Residential boom driving sales surge for developer Stockland

Stockland says it is headed for the top end of its earnings guidance. Picture:
Stockland says it is headed for the top end of its earnings guidance. Picture:

The country’s largest residential developer, Stockland, says inquiries are running 40% ahead of normal as it rides the tide of low interest rates and government stimulus.

In a bullish first quarter update, the company said that it was headed to the top end of its earnings guidance and was on track to settle 6300 home lots this year.

Stockland chief executive Mark Steinert said the company had come through the worst of the coronavirus crisis and was now firing.

“Importantly as the economic and business environment has improved towards pre-COVID levels, industry support measures such as the Commercial Code of Conduct and HomeBuilder concluded at the end of the quarter without emerging evidence of material adverse outcomes,” Mr Steinert said.

In the March quarter, higher residential business inquiries had translated into a strong net sales result of 1891 lots, up 69% on the same time last year.

Stockland is forecasting residential settlements for the full year of around 6300 lots and cited supportive conditions including low interest rates, government incentives and credit availability, which have created a demand lift that developers have scrambled to meet.

Stockland said the bullish conditions were forecast to continue for “some time, even with the conclusion of HomeBuilder, given the equilibrium of supply and demand in most housing sub-markets we operate in”.

It also cited improvements in retail trading conditions, demonstrating the positive impact of Australia’s pandemic response with sales levels and store openings increasing to around pre-COVID levels.

The shopping portfolio also had like-for-like retail sales growth of 3.2%, while specialty sales growth leapt by 9.4% as the economy rebounds, with most pandemic rent deals now sorted out.

The company had residential settlements of 1510 lots in the quarter and made 1891 net sales, giving it 4739 contracts on hand, helping to lock in future earnings.

Sales inquiry levels jumped to 33,000 in the quarter, about 40% above the long-term average, with Stockland picking up market share as customers jump into the market due to high credit availability and household savings.

Stockland Amberton Beach WA

Stockland’s sales inquiry levels jumped during the first quarter. Picture:

Stockland said that given the HomeBuilder program ended in March it estimated only 10% of the lots exchanged in that month were eligible for the government subsidy.

During the quarter, the business settled 1510 lots and about 3100 lots are due to settle next financial year, providing good earnings visibility.

Stockland said it was “well positioned” to meet the demand of the “up cycle” with about 70% of its 81,000 lot land bank activated with a major skew to growth areas on the eastern seaboard.

“We are focused on strategic restocking which will allow us to meet future demand in our targeted geographies where we expect supply to be more limited in coming years,” the company said.

In February, Stockland gave funds from operations and distribution guidance for this financial year and it is continuing to target FFO per security in the range of 16.3 cents to 16.9 cents for this half, delivering FFO per security for the full year of between 32.5 cents to 33.1 cents, in line with prior guidance.

“Importantly, the likely outcome is currently trending towards the top end of the range,” Stockland said.

Stockland expects that recent rent collection trends will be maintained in commercial property, and its communities business will deliver around 6300 residential settlements for the full year at an average operating profit margin of about 19%.

The distribution for the full year is expected to be within a target payout ratio of 75% to 85% of FFO, albeit at the lower end of the range.

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