Stockland says prices rising in home estates as big deals loom

The residential business is picking up in the face of rate hikes, and the company is seeking more partners as it seeks to grow.

Stockland CEO Tarun Gupta. Picture: Jane Dempster/The Australian

The country’s largest listed residential developer Stockland is confident that the housing market recovery will continue despite higher interest rates and says that its shopping centres are also holding up.

The group maintained its guidance and said that its new land lease unit, focused on affordable seniors housing, was also performing well, but its reported play for Lendlease’s housing business has been left unaddressed.

The company is also yet to update the market on its search for a capital partner to develop North Sydney’s tallest office tower or its hunt for a partner on a $2bn logistics portfolio.

Stockland chief executive Tarun Gupta said the operational result for the quarter reflected the resilience of the company’s portfolio in an uncertain macroeconomic environment, and flagged further shifts in how it does business.

“We are dynamically reshaping our portfolio through the targeted divestment of non-core properties and creation of new, high-quality logistics and land lease assets that are accretive to both earnings and net tangible assets,” he said.

“We are progressing the delivery of our $40 billion development pipeline while remaining disciplined regarding the level of development risk we take on and the returns we require,” Mr Gupta told the company’s annual meeting.

He said the company was growing its existing capital partnerships while executing on new partnering initiatives.

The commercial property portfolio had strong operational metrics, including faster rental growth in its logistics portfolio and positive leasing spreads in its shopping centres portfolio, as new leases were struck at higher levels than existing ones.

Stockland said the skew towards essential-based categories in its centres underpinned sales growth of 7.6 per cent against a backdrop of increasing cost-of-living pressures.

The housing estates had 991 net sales, reflecting month-on-month improvement in both sales and enquiries over the quarter. In the land lease area, net sales hit 111 homes and improved enquiries over the quarter showed sustained demand for the homes.

The company’s logistics portfolio is well positioned to benefit from strong tenant demand, as it has a relatively short lease term and a strong development pipeline.

The portfolio had releasing spreads of 36.4 per cent on new leases and renewals negotiated over this financial year and the company has a $6.4bn logistics development pipeline.

On the office front, the company said most of its portfolio has value add potential, including mixed use opportunities. The group is building the MPark project in Sydney’s Macquarie Park, in partnership with Ivanhoe Cambridge.

The shopping centre portfolio was underpinned by its heavy weighting to essentials-based categories. On a moving annual turnover basis, comparable sales grew by 7.6 per cent, with comparable specialty sales up by 5.2 per cent.

In the September quarter, comparable sales grew by 2.8 per cent, while comparable specialty sales declined by 1.3 per cent, as interest rate hikes slammed discretionary categories. Sales growth for essentials categories like food retail and food catering were positive. Leasing spreads were positive for the quarter and have averaged 3 per cent for this financial year, slipping from 3.1 per cent last financial year.

Stockland said sales volumes are expected to track at similar levels until the interest rate outlook stabilises. Default rates are currently above historical averages but remain below previous cyclical peak levels.

The housing business ended the period with 4,772 contracts on hand, with average settlement pricing expected for this financial year to be 5-10 per cent higher than last year.

The company kept Funds From Operations per security guidance at 34.5 to 35.5 on a pre-tax basis, and its gearing is expected to increase over this half as the company develops property and most housing settlements are expected in the second half.

The distribution per security for the full year is expected to be within the target payout ratio of 75 per cent to 85 per cent of post-tax FFO.