Victorian residential market likely to impact on 2013 earnings as Stockland confirms continued tough conditions

Stockland’s 2013 full-year earnings are likely to fall 15% unless there is an “unlikely” improvement in the “challenging” Victorian residential market, the residential developer has told investors.

In its latest market update, Stockland said there had been no improvement in the Victorian residential market since the company’s AGM in October.

“Unless the Victorian market improves soon, which seem unlikely, underlying earnings per security (EPS) for the 2013 financial year will be at the lower end of our previously guided range of 10% to 15% below the 2012 financial year. EPS decline will be even greater in the first half, primarily due to a large skew to the second half in the Residential business,” said Stockland.

In his October AGM address, outgoing managing director Matthew Quinn said Stockland’s residential business faced a “high degree of uncertainty given current buyer caution” though with some signs of improvement in Perth and a bolstering in NSW and Queensland through first-home buyer stimulus targeted at the new housing market

“The reality, though, is that conditions are very tough in Victoria where the company’s most profitable projects are located,” Quinn said.

The lower earnings expectations follows the release of a Melbourne update from The National Land Survey Program, which found that nearly a third of residential lots released by big land estate developers on Melbourne's fringes are being returned by mid-sized home building companies, which can't find smaller home builders and or end-use home buyers.

The poor outlook will be one of the challenges faced by incoming Stockland boss Mark Steinert, who will replace Matthew Quinn as chief executive from January 14.

At today's market update briefing, Stockland residential boss Mark Hunter acknowledged recent interest rate cuts and the reintroduction of first-home buyers’ grants in NSW and Queensland, but said market uncertainty and a lack of consumer confidence were continuing to present challenging market conditions, which were particularly apparent in the Victorian residential market.

“Although the challenging market is impacting our performance in the 2013 financial year, we have made good progress in diversifying our residential portfolio and we are meeting the market with more affordable products. We have demonstrated our continued focus on larger, master-planned communities, which present better economies of scale and greater potential to deliver stronger returns over time.

“In the second half of 2014 and 2015 financial years we will bring more projects to market that meet these core criteria and this will drive stronger returns. We will also finish a number of projects in 2013 and 2014 financial years that don’t meet these criteria and are currently impacting our performance.”

Stockland will provide its next update to investors at its half-year results in February.