Improved residential property market a boon for Stockland

An improved residential property market has paid off for property developer Stockland (ASX: SGP) at the first quarter of FY20.

The beginning of this financial year has seen improvement in residential sales and an increase in comparable retail growth for the group.

Stockland managing director and CEO Mark Steinert says the property market is on the mend along the east coast.

"The residential market cycle has improved, particularly in Sydney and Melbourne, and the south-east Queensland market is steadily improving," says Steinert.

"We remain on track to deliver over 5,000 settlements in FY20, including around 500 townhomes."

As a result, FY21 revenue is expected to benefit from the healthier property market.

Buyer confidence is also up, thanks to the currently low interest rate environment, improving credit conditions and government incentives.

Elsewhere in the company the group is refocusing its strategy for retirement living this financial year.

"We remain focussed on reshaping our retirement living portfolio by selling non-core villages; investing in supporting resident satisfaction and the customer journey; and progressing our opportunities in land lease development, with development applications to be lodged for two projects in Queensland next month," says Steinert.

The group's retail town centre portfolio delivered improved sales in Q1, reflecting remixing to growth categories and reduced supply of new retail space in our trade areas, as the portfolio further rebalances towards non-discretionary and low-discretionary spend.

"Over the coming months we will finalise the remaining settlements from $505 million of exchanged non-core retail divestments, and will continue to focus on improving future income resilience by ensuring rents are sustainable; through repositioning and placemaking initiatives; and remixing tenancies to reflect consumer trends around convenience and experience," says Steinert.

"We reiterate our expectation that overall retail town centre comparable income will grow moderately through FY20 and improve further in FY20."

The group's commercial property portfolio is currently being driven by the workplace and logistics sector, and Stockland has a development pipeline totalling over $2.5 billion.

"Our logistics portfolio has almost doubled in size since December 2013 and continues to perform strongly as we up-weight our exposure to this asset class through development and strategic acquisitions," says Steinert.

Of note is Stockland's recent acquisition of two income-producing logistics assets in Brisbane with an end development value of around $140 million.

"This strategic acquisition will build on the eight existing logistics assets we have in the western Sydney area, positioning us to leverage the investment boom generated by the Western Sydney Airport development," says Steinert.

Looking forward Stockland says that while current market conditions remain mixed there is much to look forward to, especially as Australia experiences steady employment growth, record low interest rates, recent tax cuts and high investment in infrastructure.

The positive outlook follows a rough FY19 for Stockland which was heavily impacted by devaluations during the year.

The Sydney-headquartered group recorded a 4 per cent increase in funds from operations for FY19 to $897 million, but the bottom line was plagued by the effects of declining asset values.

Shares in Stockland are up 3.68 per cent to $4.79 per share at 11.46am AEDT.

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