Tuesday 19 August 2014 by FIIG Research Legacy

Stockland FY14 - strong results with a positive outlook

Key points:

  1. Statutory profit was $527m for FY14, compared with a $105m loss in FY13. Funds From Operations (FFO) were up by 21.4% to $573m from $472m in FY13.
  2. Unadjusted gearing was up to 25% compared to 22.7% in FY13 and within Stockland’s target range of 20-30%.
  3. Improvements in the residential market support a positive outlook.

Last week Stockland reported its FY14 results, headlined by an increase in underlying profit for the year ended 30 June 2014 to $555m from $495m in FY13 (see Table 1). Gearing was up to 25% compared to 22.7% in FY13 but remains within Stockland’s target range of 20-30% (see Table 2). The weighted average debt maturity contracted from 5.4 years to 5.2 years. Chief Financial Officer, Tiernan O’Rourke commented: “Our gearing remains comfortably within our target range of 20-30% and we have diverse and long dated debt, which supports the business’s strategy”. Stockland continued to implement its growth strategy with $390m of asset acquisitions and substantial investment in core projects.

Table 1

Table 2

Residential operating profit rose 57.2% to $95m on FY14. The Residential team achieved 5,219 lot settlements for the year and started FY15 with a record 3,185 contracts on hand. The solid results reflect the company’s efficiency improvements; the reshaping of the Residential portfolio and improvement in the residential market with EBIT of $244m at the end of 2014.

The Commercial property business was up 9.9% to $369m with a strong performance from its recently redeveloped centres and the benefits of Stockland’s active re-mixing of tenants within existing centres. The $460m of redevelopments underway continue to progress well and are expected to deliver an incremental internal rate of return (IRR’s) of 12-14%. According to Stockland, the first stage of the Hervey Bay redevelopment opened in July with an overwhelming response from local shoppers. The company’s commercial property CEO, John Schroder commented: “Retail sales have improved over the year. Despite some uncertainty around the Federal budget, and warmer winter weather, we have seen a steady improvement in sales results, with our strongest specialty sales growth achieved in the June quarter”.

The Office division’s underlying Funds From Operations dropped 16.5% to $85m in FY14, reflecting asset sales and soft market conditions. The Retirement business delivered strong operating results with operating profit up 13.8% on FY13 to $40m mainly due to an increase in established unit turnover of 18.3% over the previous year.

From a relative value perspective, the 2020 bonds generate a high income of 6.87% and have a yield to maturity of 4.52%. They are available to retail and wholesale clients from $10,000 and remain one of our favourite bonds. Please speak to your FIIG representative if you are interested in the bonds.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities. Stockland bonds are available to wholesale and retail investors.