STOCKLAND’S shares sank deeper into the red yesterday despite announcing an 8.7 per cent lift in its annual underlying profit to $752.4 million and shrugging off suggestions of a correction in the nation’s housing market.
But the company’s managing director, Matthew Quinn, has stuck by its “three Rs” strategy — focusing on residential, retail and retirement property — saying Stockland would not respond to short-term cycles.
The result for Australia’s second-largest listed property group was ahead of its earlier guidance of a 7 per cent lift in earnings for the year ended June 30.
“We think this is a terrific achievement and one that we are very proud of,” Mr Quinn said yesterday about the result in the context of the weakened consumer confidence.
But in a broadly positive market, the group’s shares fell 10c, or 3.6 per cent, to $2.68 — their lowest level since March 2009 when they sank to $2.17.
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“In our view, the market seems to be pricing in a correction in house prices in Australia. We think it is unlikely to happen,” Mr Quinn said.
It would take rapidly rising interest rates, rising unemployment and bad lending practices for the housing market to collapse, he said.
If one or all three of the factors occurred, there would be forced sales, leading to a price correction, although none of these factors were present in Australia today.
He said affordability was an issue the group was addressing through the construction of smaller houses on smaller blocks.
Mr Quinn said the housing slowdown was cyclical and not structural because demand was underpinned by continuing population growth.
He added that the retail sector was going through a cyclical downturn and not undergoing structural changes because of online sales, as suggested by some commentators.
Households were faced with short-term pressure, and despite high employment, there were more self-employed and part-time workers whose incomes had fallen, he said.
The weakest markets for Stockland were Perth and Brisbane for its residential and retail arm, despite the mining boom.
Mr Quinn said the best way to counter online retail sales was to build fewer shopping centres to reduce vacancies.
Fashion and apparel retailers in big shopping centres were worst affected by online competition.
Residential communities contributed $233m to Stockland’s operating profits, up from $213m in the previous year. The company had record contracts valued at $483m at June 30 this year.
Mr Quinn said this provided a strong start to the year, but margins growth would be flat because of affordability issues.
Retirement living generated a profit of $53m in the year.
Recurring incomes from investment assets contributed to 71 per cent of its profits, while development and residential business contributed to 21 per cent.
Distribution per security rose from 21.8c in 2009-10 to 23.7c in the 2011 financial year.
With gearing of 22 per cent and no debt maturity, Mr Quinn said earnings per security in the 2012 financial year would be the same as 2011, provided that interest rates did not rise and the Australian economy was not materially affected by the current global economic uncertainty.
Mr Quinn said he did not expect the recent volatility on global markets to present a problem for the current financial year.