Release Date: August 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stockland Corp Ltd (STKAF, Financial) delivered FY24 financial results at the top end of their guidance range.
- The company maintained a strong balance sheet with gearing at 24.1%, comfortably within their target range of 20% to 30%.
- Stockland Corp Ltd (STKAF) executed three new capital partnerships, enhancing their operating model and generating new sources of recurring income.
- The company launched 15 new master-planned communities (MPC) and land lease communities (LLC) during FY24, with a further 8 new communities expected in FY25.
- Stockland Corp Ltd (STKAF) made significant progress in their ESG strategy, including a partnership with Energy Bay to achieve 100% renewable energy across their portfolio by 2025.
Negative Points
- FY24 funds from operations (FFO) were down 4.5% relative to FY23, primarily due to a higher weighted average cost of debt and lower contributions from commercial development activities.
- Net tangible assets (NTA) per security were down slightly to $4.12, impacted by net valuation movements in the workplace portfolio.
- The company experienced a decline in commercial development profits and related management income, reflecting a lower level of development activity for third parties during FY24.
- The effective tax rate increased to 7% in FY24 compared to 4% in FY23, as the company utilized the last of their tax losses in FY23.
- Operating cash flow for FY24 was significantly impacted by land payments, although it is expected to be stronger in FY25.
Q & A Highlights
Q: Good morning, Tarun and Andrew and team. I was just interested in the resi margin being down and also settlement volumes broadly flat into next year or flat to slightly down. If you could sort of elaborate on key drivers there and how you're seeing '25 from a resi trading perspective, given you did have a good sales result in the fourth quarter?
A: (Andrew Whitson, CEO of Development) Yeah, sure. Thanks, Tom. From a margin perspective, what we are seeing is price growth across all states except Victoria, at the moment. Particularly strong in WA where it's been strong double-digit growth in the last 12 months. But what is impacting margins next year is the mix shift towards Western Australia, which has traditionally been our lowest margin portfolio. Margins are growing there and improving, but it's still that shift which is impacting those margins. With regards to underlying retail market conditions, we're seeing them pretty consistent from Q4 into the start of FY25 financial year. What we did call out was that Q1 net sales would be impacted by cancellations flowing through from Victoria. Just to give you a bit of flavor around that, we called for around 1,500 settlements in Victoria in June, majority of those in the last two weeks. We had about 400 of those push out into this financial year. About 50% of those will settle and about 50% of those will cancel. So it's that elevated cancellations in Victoria, which on a net basis, we'll see lower Q1 net sales. But that is taken into account in the guidance of 5,300 to 5,700 that we've provided.
Q: Hey. Good morning, guys. I was just hoping if you could give a bit more color on the commercial development line. Looks like it was fairly weak result in the second half. So could you just talk about what's happened in that segment? And then also what's the outlook for earnings coming back in a material way for development over the next few years? Thanks.
A: (Andrew Whitson, CEO of Development) Yeah, sure. Thanks, Lauren. For FY24, there's probably two elements that have seen lower commercial development profits. One has been lower fund through profits from the impact development and the others being less built-to-sell profits from logistics. Next year, the contribution from commercial development profit will be immaterial. We would expect that to improve in following years as we bring on some of them -- some more logistics built to sell projects. There's some elements of that at both Melbourne Business Park and [Sainsbury].
Q: Well, thanks. Just a couple of quick financial ones. Just the operating cash flow was significantly impacted by land payments in FY24. Just wondering what that looks like in the forward 12 months.
A: (Alison Harrop, CFO) Yeah. So I can take that one. So, yeah, you're right, it was impacted by some land payments. But having said that, the second half for '24 was actually around $600 million stronger than the first half. And obviously, that's really reflecting the second half our settlement skew and was in line with expectations. Going forward on the '25, we do expect operating cash flow to be stronger, but DevEx is likely to remain a little elevated as we launch those additional LLC and MPC projects. But yeah, it should be a little stronger into FY25.
Q: Thank you. Good morning. Just a couple of quick ones. So firstly, for Alison on the overhead expectations into FY25 please?
A: (Alison Harrop, CFO) Yeah. Sure. So for '25, we expect overall overheads will likely to be flat. So what you've seen this year is that we continue to kind of balance investing in growth in the business versus cost containment kind of for the other -- the rest of the corporate functions. And so that's why we had a very -- a small increase this year. We're working very hard on that. So next year, overall overheads, like I say, expected to be flat for '25 on this year.
Q: Yeah. Good morning. Two quick questions for me. Can you just talk about your payout ratio in line with some of the other questions on your liquidity and funding requirements as well. You've kind of been at the bottom end of the 75% to 85% for the last couple of years. Is that kind of what we should assume for the next few years as well, given how much you need to fund the pipeline?
A: (Alison Harrop, CFO) Yeah. Look -- hi, Lou. This is Alison. Yeah, we have been at the bottom end of that range. I think we feel that's a prudent position to be obviously retaining capital in the business. We have many opportunities to invest that capital to deliver future growth. So we feel that that's a prudent place to be in terms of that range. And likely to be the sort of seeable future.
Q: Yeah. Hi. Really quickly. I just wanted to understand what the guidance was for the sell-down of Land Lease projects into partnerships for this year. What sort of quantum that we're talking about for profits?
A: (Andrew Whitson, CEO of Development) Yeah, James. This year, we'd expect that sell-down the -- from a profit perspective below last year. Yeah, that's how you should think about it.
Q: Good morning, guys. I was wondering just on Town Centers. If you could just talk through the comparable income growth for the last 12 months, just struggling to reconcile how you get to the low 2s, just given some of the metrics that you're reporting.
A: (Kylie O'Connor, CEO of Investment Management) Yeah. Thanks, Ben. Yeah, so our comparable FFO growth over the period was at that 2.2% level I would say a couple of things, portfolio is still performing really well. We have had strong income growth, and as you've seen those leasing spreads over the last three-year period continued to come through. What we've seen in the '24 period is an increased cost of electricity. So we've come off a favorable energy contracts in the prior corresponding year. So that's had some impact on our net number and then we're also coming off a higher base in the previous years. So if you look at the prior year to that FY23, we had growth of almost 5%. So the combination of those two factors has resulted in that low 2% number.
Q: Thank you. The other one was on the Land Lease partnerships. Obviously, this half you announced a new partnership on Land Lease with Invesco. You obviously had another partnership with Mitsubishi, so say, two partnerships now on Land Lease. Can you talk to how, I guess the product, or the pipeline
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
