The $11 billion diversified property group Stockland is expecting another year of strong house price growth of up to 5 per cent after recording a record of more than 5800 home sales in the booming east coast housing market.
Stockland delivered a strong net profit of $702 million up 0.7 per cent, and generated funds from operations – its key metric – of $369 million, up 7.8 per cent.
Stockland share price rose to $4.58 from $4.56 the previous day as investors responded to solid results from each of the group's retail, office, retirement and residential divisions.
The group has sharpened its 2017 guidance of 6 per cent to 7 per cent of funds from operation growth.
"We're implementing our strategy to reshape our portfolio, growing our asset returns and customer base, improve operational efficiency and maintain a strong balance sheet, which has enabled us to increase our distribution to investors," chief executive Mark Steinert said.
"We expect favourable economic conditions to continue and interest rates to remain relatively low."
Stockland's residential business has benefited from strong housing conditions on the Australian east coast, and made 2853 settlements in the half year to December.
Residential operating profit margin reduced to 14.1 per cent however, reflecting project timings, with the full-year operating profit margin expected to be 15 per cent to 16 per cent.
Settlements were positively skewed to the first half of the year, due to accelerated production and increased settlements, and the company anticipates it will meet its full-year 2017 target of more than 6000 lot settlements.
The company also takes the view that Perth's falling housing prices have stabilised.
The increase in oil and gas prices, increased funding in infrastructure and commitment to rail projects has had a multiplier positive impact on the Perth economy.
Perth house prices lean towards a slight price rise if not zero price movements in the next quarter, Mr Steinert said.
Additionally, changes in taxes such as negative gearing to combat affordability issues should be handled carefully, he warned.
Stockland's commercial property business generated a 3.7 per cent growth in comparable funds from operations.
The renaissance of shopping centres as a destination rather than just for "paying bills" have reduced vacancy across Stockland centres, Mr Steinert said.
Retirement Living was outstanding for the group, realising a 43.8 per cent growth in operating profit at $26 million, which reflected a first half skew, due to improved margins and the timing of super lot and asset sales.
Macquarie Group analysts gave Stockland a neutral recommendation.
"Key variance to expectation is in the residential business," Macquarie said.
"Medium-term residential margin guidance is now more than 15 per cent versus previous guidance of about 14 per cent consistent with our views that management have been conservative in their recognition of profit from this business."
Stockland is on track to deliver a full-year distribution of 25.5¢ a security and will pay an interim distribution of 12.6¢ per security by February 28.
