Stockland Corporation Limited (ASX:SGP) Managing Director, Mark Steinert discusses 1H17 results, strategy and outlook.
Stockland Corporation Limited (ASX:SGP) is the largest diversified real estate company in Australia. We’re at $15.8 billion, which is split between our trust and our company. Within the trust, that represents about 70 per cent of our assets, and half of all our assets are in shopping centres. About 18 per cent are in logistics – in business parks and 8.5 per cent in office. And then 20 per cent in residential and just under 10 per cent in retirement living. That makes up our asset base and translates into around 70 per cent of assets, providing recurring reliable income.
It was a strong set of results for the first half that we reported, with growth in all business areas. We saw our statutory profit come in a bit over $700 million, up 0.7 per cent. The key metric for us is funds from operations, which grew 7.8 per cent to $369 million. Earnings per security was up 6.2 per cent, to 15.4 cents.
As a result of that growth, we saw the return in equity increase to a strong 11 per cent. Distribution growth for the year is forecast to be 4 per cent. Through the cycle, we seek to achieve earnings growth between 4 - 6 per cent. Given the relative strength of our current performance, we increased our funds from operation guidance for the coming year, to 67 per cent growth.
We continue to maintain a conservative balance sheet with total debt to total assets, sitting just under 24 per cent. Weighted average debt maturity is just under 6 years and hedging over 90 per cent. Operationally, as I mentioned, all business areas reflected growth. In this period FFO growth from residential was very modest – it was only 1 per cent. Although we had record sales, up 42 per cent on the prior corresponding period and we have a typical skew to the second half. So we’ll see solid double-digit growth from residential over the years. So that growth in the first half was more about timing.
On the commercial side of our business, we saw funds from operation growth of 3.7 per cent – which was reflected by strong leasing across the portfolio, particularly in Sydney office. We also saw our logistics assets (solid sales growth per square metre in our specialty sales) sitting at 3 per cent. And there was good tenant retention, high occupancy (99.5 per cent in the shopping centres) and overall, very strong customer satisfaction.
Our retirement living business was really strong in the half. Profit growth was up almost 44 per cent, reflecting a combination of the 200 basis point improvement in operating profit margin – a significant increase in occupancy. Also in the period, we had a timing with a number of super lot sales in the first half, which won’t be in the second. So for the year, retirement living we’ll also see double-digit growth.
The residential market has been strong. Obviously there is a lot of talk about affordability and also the duration of the cycle. First and foremost, we’ve been very focused around affordability. So half of our sales go to first homebuyers, 75 per cent go to owner-occupiers and less than 1 per cent is sold to offshore buyers. So we’ve got really affordable products. You can buy a house and land package in a Stockland community at an average discount of about 18 per cent to the medium price in that trade area. And we’ll continue that focus looking forward.
We’ve been buying land and development opportunities with a focus on the eastern seaboard and will continue to do that. Now that we’re seeing Perth starting to show a basing, we’re also interested in adding counter-cyclically to our Perth exposure.
We expect to have a strong full year and by definition, a strong second half. Overall, we’re looking for 6 to 7 per cent earnings per security growth. That will reflect continued strength in our retirement living business and commercial business – similar to the first half, with some moderation in retirement living, around timing. And a significant step up in growth, from the residential business, as a result of the timing of settlements, towards the second half.