Stockland, one of the country's biggest home builders has been boosted by the residential sector which help provide a 50.6 per cent rise in statutory profit to $696 million for the December half.
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The diversified real estate investment trust reported an underlying profit rise of 8.1 per cent on the previous corresponding period to $313 million.
Stockland's chief executive Mark Steinert said the result was underpinned by continued growth in all businesses, including a solid contribution from residential, which delivered operating profit growth of 45.5 per cent on the same time in 2015. Commercial property operating profit was up 3.8 per cent and retirement living achieved operating profit growth of 9.2 per cent on the previous corresponding period.
The interim dividend was 12.2¢, up from 12¢ and the group said it is on track to achieve its guidance range, and have tightened this to 6.5 – 7.5 per cent earnings per security growth in 2016, with funds from operations growth at 9 - 10 per cent.
"We are targeting a full year distribution of 24.5 cents per security, assuming no material decline in market conditions," Mr Steinert said.
Mr Steinert said the residential business capitalised on favourable market conditions in Sydney and Melbourne, ending the half with a record number of contracts on hand of 4,109, an increase of 377 over January 2015.
"Stockland's residential business is tracking marginally above the top end of its target through the cycle settlements range of 5,000 - 6,000 lots, allowing for some production constraints on recently commenced projects," Mr Steinert said.
"We've activated a high proportion of our residential land bank and we have sufficient depth to our projects in high demand corridors to underpin future organic growth."
The residential chief executive, Andrew Whitson, said: "Our significant increase in operating profit margin to 14.9 per cent, reflected a number of factors including selling a higher proportion of superlots, selling more higher margin lots and achieving stronger than expected price growth in Sydney and Melbourne projects".
Brokers reaction was mixed with some saying the underlying profit was marginally below expectations.
In the results, it shows that rental spreads were a positive 4 to 5 per cent. but incentives as a percentage of rents over the lease term for store fit outs had risen from 7.8 per cent to 12.1 per cent over the six months.
JP Morgan analysts said the $313 million first half underlying profit was about 1.8 per cent below their $319 million forecast due to higher interest expense in what looks a solid result with residential continuing to perform strongly.
The 2016 financial year earnings per security (EPS) growth guidance was tightened up 50 basis points at the bottom end of the range to 6.5-7.5 per cent (JPM was 6.9 per cent).
"Stockland's residential business remains in good shape with sales remaining above settlements in the first half leading to a further lift in pre-sales. This can cushion Stockland from a future residential slowdown. Stockland also has a strong performing and relatively under rented retail portfolio and elevated debt costs (6.1 per cent) which have been re-based to 5.4 per cent at periods end.
More to come
