Australand positive on residential business
It sees residential projects driving earnings growth
CAPITALAND’S Australian unit Australand expects its residential development business to drive earnings growth over the next 18 months.
The group now gets about 80 per cent of its earnings before interest and taxes (Ebit) from recurrent income from its investment properties. Development accounts for the remaining 20 per cent.
Australand’s target is for development to contribute 30-40 per cent to Ebit eventually. This should happen as the group’s residential business picks up, said managing director Bob Johnston.
‘I think our residential business should return to normal levels (in the next 18 months),’ Mr Johnston said in a media interview. ‘Development earnings have been in a trough over the last 12 months but now they are coming back.’
The group aims to get a 12 per cent return on capital by 2012 for its development division. Right now, most developers in Australia get returns in the ‘high single digits’ for residential business, Mr Johnston said.
He is bullish as the cities in which Australand operates – Sydney, Melbourne, Brisbane and Perth – all have an under-supply of homes.
In particular, Mr Johnston is especially upbeat on the housing market in Melbourne. Home prices there have climbed 18-25 per cent over the past year and could increase another 5-10 per cent in the next 12 months, he said.
Australand returned to the black in the first half of 2010. Last week, it reported a net profit of A$72.2 million for the first six months of the year, against a net loss of A$268.8 million in the year-ago period.
The turnaround was helped by A$11.8 million of revaluation gains on investment property. A year back, Australand reported a A$235.3 million revaluation loss. There was also no half-time impairment of development assets this time around. Last year, Australand booked impairments of A$93 million.
Mr Johnston said that with the recovery in Australia’s office markets, the group should see revaluation gains on its investment properties over the next 12-18 months.
Source: Business Times, 6 Aug 2010
