Stockland takes hit to earnings Diversified real estate group Stockland will incur another slash to earnings of about 25 per cent due to impairments of up to $49 million, which is at the higher end of previous guidance of a downgrade. But Stockland is confident of paying about 24.4 cents in dividends for this financial year. "Additional impairment on previously impaired projects of $49 million reflecting further analysis and in some instances divestment negotiations," chief executive Mark Steinert said. A material amount of this impairment regarding a provision regarding a court appeal, where we have assumed the worst outcome. In February, when the company released its interim result, it said it had made a $306 million write-off in the residential sector. Stockland shares were up 1.3 per cent at $3.87 in afternoon trade. In the strategic review, Mr Steinert said Stockland would increase its focus on the retail and industrial businesses but maintain its exposure to residential/community developments and retirement living. As with Mirvac, Stockland will look at more mixed-use housing developments such as projects at Leppington and Marsden Park, in Sydney. He said that despite the write-downs, the housing market was showing some signs of recovery. "The residential platform will improve in coming years with the launch of new projects and the disposal of non-core assets in the residential business," Mr Steinert said. The retail sector is seen as a growth area as evidenced by the strong performance of the new Shellharbour and redeveloped Merrylands centres, which have a high weighting to food and supermarkets. More of these will be developed. A rise in e-tailing has boosted the industrial/warehouse division to provide storage for goods bought online. That would remain a focus for the group's development sector, he said. The flat office market, which Stockland had forecast, means the group will reduce its exposure so that it holds only A-grade assets in the central business district. But joint ventures in the retirement sector will be investigated as the group "explores options for accelerating those returns." The group has forecast a return on assets for the sector of about 6.5 per cent this financial year. The review, started by Mr Steinert when he joined the group in January, surprised the market by maintaining the focus on the residential and retirement businesses. Some analysts had been speculating that the flat housing market would lead it to scale back in the retirement sector. Most people have to sell their house to buy a unit in a retirement village. But Mr Steinert told an investor briefing on Monday that joint venture options were being looked at. Stockland holds the first right of refusal over retirement assets with FKP Property and there has been talk of discussions being held about possible ventures between the two. In his briefing Mr Steinert said the overall business remained in transition. "We have a clear strategy to achieve stronger future returns through consistent application of a disciplined risk-focused capital allocation framework combined with agile execution," he said. We will achieve this through the agile allocation of capital within a disciplined risk/return framework, driving returns from our existing assets and tightly controlling costs. Mr Steinert said the group would aim to cut overheads by another 10 per cent through further centralisation of the head office's human resources, finance and marketing. Last week the group announced management changes which included the departure of the head of residential Mark Hunter. Finance director Tim Foster will step down in a few months. The investment banker Simon Shakesheff has joined in a new role to oversee investor relations. Simon Wheatley of Goldman Sachs said Stockland had confirmed that earnings per share would be down 25 per cent versus the 2012 year. "The new guidance includes a restructuring provision, and it is perhaps not surprising that management are looking to include all possible expenses into 2013 financial year to rebase it to a level from which it can grow in the future to meet key performance indicators," Mr Wheatley said. At the portfolio level, retired living appears to be core with no mention of its being sold and with management planning to increase return on assets and scale up development. This will be a significant surprise to some investors. We have been of the view that cash return on assets has been increasing in recent years, yet remains well below acceptable levels. Residential initiatives are all big picture and not essentially new, aside from the disclosure of expanding medium-density residential offering. We prefer to adopt a wait-and-see approach, given Stockland's historical activity and withdrawal in built form. In the investment space, the outcome is largely as expected. Focus will remain on retail and the development opportunities in the portfolio. Mr Wheatley said the office portfolio would be a "tactical" exposure, suggesting a small targeted base of assets but with no discernible strategic objective at this stage. There would be more focus on industrial with an expected upweighting to logistics and warehousing, though this would be gradual.