The share price of Stockland Corporation Ltd (ASX: SGP) jumped 0.9% in early trade to a near two-month high of $4.42 after management delivered a pleasing profit report card and upbeat outlook.
There's plenty to like about the property group's results with its statutory profit surging by 34.4% to $1.2 billion and funds from operations (FFO) increasing 8.5% to $802 million. FFO was ahead of management's guidance and consensus forecast but the good news didn't stop there.
Dividends are up 4.1% to 25.5 cents for FY17 and management is tipping FFO to grow by a further 5% to 6.5% in FY18, which is slightly ahead of what the market was expecting if you used the mid-point of the guidance.
There were worries about its retail properties given the general weakness in the sector, but Stockland managed to grow comparable FFO in its retail portfolio by 3.5% as rentals increased by 2.9%. Retail is the largest contributor to group FFO – making up a little more than half of the total $802 million.
However, its residential business (mostly made up of house and land packages) is one of the most hotly watched areas given the warnings by several experts about the housing bubble risks.
But there was no hint of this in Stockland's presentation with FFO from its residential communities division surging 17.4% (it's the best performing division) to $270 million. What's more, management is expecting moderate price growth in FY18 for New South Wales as demand is expected to continue to outstrip supply.
The outlook for Melbourne is also pretty bullish although price growth is predicted to ease from recent high levels. What management did acknowledge though is that stronger overseas and interstate migration is needed to keep prices up.
As highlighted in my previous article, the market may be underestimating the impact of falling migration due to tighter regulations. The federal government is under pressure to curb the number of migrants to improve housing affordability.
This is perhaps the most significant takeaway from Stockland's results. Investors might be better served watching immigration data than housing and building statistics to gauge the outlook for the property sector.
Coming back to Stockland, its results presentation also held another interesting point. The worse of the property plunge in West Australia may be over with management saying that prices are expected to be stable with volumes showing modest growth in FY18.
Overall, Stockland delivered a solid result, although it didn't do much to assuage my concerns about the outlook for the residential property market.
