Stockland see hope for Resi in 2020 but Retail Remix Continues
Stockland released its first quarter market update for the FY20 period, with an improvement in residential sales providing hope for 2020 however despite an increase in comparable retail sales growth ongoing work to re-mixing its Centres will continue to be required.
Stockland Managing Director and CEO Mark Steinert said the company has maintained its disciplined focus on strategy execution: “We’ve had a solid start to the year. Our residential communities business recorded its strongest quarterly result this calendar year, finishing moderately above expectations with 1,149 net deposits taken and 4,245 contracts on hand. However, we expect a greater Communities profit skew of around 65 per cent to the second half this year.
“The residential market cycle has improved, particularly in Sydney and Melbourne, and the southeast Queensland market is steadily improving. We remain on track to deliver over 5,000 settlements in FY20, including around 500 townhomes.
“The Sydney market was particularly strong in September, however our overall default rate remains elevated due to a portion of contracts extended from the fourth quarter of FY19 not settling, and the settlement volume for the quarter being seasonally lower. The number of defaults is moderating and the default rate is expected to reduce over the balance of the financial year.
“Around 80 per cent of our residential customers are owner occupiers, and the current low interest rate environment, improving credit conditions and government incentives are driving buyer confidence. Our strong brand and reputation for quality, liveable, affordable communities underpins our results, as customers are increasingly purchasing from established companies they can trust.
“In line with expectations, our retirement living business achieved 215 net reservations for the quarter, representing a 9.7 per cent uplift on a like-for-like basis on the previous corresponding period, and reflective of the timing and quality of development completions and the improving housing market.
“We remain focussed on reshaping our retirement living portfolio by selling non-core villages; investing in supporting resident satisfaction and the customer journey; and progressing our opportunities in land lease development, with development applications to be lodged for two projects in Queensland in the next month.
“While we continue to explore capital partnering opportunities in our retirement living business, a transaction in this sector is likely to take considerable time to complete and our focus continues to be on driving efficiency and improving returns in the portfolio.”
Stockland’s retail town centre portfolio delivered improved sales reflecting remixing to growth categories and reduced supply of new retail space in our trade areas, as the portfolio further rebalances towards non-discretionary and low-discretionary spend.
“We achieved comparable MAT growth of 2.6 per cent for the period, including 3.5 per cent growth in majors, driven by the strength in supermarket sales. We also achieved comparable specialty sales approximately nine per cent above the Urbis benchmark in the 12 months to 30 September 2019, at $9,462 per square metre.
“Over the coming months we will finalise the remaining settlements from $505 million of exchanged non-core retail divestments, and will continue to focus on improving future income resilience by ensuring rents are sustainable; through repositioning and placemaking initiatives; and remixing tenancies to reflect consumer trends around convenience and experience. We reiterate our expectation that overall retail town centre comparable income will grow moderately through FY20 and improve further in FY21.
Workplace & Logistics
“The workplace and logistics sector continues to drive the growth of our commercial property portfolio as we focus on development, and acquisitions in line with our strategy. Our development pipeline now totals over $2.5 billion, and includes exciting development opportunities within our existing portfolio at Melbourne Business Park in Truganina in Melbourne, North Sydney, Macquarie Park and the Sydney CBD.
“Workplace occupancy remains high, at 99 per cent for our Sydney assets, and enquiry is improving in Perth. Portfolio weighted average lease expiry remains stable at 3.8 years.
“Last week we entered a conditional agreement with the Fife group to purchase two income-producing logistics a