Stockland Takes Writedown in Housing as Strategy Shifts

Stockland, Australia’s biggest diversified property trust by assets, wrote down A$49 million ($49 million) of housing developments and said it will increase industrial property holdings in a partial strategy reversal.

The company said that within five years, industrial holdings will double to as much as 15 percent of assets, office holdings will shrink to a maximum 10 percent from 15 percent, and retail will grow to as much as 70 percent, from 47 percent as of Dec. 31. Residential and retirement property holdings will continue to make up a combined maximum 30 percent of assets, the Sydney-based company said in a statement.

The strategy announced by Managing Director Mark Steinert differs from his predecessor Matthew Quinn, who steered the company away from offices and warehouses. Earnings per share in the year ending June 30 will be 25 percent below the prior year, the lower end of its earlier forecast range, and the company expects to maintain a dividend of 24 Australian cents in fiscal 2014, it said today.

“Today’s update will be taken as a positive and will see the stock rally to trade more in line with the rest of the REIT sector,” John Garrett, a managing director at Moelis & Co., wrote in a note to clients today. He added that many analysts were expecting the company to announce a cut to the dividend or a capital raising plan.

The shares rose 1.8 percent to A$3.89 at the close of trading in Sydney, an 11 percent premium to its net tangible assets as of Dec. 31. The benchmark S&P/ASX 200 index was up 0.1 percent.

Future Growth

The residential writedown was on already-impaired projects, the company said. Weakness in Stockland’s housing division led to a loss in the six months to Dec. 31.

“It is perhaps not surprising that management is looking to include all possible expenses into fiscal year 2013 to rebase it to a level from which it can grow in the future,” Simon Wheatley, real estate analyst at Goldman Sachs & Partners Australia, wrote in a note to clients today. The 2014 dividend is “the better end of potential outcomes, given the payout ratio exceeds 100 percent.”

Stockland will seek shareholder approval to transfer about A$500 million from its stapled trust to the main company, it said today.

Stockland said it will seek partnerships with investors, particularly in retail property, to reduce risk and improve returns. It plans to sell about A$300 million of assets -- primarily office buildings -- in the six months to June 30, and reduce costs by 10 percent, according to the statement.

In the retirement-residential unit, the company will build some “medium-density” projects, while avoiding high-rise apartments, it said. The company will also maintain some exposure, although reduced, to offices, a change from its earlier strategy of selling out of them.

Mirvac, the nation’s third-biggest diversified property trust, last week said it would focus on buying and creating top-end offices, developing apartments in inner suburbs and investment partnerships to generate stable income and grow returns.

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