Real Estate Group, Stockland (ASX: SGP) has reported continued improvement in the quality of its portfolio despite a challenging trading environment.
There has been solid growth of 3.8% in the comparable specialty retail sales for the year to 31 March 2019. The leasing activity across the Stockland’s Workplace and Logistics portfolio has been the highlight with 376,000 square metres leased at 96% occupancy over the year to date. However, the company has faced challenges in its retail leasing conditions with negative rental growth due to remixing.
Managing Director and CEO Mark Steinert stated that the Group has achieved solid retail revenue and strong development and leasing activity in its Workplace and Logistics portfolio. But the growth has been offset by negative retail rent reversions and lower residential sales.
In the 3QFY19 update, Stockland revealed that residential sales have declined 26% for the quarter compared to the second quarter and are estimated to remain weak for the calendar year 2019. It is due to the reduced credit availability, the ongoing slump in Australia’s housing market and buyer uncertainty due to the upcoming Federal election.
Mr Steinert added that Stockland remains on track to complete over 6000 residential settlements during the year with an operating profit margin over 18%. He further informed that cancellations rates have slightly gone up due to uncertain market conditions, however, default rates have remained unchanged at ~3%.
During the period, Stockland had sold non-core retail town centre assets worth $284.5 million, in line to attain $400 million target within 12 months. It is also ramping up its capital partnering initiatives through ongoing engagement with prospective domestic and international partners.
The buy-back of $169 million of $350 million target was completed by the company at an average discount to NTA of 8%. It is said to be in line to the company’s capital management approach with the potential to be accretive to earnings.
Stockland has received engaging interest from investors in its retirement living business. During this period, the company’s village net reservations were down but had lower volatility compared to its established housing market.
Looking forward, the company eyes the tough market conditions to continue in residential space throughout 2019. However, the company confirms the substantial visibility of earnings with more than 2,800 contracts on hand for settlement from Fiscal 2020.
Due to weaker market conditions, the company now expects its FFO growth per security to be at the lower end of its guidance range, at around 5%. The distribution per security is expected to stand at 27.6 cents, reflecting 4% growth on Fiscal 2018.
In today’s trading session, SGP stock price has declined by 2.835% to last trade at $3.770 on 30 April 2019. The stock closed at a Price to Earnings multiple of 14.700x with a market capitalisation of $9.27 billion.
Over the past 12 months, the stock has witnessed a negative price change of 6.28% despite an upside momentum of 1.04% recorded last month.
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