STOCKLAND has shelved its previous earnings guidance of 46.7 cents for FY09 and downgraded it 35 cents, as a result of $150 million write-down in its Australian residential and United Kingdom businesses.
Stockland also announced that it has disposed of around $211.1 million worth of commercial properties and has pre-sold its Edmund Barton Building in Canberra for $186.0 million on completion of the current redevelopment.
In the first quarter of FY09 ending December 31, Stockland sold $211.1 million of assets including;
• M4 Greystanes Industrial Park – $53.5 million
• Batemans Bay and Bridge Plaza shopping centres – $80.5 million
• Amory Gardens, Ashfield – $29.1 million
• 300 Ann Street, Brisbane – $38.0 million
• 9 Orielton Road, Smeaton Grange – $10.0 million
Stockland’s managing director Matthew Quinn said the proceeds were been used to pay down debt.
He has reaffirm the commercial property portfolio is expected to record an increase in average capitalisation rate of around 50 basis points, to a portfolio average of 7.2%. This will be partially offset by rental growth, with a net reduction in values of around $350 million – $400 million.
Quinn said given the higher cost and scarcity of capital a number of commercial property projects will be deferred.
The group’s residential division continued to underperform despite the Federal Government’s First Home Owners Boost and recent interest rate cuts. Quinn said normal course of business sales are tougher in the current market climate, but are generally on track.
He added that the group is working on a number of bulk residential project sales in line with its capital recycling strategy, those deals are due to settle in the second half of FY09.
“Stockland has a number of projects pitched at the top end of the market, where sentiment remains fragile and value is impaired. Stockland will also sell some development projects wholesale which were previously earmarked for development at lower margins,” he added.
As a result, Stockland will book an after-tax write-down of around $105 million in first quarter of FY09. This represents around 5% of the total Australian residential inventory book value.
Meanwhile the UK business is expected to break-even in FY09 and book inventory write-downs of around $50 million after tax. Quinn said no significant new capital will be invested in the business in the short term and he warned goodwill impairment may be higher than anticipated.
As a result of the write-downs and slowdown in residential sales, Stockland has shelved its previous forecast was for a nominal increase in earnings per security for FY09 from 46.7 cents to 35 cents. The EPS was also diluted by Stockland’s $300 million placement, and acquisition of strategic stakes in FKP, Aevum and GPT.
The estimated distribution/dividend for FY09 is 34 cents per ordinary stapled security. The timing of residential sales will result in a skew in profits to the second half of the year. However, Stockland will pay an interim distribution/dividend equal to half of the total estimate for FY09, or 17 cents per security.
Stockland also announced it has opened the distribution/dividend reinvestment plan and will be underwritten to about 50% in addition to natural take-up.
Meanwhile Quinn said Stockland continues to comply with all of its debt covenants and has approximately $1.1 billion of debt headroom, with circa $500 million of available committed facilities currently in place.
“We are also adapting our strategy in response to the changing market dynamics…
“We recognise that market conditions in Australia are getting tougher and we are managing our business prudently, with a strong focus on capital management to ensure we come through the downturn in sound shape,” he added.
In other related news, Stockland’s two month exclusive due diligence period over FKP’s retirement assets has expired on December 15.
But Stockland has advised FKP that further analysis is needed before it is in a position to make a formal proposal and FKP has agreed.
Meanwhile, Stockland’s direct shareholding in GPT will be transferred into an off-balance sheet arrangement, enhancing Stockland’s liquidity position.
Quinn said Stockland has no current intention to increase its investment in Aevum.
Australian Property Journal
