Housing demand, retail recovery boost Stockland's earnings

Housing demand, retail recovery boost Stockland's earnings

Demand for residential housing and a recovering retail environment were the key drivers of a solid interim profit for diversified property company Stockland Group (ASX: SGP) in 1H FY21.

Stockland reported its strongest half-year performance in four years by its residential development business, with more than 3,800 sales recorded due to increased production as the company brought forward staged releases to cater for demand.

Residential settlements surged 43.7 per cent to 3,101 lots from a year earlier, with those volumes skewed to Queensland, Victoria and Western Australia.

The residential division's result supported fairly robust group earnings in light of the current market conditions with Stockland reporting funds from operations had edged 0.4 per cent higher to $386 million for the six months to the end of December.

Group net profit, which is subject to the fluctuations of its property valuations, was $350 million, down from $504 million in the previous corresponding period.

Stockland still managed to increase the value of its commercial properties by $29 million, which was offset by a $37 million fall in the value of its retirement living portfolio.

The group's retail town centre portfolio's valuations fell $104 million, or 1.7 per cent, while the logistics portfolio rose $157 million, or 5.5 per cent.

Stockland says the smaller drop in retail centre valuations compared to heavier write-downs in the last half of FY20, highlighting that conditions have stabilised. While foot traffic at Stockland retail centres is now close to pre-COVID levels, some of its rental income remains under pressure due to "a small number of retail small to medium enterprises".

"We are proactively seeking to resolve these outstanding challenges and work with tenants to support them to operate sustainable businesses," says the company.

Outgoing Stockland CEO Mark Steinert credits the group's long-term diversified strategy for the profit holding up in these circumstances.

"This result is underpinned by strong residential settlements, improved retailer trading, strong rent collection, and resilience in Workplace, Logistics and Retirement Living (divisions)," he says.

"We continue to successfully deliver on our strategic priorities divesting non-core assets, increasing our capital allocation to Workplace and Logistics, and restocking our Residential landbank.

"This is repositioning the group to deliver more consistent, above-sector average total returns and drive value for our stakeholders.

"Despite the continued impact of COVID-19, our 1H21 operating profit has exceeded that of the prior corresponding period, a period not impacted by the global pandemic."

Steinert last year announced his intended retirement as CEO of Stockland to be replaced by Tarun Gupta who will join the company on 1 June 2021.

Stockland is making an interim distribution of 11.3c per security, up 6.6 per cent.

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