Stockland’s Customers Returning but pain Lingers

Stockland have provided a 3rd quarter update with news that customer enquiries and visitations in its retail centres and residential estate is picking up but that the pain from delayed sales & rental abatement is yet to be fully understood.

Managing Director and CEO, Mark Steinert, said: “After a promising start to the year, with strong residential sales and settlements in January and February, positive comparable sales growth in Retail Town Centres, and ongoing high occupancy in the Workplace and Logistics portfolio, the impact of COVID-19 on the economy since early March has presented challenges across most areas of our business.”

Retail Town Centres had experienced strong portfolio performance in January 2020 and February 2020, however from the middle of March 2020, this business felt the greatest impact from the COVID-19 pandemic including reduced foot traffic, non-essential services store closures and high demand for essential services.

Stocklands expects its retail portfolio to be reasonably resilient with approximately 70 per cent of its sales from low discretionary and non-discretionary tenants and with exposure to neighbourhood and sub-regional malls of around 41 per cent of the portfolio by asset value. Foot traffic was down 40 per cent on pre-COVID-19 levels in mid-April 2020 however, over 60 per cent of stores by rental income remained trading through March and April. Both measures have since improved in line with the easing of government restrictions with around 75 per cent of stores by rental income now trading. SME tenants are estimated to comprise around 35 per cent of rental income.

Stockland advised that discussions with tenants impacted by COVID-19 continued in April 2020 on a case by case basis and this process will take time to complete.

In its Residential business, the Group performed well during January 2020 and February 2020, with strong enquiry levels and net sales continuing to increase, however the impact of the COVID-19 pandemic and associated restrictions contributed to a material decline in net sales to 137 lots in April 2020 reflecting lower March enquiries. New enquiry levels have since recovered, in line with pre-COVID-19 levels, with sales offices fully operational in WA, NSW and QLD over the last week with the easing of government restrictions.

Stockland reported that settlements are completing within similar timeframes to pre-COVID-19 levels and the default rate in April 2020 is reasonably low, at around 4 per cent, only slightly above their long term average after having risen in March 2020.

The current low interest rate environment, positive credit conditions and government stimulus, particularly the JobKeeper subsidy, and reduced supply are expected to support the market recovery. However, despite early signs of improvement, Stockland are yet to identify any clear trends about the shape and speed of recovery of the market.

Their Retirement Living business achieved 225 net reservations for the Third Quarter which their strongest result for established sales in more than two years. April 2020 net reservations were however reduced as older Australians were impacted the most by government restrictions. Stockland reports that enquiry and sales were beginning to improve in early May 2020 as restrictions are eased.

According to Stockland, the Workplace and Logistics business has been less affected by the COVID-19 restrictions however SMEs are estimated to comprise around 25 per cent of the Workplace and Logistics portfolio by rental income and abatement requests received to date from this tenant group are being reviewed on a case by case basis.

For the full year to 30 June 2020, the outlook remains uncertain and funds from operations and distribution guidance remains withdrawn until further notice.

Managing Director and CEO, Mark Steinert, said: “Our purpose is to create places that enable a better way to live every day, and, since 1952 we have been building places to enhance communities. As we emerge from this experience, more than ever this purpose remains relevant and we will focus our energies on supporting our customers, tenants, residents, and our people. We believe the new environment will create opportunities where the strength of the Stockland brand can be leveraged for the benefit of all our stakeholders.

“We remain focused on creating Australia’s most liveable and sustainable communities and we are proactively ensuring that Stockland can restore its business activities safely and efficiently as restrictions are eased,” said Mr Steinert.