Stockland looks to logistics growth to offset residential weakness

Stockland, which is the country’s biggest residential developer of master-planned communities, has seen a dramatic drop in sales and a deferral in settlements in the past six months due to bad weather, rising interest rates and a cautious consumer.

But the ASX-listed $9.28 billion company is confident its diversified business will help it offset the residential weakness with a focus on its large-scale industrial, logistics and workplace developments, including the M_Park Stage 1 project in Sydney and the improving sales at its retail malls, known as town centres.

A render of Stockland’s $2 billion M_Park innovation precinct at Macquarie Park in Sydney.

Stockland chief executive Tarun Gupta said due to timing issues in building, bad weather along the eastern seaboard and interest rate rises, the group has reduced its target for residential lot settlements from 6000 to 5500 for the full year.

In the master-planned communities net sales for the half totalled 1804 lots, which was below the 3815 net sales in the corresponding period. The group has 5840 contracts on hand, and in the next 18 months is looking to launch eight new communities that will activate about 80 per cent of the land bank.

“As expected, successive interest rate rises since May 2022 have driven a moderation of demand, with inquiry rates returning to pre-COVID-19 levels and sales volumes slowing,” Gupta said.

“We deferred 500 lots into the 2024 financial year. That’s related to double the rain compared to normal we’ve had on the eastern seaboard, so that’s impacted production programs. But obviously, we’re a diversified business and our commercial property business has picked up that downside.”

As expected, successive interest rate rises since May 2022 have driven a moderation of demand, with enquiry rates returning to pre-COVID-19 levels and sales volumes slowing

Stockland CEO Tarun Gupta

For the half Stockland reported a statutory profit of $301 million, down from $850 million in the same period last year. The funds from operation – a more accurate measure for trusts as its takes out lumpy valuations – was $353 million, a rise of 0.7 per cent on the previous corresponding period.

Sequoia Asset Management’s Winston Sammut said the Stockland result came in below market expectations, notwithstanding good support from its commercial operations, driven by solid contributions from logistics and growth in funds from town centres operations of 13 per cent.

“Going forward, the market will likely focus on Stockland’s residential business to assess any further negative impact on lot sales/settlements in a rising interest rate environment.”

Gupta said the partnership with Mitsubishi Estate Asia will be extended out from the land lease business to invest in master-planned communities. He said there were opportunities to replenish the pipeline across the country.

Moody’s Investors Service vice president Saranga Ranasinghe, said the communities segment, which is more volatile than the commercial property segment, will likely continue to face headwinds from rising interest rates.

“Still, Stockland’s communities business continues to maintain strong development margins and default rates that are in line with historical averages,” Ranasinghe said.

“While consecutive interest rate rises have moderated sales volumes, we expect Stockland’s master planned communities to benefit from supportive long-term fundamentals for residential property, including relatively low unemployment, population growth and a rebound in net overseas migration, combined with continued constrained land supply.”

Stockland reported an interim distribution of 11.8¢ payable on February 28.

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