Stockland Maintain Earnings following Pivot to Workplace & Logistics

25 February 2021

Stockland’s decision a few years ago to pivot more towards Workplace and Logistics assets has assisted the group to maintain earnings in a difficult year.

Stocklands’ earnings for HY21 were $2m more than the previous corresponding period, despite a $24m loss of earnings in its Retail Town Centres.

Managing Director and Chief Executive Officer, Mark Steinert, said: “I am pleased to announce a strong half year result which reflects the effectiveness of Stockland’s long-term diversified strategy. This result is underpinned by strong Residential settlements, improved retailer trading, strong rent collection, and resilience in Workplace, Logistics and Retirement Living.

“Despite the continued impact of COVID-19, our 1H21 operating profit has exceeded that of the prior corresponding period, a period not impacted by the global pandemic. FFO was up 0.4% to $386 million and FFO per security grew to 16.2 cents, 0.6% stronger than the first half of FY20,” said Mr Steinert.

“We continue to successfully deliver on our strategic priorities divesting non-core assets, increasing our capital allocation to Workplace and Logistics, and restocking our Residential landbank. This is repositioning the Group to deliver more consistent, above-sector average total returns and drive value for our stakeholders.

Statutory net profit of $350 million includes net positive Commercial Property valuations. External revaluations of the entire Retail Town Centre portfolio showed a decline of -1.7% (-$104 million). In the Logistics portfolio 67% of properties were externally valued, realising a 5.5% increment of $157 million. And in the Workplace portfolio, 70% of properties were externally valued, realising a 2.7% decrement of $28 million.


  • Funds from operations (FFO) of $386 million, up 0.4% on 1H20
  • FFO per security of 16.2 cents, up 0.6% on 1H20
  • Statutory profit of $350 million (1H20: $504 million)
  • Adjusted funds from operations (AFFO) per security of 14.1 cents, down 0.7% on 1H20
  • Distribution per security (DPS) of 11.3 cents, up 6.6% on 2H20, fully covered by operating cashflows
  • Net operating cashflows of $493 million reflect strong Residential settlements and improved rental collections
  • Gearing of 24.2%, improved from 25.4% at 30 June 2020
  • Net tangible assets (NTA) of $3.78 per security, up 0.3% from 30 June 2020
  • Commercial Property rent collection now 90% of net billings at 31 January 2021

We have continued to actively reweight the Commercial Property portfolio to balance our exposure between Retail, Workplace and Logistics asset classes to maximise risk adjusted returns and improve longer term income growth. During the half, $402 million of non-core retail property divestments were settled and Traralgon (VIC) was contracted to sell for $85 million in line with book value. Consistent with our strategy, we are reinvesting the disposal proceeds into our $5.9 billion Workplace and Logistics development pipeline.

During the period $185 million was reinvested back into investment properties at expected returns in line with our hurdle rates. This increased our weighting in Workplace and Logistics to 31% of portfolio asset value, from 28% at 30 June 2020. This reinvestment strategy is adding to the resilience of our recurring income.

Our Residential business performed strongly, with over 3,800 sales, representing the strongest half in over four years, in part supported by increased production and the bring forward of stage releases to capitalise on strong demand. Residential settlements of 3,101, up 43.7% on 1H20, reflect our agile response to market movements, customer preference for masterplanned communities and demand driven by government stimulus. We have over 4,800 contracts on hand at 31 January 2021 and are on track to achieve over 6,000 settlements in FY21.

In Retirement Living, the increase in demand has driven established sales 6.3% higher than the last period.

Traditional development settlements were down 31.2% as our development focus shifts away from deferred management fee (DMF) based villages to Land Lease Community developments. FFO of $36 million was more than double the result from last period, mainly due to the recognition of DMF from the sale of four noncore villages.

In August 2020, we implemented an end-to-end enterprise platform, Core, leveraging SAP and Salesforce.

Aligned to our strategy, we continue to drive digital and data initiatives to support customer centric innovation and operational excellence. Enhanced web experiences in Communities has resulted in a 16% increase in customer engagement, 30% additional website traffic and an increase in lead conversions of 83%.

