West Australian apartment development company Finbar Group has again shown it can successfully operate through challenging property cycles, announcing this week it expects to report a net profit of about $8.4 million for the 2020-21 financial year.
Finbar (ASX: FRI) will release its audited results in late August but the forecast figure released to the market this week flag a solid increase of 18 per cent on the previous year’s net profit of $7.07 million.
The good news sent shares in the $240 million-rated company up 5 per cent to 91c by last night.
It will be the 25th consecutive profit for Finbar in a sector where it is notoriously difficult to perform consistently due to lumpy revenues, cyclical downturns and external impacts caused by a raft of industry players including the RBA, banks, regulators and governments.
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Finbar’s improved profit for the financial year that has just ended was built upon increased sales, with 486 completed and off-the-plan apartments sold during the financial year with a total value of $296 million.
Finbar had $52.6 million in cash at June 30. The company’s total completed stock value stands at $59.9 million, which equates to a sell-down of $137 million of debt-free stock completed during the financial year.
The strong cash position, bolstered by strong cashflow from the completed stock settlements and increased confidence of improving operating conditions, allowed Finbar to announce a second-half dividend of 2c per share, fully franked, to take the full-year dividend to 4c per share. This compares with 3c per share the previous year when Finbar opted to conserve cash to fund the commencement of the major projects at Civic Heart in South Perth and AT238 on Adelaide Terrace.
It is the balance sheet strength of Finbar that gives it a competitive advantage, allowing it to commit capital to projects and commence construction without requiring the same threshold of pre-sales that other developers need.
In a market where completed apartments are selling steadily, but buyers are reticent to invest in apartments off the plan, Finbar is able to deliver completed product to the market while potential competing projects remain in the ground.
Finbar managing director Darren Pateman confirmed the company was benefiting from strong demand for completed apartments in the Perth market and was focused on delivering its existing projects under construction.
Finbar’s 128-apartment development in Dianella, in Perth’s inner northern suburbs, is nearing completion with settlements of the wholly owned project expected to begin in September. Sales at Dianella have reached $27 million.
“Considering our current sales rates, we have approximately three months of completed residential apartments supply available in the Perth market so we are very keen to see the completion of Dianella over the next few months and are committed to see Civic Heart and AT238 delivered as quickly as possible,” Mr Pateman said.
“Our strong cash position of $52.6 million, bolstered by the continued sell down of completed stock, puts us in a position to conclude all equity funding requirements of our major current apartment projects Civic Heart and AT238, and allows us to also commit to the commencement of both Aurora in Applecross and The Point in Rivervale this financial year.”
Construction at the company’s and Western Australia’s largest residential project to date, the 335-lot Civic Heart, is on track. The below-ground structural engineering works have been completed and basement excavation works are underway.
Construction at AT238, a 121-lot apartment building in the east of Perth’s CBD, is also progressing well, with ground-floor raft works complete and the structure now commencing above ground-floor level.
Finbar has also commenced marketing a tranche of apartments in the Karratha development Pelago, where it has held about 100 apartments as an investment since 2013.
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