Stockland Retirement profit down 16.7% ($10M) – recovery from Fairfax/Four Corners negative media emerging

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Stockland turned over 113 fewer retirement homes in FY18 compared to FY17, reducing their operating profit from $63 million to $55 million, a drop of 16.7%.

Importantly for the ASX-listed business, its 2014 objective to build its return on assets (ROA) from 4% to 8% by FY18, which was on track, fell back to just 4.6%.

The company appoints 100% of the blame to the impact of the June 27 (2017) Four Corners program and following Fairfax/ABC campaign against retirement villages in general and Aveo in particular, with its “Bleed Them Dry Until They Die ” campaign.

Aveo’s resales were down 44% across the same 12 months.

In the three months following the TV program Stockland sales were down 36%. They recovered slightly October to December but crashed again in the traditionally bestselling months of January to March – 23% down on the previous year.

However, they see consumer confidence slowly returning, with April to June sales up 14.9% and continuing in July.

It appears that with sales going south the company hunkered down. Their sales, general and administrative costs were paired back over the 12 months from $39 million to $38 million. They did not increase marketing and sales budgets significantly in response to the loss of consumer confidence in retirement villages.

Well before the negative media campaign, Stockland took the initiative of introducing its non-DMF Over 55’s village concept Aspire, which it now wishes to expand nationally from two locations to eight or more, providing ‘choice’.

They have also introduced increased choice of retirement village contracts.

Interestingly their average tenure was 9.0 years which compares to Aveo’s 10 years – for which it received major criticism by the media which label this turnover rate as ‘churning’ residents.

Looking forward, Stockland is predicting an average tenure of 10.9 years, which will delay their DMF income.

As reported here last week, Retirement has now been merged into their Residential division, where it will be the minnow, with a development pipeline of 3,000 sites compared to the larger division which has 82,000 building sites.

Across their 65 villages and 9,600 units, the average village age is 25 years, meaning to keep their value Stockland will need to continue refreshing the product, which they have been doing extensively.

With the backlog of 113 extra homes to sell on top of the 60 that turn over every month, the pressure will continue on sales, marketing and refurbishments.