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Stockland Corporation Ltd – FY19 Slightly Disappointing Result

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Stockland Corporation Ltd (ASX: SGP)  is a diversified property group in Australia which develops, owns and manages retail centres, business parks, logistic centres, office buildings, residential buildings and retirement villages. Its market capitalisation is A$10.6 billion.


What is the FY19 result?

Today (Wednesday 21 August 2019), Stockland released its FY19 results. The main points are as follows:

  • Funds from operations (FFO) of $897 million, up 4.0 per cent on FY18.
  • FFO per security of 37.4 cents, up 5.1 per cent on FY18.
  • Statutory profit down 69.6 per cent to $311 million on FY18.
  • Net tangible assets per security of $4.04, down from $4.18 at 30 June 2018.
  • Distribution per security (DPS) in FY19 of 27.6 cents, up 4.2 per cent on FY18. The Final DPS for FY19 is 14.1 cents.

The key features of the results are as follows:

  • FFO for the Commercial Property business increased by 2.1 per cent. This is at the lower end of Stockland’s forecast, with the high-performing logistics and workplace sectors partially offsetting the weaker retail sector.
  • FFO for the Retail Town Centres business increased by 1.1 per cent (comparable growth down 0.2 per cent). Stockland notes that occupancy in the town centres remains high notwithstanding the subdued retail sector.
  • FFO for the Workplace and Logistics business increased by 6.7 per cent (comparable growth down 3.9 per cent). Stockland says that the logistics market continues to be supported by ongoing investment in infrastructure, export growth and growth in online retail, which is driving occupancy and rental growth.
  • Operating profit for the Residential business is up 8 per cent on FY18, with an operating profit margin of 19.9 per cent. Stockland indicates that its national market share is up3 per cent from FY18 to 15 per cent.
  • FFO for the Retirement Living business increased 5.7 per cent on FY18. Future growth is being driven through 3,500 development units in pipeline, including ten new land lease communities identified.

The fall in statutory profit reflects non-cash adjustments arising from devaluations in the retail town centre and retirement living portfolios, a retirement living goodwill write down, mark-to-market of financial instruments and a tax expense change.


What is the outlook?

Current market conditions for Stockland are mixed. On the positive side, steady employment growth, record low interest rates, recent tax cuts and high investment in infrastructure is supporting business activity. On the negative side, reduced credit availability, weak consumer sentiment and low wages growth is limiting business activity.

Stockland forecasts “flat growth in FFO per security in FY20” and “DPS growth will also be flat with the distribution payout at the bottom end of Stockland’s 75-85 per cent target ratio.” Stockland considers that the Retail Town Centres business will stabilise through FY20, the Residential business is well positioned in an under-supplied market but Stockland remains cautious about the pace of recovery in this market, and the Retirement Living business is forecast to grow.


What is the market’s reaction?

Today (Wednesday 21 August) Stockland is trading at around A$4.40, down around 4.5 per cent. This could reflect that FY20 is very subdued with no growth expected. Stockland trades at a P/E ratio in the low-teens and an annual dividend yield of over 6 per cent (unfranked).




This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

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ASR has no position in any of the stocks mentioned.

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