At 31 December 2020, gearing improved to 24.2%, well within our target range of 20% to 30%, demonstrating prudent capital management and our strong cash generating development business. We maintain a disciplined approach to our balance sheet, including a strong focus on cash flows, diversification of debt sources and high levels of liquidity, and we continue to source lower cost debt.

At period end, we had no material debt maturing through to June 2021 and our weighted average debt maturity was 5.6 years.

In the half year we made $104 million of land acquisition payments, 88% of which were on capital efficient terms aligning the payment for the land closer to its delivery to the end customer. This capital efficiency allows us to fund development activities from cash flows as well as fully fund our distributions.

Chief Financial Officer, Tiernan O’Rourke, said: “As a result of delivering on our strategic priorities and the actions undertaken during the pandemic including the acceleration of Residential production and release levels, and a focus on Commercial Property rental collection, we have reported strong operating cashflow and capital management metrics all of which will support future opportunities.”

The first half saw a very positive change in rental cash collections. By 31 January 2021, we had collected 90% of the net billings issued during the half, compared to 61% at 30 June 2020. Abatements provided for tenants have more than halved from $29 million to $11 million and our credit loss provisioning as a percentage of billings has fallen to 3% compared to 16% at 30 June 2020. This improving trend has continued into 2021, particularly in retail as trading activity returns close to pre-COVID-19 levels. Further to this, a growing return-to-work trend is reinvigorating our Workplace assets.

Commercial Property – Retail Town Centres

Group Executive and CEO Commercial Property, Louise Mason, said: “During 1H21 we continued to execute our strategy selling $402 million non-core retail assets in line with 30 June 2020 valuations lifting the quality of our portfolio. Our exposure to retail has reduced to 39% of our total portfolio weighting.”

• FFO $185 million, comparable growth down 9.9%
• Portfolio total moving annual turnover (MAT) decline of 0.6%
• 322 leasing deals executed in 1H21, 114 of which represent new tenant relationships
• Specialty occupancy cost ratio moderately increased to 16.0%4
• Net devaluations of 1.7% or $104 million reflects stabilising valuations following the adjustment made in 2020 due to market conditions impacted by COVID-19 and negative rent reversions of 7.8%
• 39% portfolio weighting at 31 December 2020, target weighting remains at 33%
• Traralgon (VIC) contracted to sell for $85 million in line with 31 December 2020 book value

Commercial Property – Workplace and Logistics

Ms Mason said: “We are reinvesting the proceeds from non-core Retail Town Centre disposals into our $3.3 billion development pipeline comprising 220 hectares of land, which will deliver returns above our internal hurdle rates and growth to our Logistics portfolio over an eight year period.

“Planning has commenced on our $2.6 billion Workplace projects, providing flexibility to incorporate design elements reflecting changes to the post COVID-19 workplace. A Stage 1 planning proposal was lodged for Piccadilly, Sydney (NSW) in August 2020 and a Development Application was lodged for Walker Street, North Sydney (NSW) in January 2021. These approvals are accretive to the value of our Workplace portfolio and we will continue to carefully assess market conditions, seek pre-commitments and aim to have capital partners in place before commencing new developments,” said Ms Mason.

• Logistics FFO $81 million, comparable growth of 1.3%
• Workplace FFO $30 million, comparable growth of 1.0%
• Net revaluations up $129 million from 30 June 2020
• Logistics leasing demand remains strong, completing 182,019 square metres
• $0.5 billion Logistics development completions expected in FY21 to FY22
• Acquired or contracted to acquire strategic Logistics sites valued at over $200 million
• $5.9 billion3 Workplace and Logistics development pipeline on the eastern seaboard
• 31% portfolio weighting (28% at 30 June 2020)

Residential Communities

• FFO $136 million, up 1.8%; operating profit margin 17.4%
• 3,101 lots settled, up 43.7%, including 201 townhomes representing 6.5% of settlements
• 4,809 contracts on hand at 31 January 2021 with ~3,000 lots expected to settle in 2H21
• 3,835 net sales up 53.5%, the strongest result in four years
• Strategic restocking on capital efficient terms; $560m for five new acquisitions adding ~9,200 lots to our future pipeline along the eastern seaboard
• Established a strategic capital partnership at Katalia (VIC)
• 22% portfolio weighting at 31 December 2020

Group Executive and CEO Communities, Andrew Whitson, said: “We remain Australia’s leading developer of residential masterplanned communities and maintained our market share, at over three times our nearest competitor. Shifting customer preferences and a desire to live in affordable, connected, and lower density communities aligned with our strengths.

