Developer AVJennings issues first-half profit warning

Homebuilder AVJennings has put its dividend under review as delays and tight credit push out the payback on its developments.

Homebuilder AVJennings says that several project delays means that they profit they deliver won’t arrive until the second half of its financial year.

The weakness of Australia’s residential property market has spilt over into the fortunes of major ­developers, with home builder AVJennings issuing a profit warning and the country’s biggest residential developer Stockland selling off an estate on the outskirts of Melbourne.

The moves come just weeks after Queensland developer Villa World walked away from its earnings guidance and could signal a broader malaise in the fragile sector, with other listed groups and private developers also in the ­firing line.

Winston Sammut, head of listed securities at Charter Hall Maxim, said inquiries at residential estates had dropped off in ­recent weeks.

“The impact of what banks have been doing in terms of tightening and what’s in the press about residential prices falling … it’s having a marked impact on sentiment,” Mr Sammut said.

AVJennings on Monday issued a pre-Christmas profit warning, saying $11 million it had expected to book in this half had been pushed back as it faces delays on settlements.

In a cautious note, the company said its board “will consider the matter of an interim dividend once the half-year result is finalised”.

The setback reflects conditions hitting listed companies including Lendlease, Stockland and Mirvac, as well as private players that have come under pressure from financiers reluctant to lend to housing projects.

AVJennings is dealing with the tightening of credit markets, an apartment oversupply in some areas and the fall in foreign investment, which chairman Simon Cheong identified as issues at last month’s annual general meeting.

Since that time auction clearance rates have slumped further and the sales at apartment launches have slowed to a crawl. AVJennings said a number of projects forecast to contribute to revenue in the first-half would no longer do so.

The news comes a day after banking overseer the Australian Prudential Regulation Authority announced it was dropping the ­requirement for lenders to cap the proportion of interest-only loans they write at 30 per cent, providing some hope for developers.

AVJennings said recent project delays will “exacerbate even further the revenue and earnings bias to the second half”. The problems will see about $11m shift from first-half profit before tax to the second half, most of which will settle in January.

Meanwhile, Stockland offloaded the Melbourne housing estate to Singapore’s Frasers Property for $202.5m as it looks to cut its ­exposure to the slowing residential market.

The deal was struck at a 59 per cent premium to book value and Frasers will build out the $700m project. Stockland chief executive Mark Steinert said the sale enabled the company to bring forward project profits and showed the latent value of its holdings.

Shaw and Partners senior analyst Peter Zuk said the sale was not a “bad thing” as it highlighted the land bank’s value, but wants the company to stick to its guidance.

“If proceeds from this sale ­result in Stockland hitting the top end guidance, we are not really concerned,” Mr Zuk said.

“If they are used to hit the ­bottom end of guidance, then we, and we suggest the market, would see this as an effective earnings downgrade.”