The reporting season for Australian real estate investment trusts will throw the spotlight on the state of the residential market, according to analysts.
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Several larger trusts are major players in the housing market and most are predicting higher returns from the sector in the coming year.
Most have already stated they expect the rate of price growth to slow from the highs of 2013, but they are remain positive that demand will continue outstrip supply, hence they will all retain a large exposure to the sector.
Stockland is the first large A-REIT to kick off the so-called "confession season" with analysts predicting an underlying profit of $280.1 million, up from the $267 million for the same time in 2013 and 12¢ earnings per security growth (EPS), being a 3.1 per cent rise on the previous corresponding period.
The diversified group has been busy in the first weeks of this year, buying about $300 million worth of land for mixed-use housing developments, mainly in Victoria.
Richard Jones, JP Morgan's A-REIT analyst, said the key for the Stockland result will be whether the record residential sales rates can be maintained in the fourth quarter of 2014, (about 1700 sales) and if the residential margin recovery continues.
"We believe Stockland's residential business is in very good shape with the sales strength yet to be realised in volumes and the margin recovery to drive strong EPS growth over the next 2 to 3 years," Mr Jones said, in a note to clients. One project is the $4.6 billion development, to be known as Cloverton, which will occupy 1141 hectares at Kalkallo in Melbourne's northern growth corridor.
Stockland outperforms
"Stockland is ahead of where we thought we would be at this stage as it targets 11 per cent to 13 per cent operating profit margin by financial year 2016 and believes normalised margins will be more than 15 per cent over the medium term."
Stockland has a $1.2 billion retail development pipeline including five active projects – Hervey Bay ($125 million), Wetherill Park ($222 million), Baldivis ($116 million), Point Cook ($24 million) and Glasshouse ($14 million), the latter two commenced in the first quarter of 2015.
There are a further 10 projects with development applications in place or submitted, including Jimboomaba (its 50 per cent share is $65 million), Gladstone ($175 million) and Green Hills ($330 million).
Mr Jones said leasing is the focus for the active projects to try to achieve their stabilised yield within two years of development completion.
"We are looking for leasing updates on the active projects and potential timing on new starts in 2015," Mr Jones said.
SCA Property, Mirvac and Goodman are also reporting in the second week of February, with office, retail and industrial markets the main focus.
Mirvac is the largest house developer in NSW and will provide an insight into its Green Square development and the progress of its large Harold Park project in Glebe. It has also, rerportedly, approval to redevelop Scaba House, Bondi, into 190 new apartments.
UBS has forecast a net profit of $268 million for Mirvac, up from the $194 million reported in Februay 2014. Its profit will be boosted by last year's acquisitions, including a half share of Westpac's headquarters at 275 Kent Street, Sydney.
