2014.”

Medium Density

The company, which said in May it will return to medium-density residential development, will include townhouses in its Macarthur Gardens project in Sydney and Highlands development in Melbourne, Managing Director Mark Steinert, who took over in January, said in a telephone interview today. It expects to complete them in 2015, and will review existing developments to determine where it can incorporate town houses, he said.

Stockland shares were 2.9 percent lower at A$3.70 at the close of trading in Sydney, compared with a 1 percent gain in the benchmark S&P/ASX 200 (AS51) index.

“We expect a steady improvement in our profitability in a risk-aware way,” Steinert said. “We didn’t announce any impairments today, so we like to think we’ve dealt with that particular issue.”

Operating profit in Stockland’s residential division plunged to A$60 million in the year to June 30, from A$198 million 12 months earlier. The retirement living business saw profit rise to A$38 million from A$36 million, while the retail division recorded an increase to A$324 million from A$310 million.

Profit in the office and industrial business fell to A$119 million and A$63 million respectively, from A$142 million and A$77 million a year ago, after Stockland sold A$1.5 billion of non-core properties, it said.

Retail, Industrial

The company, which is seeking to increase its exposure to retail and industrial properties, has identified 14 retail properties for future redevelopments costing A$1.5 billion, it said today. Stockland will also step up developments of industrial properties to meet its target of increasing its holdings to between 10 percent and 15 percent of assets in five years from the current 7 percent.

“We acknowledge that industrial is probably the most competitive part of the market,” Steinert said. “Our existing industrial assets have quite a significant amount of development opportunity, associated with either refurbishing existing buildings or underutilized land, more than a couple of hundred thousand square meters of development opportunity across the eastern seaboard.”

Steinert declined to rule out a possible bid for smaller rival Australand Property Group (ALZ), which was the subject of a failed partial takeover bid by GPT Group. (GPT) GPT in May abandoned its pursuit of Australand, saying the two sides couldn’t agree on a price. Australand’s biggest shareholder, Singapore-based Capitaland Ltd. (CAPL), said in July it had concluded a review of its stake with a decision to maintain its holding.

Stockland reported underlying earnings of A$494.8 million, compared with a median forecast of A$490.9 million from 12 analyst estimates compiled by Bloomberg. It will pay a dividend of 24 Australian cents for the year, and expects to maintain the same level in the next year as earnings improve, it said.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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