Residential steadies Stockland after commercial property hit by COVID-19

A bounce-back in residential packages helped steady developer Stockland’s results after its commercial holdings were hit by a $500m drop in value.

In its final set of results under exiting CEO Mark Steinart, Stockland has fallen to a $14m loss on the back of valuation hits on the back of the coronavirus crisis. Picture: Jane Dempster

A bounce-back in residential house and land packages helped steady diversified developer Stockland’s results after its commercial holdings were hit by over $500m in value drops due to the coronavirus pandemic’s economic shocks.

Stockland’s final results under outgoing chief executive and managing director Mark Steinert revealed a $14m loss on the back of valuation hits on the back of the coronavirus crisis. Its investment portfolio was hit by $464m as its shopping centres dropped in value and it took a $116m cut on the value of its retirement portfolio.

But the company‘s residential land business is holding up, generating a 2.5 per cent lift in funds from operations and an operating profit margin 19.9 per cent, with demand for houses now being supported by government stimulus packages.

Stockland settled 5,319 residential lots, including 607 town homes and had about 4,300 contracts on hand at the end of July. But it was hit by a big jump in defaults due to the pandemic.

“We saw a gradual recovery in May, with the market significantly buoyed by the government’s HomeBuilder program in June. Settlements are completing within similar time frames to pre-COVID-19 levels and the default rate in the fourth quarter was approximately 7 per cent and is expected to remain elevated reflecting the ongoing uncertainty presented by COVID-19,” the company said.

Stockland is benefiting from the current low interest rate environment, positive credit conditions and government stimulus are expected to continue to support the market.

Overall, Stockland’s funds from operations dropped by 8 per cent to $825m, largely due to COVID-19 impacts on operations, falling by 7.2 per cent to 34.7 cents on a per-security basis. The full year distribution per security was 24.1c and the distribution payout ratio was at 70 per cent, slightly below target range, and fully covered by operating cash flow.

Shopping malls sank to 39 per cent of Stockland’s portfolio as it also sold off centres and put more capital into industrial and office property. Commercial property rent collection at the end of July was running at 70 per cent for the fourth quarter and at 83 per cent across the half.

Rental renegotiations are still continuing across the commercial portfolio, with just over half of deals finalised. Retail town centres were down 17 per cent, with funds from operations hitting $343m.

The company’s workplace and logistics arm came out mostly unscathed, each growing a slim 1.7 per cent. Rental abatements of $2m were agreed to as $3m in billings remains outstanding.

The retirement living portfolio finished up 4.8 per cent on fund from operations of $58m.

A successor for Mr Steinert is yet to be announced after he confirmed plans to retire after seven-and-a-half years in the top job at the diversified developer.

Stockland withdrew its earnings guidance in March because of the volatility of the COVID-19 pandemic and did not declare a dividend alongside it’s full year earnings.

Stockland cited ongoing uncertainty around the impacts of COVID-19 on business performance for not providing funds from operations and distribution guidance.

The company called out several factors driving uncertainty around additional risk, citing “further pandemic restrictions and gaining clarity on deteriorating consumer sentiment driven by unemployment, consumer credit access, liquidity in credit markets, and length and nature of government stimulus will all contribute to confidence in re-establishing our forecast”.