“We capitalised on the strength of the residential market and settled 3,101 lots, a 43.7% increase on the prior corresponding period. This has been driven by our extensive network of activated projects, inventory available for sale, and a range of sought-after product types at a variety of price points,” said Mr Whitson.

Settlement volumes were skewed in the first half to Queensland, Victoria and Western Australia, and the average operating profit margin remained stable at 17.4%. Sales activity was equally strong with 3,835 deposits, over 53% higher than the previous corresponding period, and January sales and enquiry was strong demonstrating the strength of underlying demand which we expect to continue post HomeBuilder.

Mr Whitson said: “Our landbank has now grown to over 81,000 lots, geographically spread in key growth corridors with an 86% skew to the eastern seaboard. Our business is uniquely positioned to capitalise on the market recovery given our pipeline of active projects, our scale, and the strength of our brand in masterplanned communities.

“Strong sales results, including over 4,800 contracts on hand and low default rates are expected to drive settlements to over 6,000 lots in FY21,” said Mr Whitson.

Retirement Living

• FFO $36 million compares to $17m in 1H20, reflecting higher established sales and accrued DMF release associated with non-core village disposals
• A fair valuation decrement of $40 million in the Retirement Living investment property portfolio was predominantly due to a reduction in growth rates
• 6.3% growth of established contracts on hand driven by increased demand
• 386 settlements, up 3.6%
• Commenced construction at Minta (VIC), our second Land Lease Community
• Land Lease Communities development pipeline has grown over 25% to approximately 3,000 lots
• 8% portfolio weighting at 31 December 2020

Mr Whitson said: “Our Retirement Living customers continue to place increased value on support and wellbeing that village living provides. This has driven an improvement in established sales in 1H21 of 6.3% compared to 1H20. We expect sales to increase over time, supported by customer preferences and the continued growth in this demographic.

“We have made good progress on the two key pillars of our growth strategy. We are actively improving returns from our established portfolio by unlocking efficiencies in sales and marketing, selling non-core villages, and refreshing our customer value proposition. This has translated into strong customer enquiry and higher sales rates.

“The scaling up of our Land Lease Communities business continues to gain momentum, with a dedicated team now in place and construction commencing at our first two communities in Queensland and Victoria. We have increased our pipeline by over 25% to more than 3,000 new home sites, which now represents the third largest pipeline in the land lease sector.


Due to gaining more certainty around our business performance and market conditions, guidance is re-established. We are targeting 2H21 FFO per security in the range of 16.3 cents to 16.9 cents, compared to the 2H20 FFO result of 18.6 cents per security. This will result in FFO per security for FY21 of between 32.5 cents to 33.1 cents. This includes an expectation that the Communities business will deliver over 6,000 Residential settlements for the full year at an average margin of approximately 19% and that we will maintain recent rent collection trends in Commercial Property.

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

Our Views

Stocklands forecast distribution of circa 24.3cps equates to a 5.63% distribution yield on todays price of $4.53.

Stockland have continued their transition away from their earlier 3 sectors of just residential, retail and retirement and heading toward their target allocations as indicated below.

The target allocation of 33% to Town Centres requires a further scaling back of their investments in the sector by about $1bn, which is a significant challenge in an environment where large scale centres (of which 63% of Stocklands are) are seeing negative leasing spreads and softer cap rates.

Stockland have managed to turn their Retirement Village earnings around and whilst they are keen to divest some of their interest they will also continue to expand the business.

The residential communities business is performing exceptionally well as a result of the job builder bonus, however there is some concern that this is just a bringing forward of demand which may result in a slower period ahead. The lack of migration may also see challenges in maintaining high sales rates.

Stockland are on our recommend list.

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