Stockland took an opportunity this week to brief investors on aspects of their business during a roadshow and asset tour around Melbourne.
The key messages are;
- the recent residential market softening will reduce settlements in FY19 and will likely slow production in FY20 residential defaults have increased to 5%, however enquiry rates following the Federal Election have improved,
- the move into more residential built form product adds to diversification and overall yield but doesn't shield from market impacts
- there is some progress on the sell down of non core retail and retirement village assets though there remains more to do to move away from discretionary retail
- there is progress on the desire to increase exposure to wholesale and logistics (however over last 5 years only 8 W&L assets have been added to portfolio, taking it from 1.2m sqm to 1.4m sqm)
- there continues to be a desire to build capital partnerships across key assets
The business is still targeting an increase in FFO of 5% which they expect to achieve assuming;
- operating profit margins are maintained above 18% in residential markets despite lower settlements of ~5,900,
- non core retirement village sales proceed commercial property comparable
- FFO growth of ~2% (was 3.8% last year)
- new retail leases and renewals rental spreads are no worse than -3.5% , however reduced income growth outlook and cap rate expansion are driving negative revaluations
- non-core retail divestments proceed as planned
The biggest swing factor in the above will be in the potential negative revaluations that may come to play from the retail sector. If rental leasing spreads are negative and cap rates soften (as is evident in other REITs) the impacts may be greater than anticipated.