Stockland 1H Profit Up Sharply, Agrees to Sale of Retirement Living Business — Update

By David Winning

SYDNEY–Stockland said its half-year net profit rose sharply and that it has agreed to the sale of its retirement living business for 987 million Australian dollars (US$712.5 million).

Stockland reported a net profit of A$850 million for the six months through December, up from A$339 million a year ago, as buoyant demand for residential property more than offset the impact of lockdowns on its other businesses.

Funds from operations, the company’s preferred measure of ongoing operating profits, fell 9.3% to A$350 million. Directors of the company declared an interim dividend of 12 Australian cents per security.

Stockland said it plans to sell its retirement living business to EQT Infrastructure, with the deal set to settle late in its 2022 fiscal year. The sale price represents a 1.9% discount to the book value of the business, the company said.

“The solid operational performance delivered in 1H22 provides us with good earnings visibility for the remainder of the financial year, notwithstanding the broader market uncertainty brought about by the ongoing Covid-19 pandemic, elevated input cost inflation, and interest rate volatility,” said Chief Executive Tarun Gupta.

As a result, Stockland narrowed its guidance for annual funds from operations to between 35.1 cents and 35.6 cents per security. Previously the low end of the range had been set at 34.6 cents/security.

Stockland said settlement volumes in its Masterplanned Communities business totaled 2,329 during the first half, with enquiries staying well above long-run averages.

Stockland said it now expects to settle around 6,000 residential lots in the 12 months through June, down from an earlier assumption of 6,400 lots. It expects that its residential business will make an operating profit margin of more than 18% in fiscal 2022.

The company reaffirmed expectations for a distribution per security within its payout ratio target of 75-85% of funds from operations.

Residential property developers including Stockland are braced for higher interest rates as the Reserve Bank of Australia responds to inflationary pressures building within the economy. Money markets are pricing in as many as five rate rises this year, ending a cycle of lower borrowing costs that began around a decade ago.

Higher interest rates could damp demand for residential property, while also making consumers cautious about spending more broadly, which could slow the recovery of Stockland’s retail property business.

Capital Economics recently highlighted data that showed Australian home prices began falling around nine months after rates started to risen. It expects house prices across Australia’s eight capital cities to start falling from the second quarter of 2023.

On Wednesday, Stockland said half-year funds from operations in its Town Centres division rose 2% on year as traffic to its malls were disrupted by new lockdowns, and some shoppers bought more online. In its logistics business, funds from operations rose by 3.7% in the half-year period.

Write to David Winning at [email protected]