The property development company Stockland (ASX:SGP) released a robust financial report for the first half of FY16, ended December 2015.
The company lifted its statutory net profit after tax by 50.6%, compared to the previous corresponding period. The underlying net profit after tax was increased by 8.1%, to $313 million.
The profit performance was underpinned by continued growth in all businesses, including a strong contribution from the Residential segment, which delivered an operating growth of 45.5% upon the previous period.
Return on equity increased 70 basis points to 10.3%, excluding workout assets. Funds from Operations per security reached 14.5 cents, which is an increase of 9.9%. Underlying Earnings Per Share (EPS) improved 6.5%, to 13.2 cents. The company will distribute 12.2 cents per security for the interim distribution, which is in line with the targeted full year distribution of 24.5 cents per security.
Stockland Managing Director and CEO, Mark Steinert commented on the results: “This strong result demonstrates that our focus on the disciplined implementation of our strategy is working. We have maintained our balance sheet strength and continued to improve our operational effectiveness.”
The company’s Chief Financial Officer, Tiernan O’Rourke, stated that the Group maintained a strong balance sheet. The group also upheld its A- credit rating with gearing at 23.1%, which is well within the range of 20-30%.
In the retail sector, comparable FFO rose 3.3% while comparable underlying Net Operating Income rose 3.5%, compared to the first half of FY15. This result was underpinned by high stable retail occupancy levels of 99.5%. Within the portfolio, the annual rent increased between 4-5% for speciality shop leases and renewals.
Logistics and Business Parks
This segment achieved comparable FFO growth of 3.8% relative of 1H15, while the underlying NOI grew by 0.3% during the period. Stockland continues to expand this portfolio through acquisitions and development with its ownership interests now valued at more than $1.8 billion.
Residential operating profit rose by 45.5% on the pcp, to $98 million. The healthy result was led by its growth strategy and favourable market conditions.
Residential Segment’s CEO, Andrew Whitson elucidated on the results: “Our significant increase in operating margin to 14.9%, reflected a number of factors including selling a higher portion of superlots, selling higher margin lots and achieving stronger than expected price growth in Sydney and Melbourne projects.”
The retirement living business performed well during the period with a 9.5% increase in operating profit, as the company remains on track to deliver return on asset targets.
The CEO, Mr Steinert expressed uncertainty over the economic outlook, however he expects the conditions to remain supportive with sustained low interest rates and modest economic growth.
He also confirmed that the company is on track to achieve a 6.5% to 7.5% EPS growth in FY16, along with 9-10% growth in its FFO.
Author: Simon Herrmann
Feb 10, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.