Western Australia’s leading apartment development company, Finbar Group Limited (ASX: FRI) today provided its annual report to shareholders for the financial year ended 30 June 2021.
In his letter to shareholders, company chairman John Chan said:
Finbar has this year delivered a net profit after tax of $8.86 million. This is a pleasing achievement in an external environment that continues to be challenging for property development companies, and represents a 25 per cent increase on the previous year.
It is the 25th year of consecutive profit reported by Finbar, a remarkable achievement through a number of different property cycles.
At the end of the financial year, Finbar held $52.6 million in cash compared with $30.6 million at 30 June 2020. The company completed 486 sales – both finished product and off-the-plan – over the course of the year, valued at $296 million.
Finbar held completed stock valued at $59.9 million as at June 30, which equates to a sell down of $137 million in debt free stock during the financial year.
This strong cash position, bolstered by strong cashflow from completed stock settlements and increased confidence of improving operating conditions, allowed your company to pay a second half dividend of $0.02 per share, fully franked. This followed the interim dividend of $0.02 per share announced in February and brought the full year dividend to $0.04 per share, fully franked.
The current market for apartment developers remains challenging, particularly in marketing to those buyers that traditionally have contributed to off-the-plan pre-sales for major developments. As a result of this, we are seeing many projects being delayed because the developer and financial backers are unable to proceed without reaching their predetermined required level of pre-sales.
At the same time, the cost of raw materials, particularly steel, and labour are continuing to increase, and therefore construction costs are seeing significant upward pressure. It is this environment where our long term and deep relationships with builders like Hanssen Pty Ltd provide us with cost advantages that helps Finbar offer a product that remains very good value for money amongst any remaining competition.
Because of this, we believe the level of new apartment stock being developed and delivered to the market will continue to tighten. As demonstrated by Finbar’s sales of completed stock during the past financial year, there is good demand for well-located, well-presented and well-priced apartments.
There is no question that there will be a decreased number of new apartments available for sale in the market in coming years which, if completed stock demand levels remain strong, will lead to price appreciation.
To date, prices for apartments have not moved in step with the increases seen in development costs, despite the limited stock entering the market, but there are early signs that prices are beginning to move.
This should ensure adequate margins are achieved for our current projects as well as those that will commence this financial year. With our strong balance sheet and cashflow, and support from our banking and joint venture partners, we are able to commit to commencing projects without reaching the usual level of pre-sales and this is a major competitive advantage in the current market.
I wrote last year about the impacts caused by the COVID-19 pandemic and clearly they are still playing out and will continue to do so for several years.
The stalling of immigration and international travel caused by COVID-19 continues to impact on Finbar. Sales to foreign buyers have historically accounted for approximately 20 per cent of total sales and this market has now almost completely disappeared and remains uncertain into the future.
In the rapidly changing market however, there are green shoots from areas that were not previously anticipated.
The advent of the pandemic has seen many Australians living and working overseas wanting to return home. Perth in particular has seen many expats entering from overseas and this has contributed to the acute shortage of available rental properties.
The resulting low vacancy rates and increasing rental prices, in addition to the reduced supply of new stock as I discussed earlier, will put further pressure on property prices.
We expect returning Australians to continue to boost demand for housing and accommodation in coming years and this should help negate the negative impacts caused by the reduced number of foreign investors actively looking to purchase in Perth. Unfortunately, the foreign buyer duty that imposes an additional 7 per cent cost on this sector of the market, does not look like it will be revoked, and certainly continues to discourage foreign investment in this sector.
I am pleased to report that, at the time of writing, Finbar’s largest ever project Civic Heart in South Perth is progressing well with construction proceeding according to our expectations.
Large projects become more complex as the scale increases. The lead time and construction timetable take longer and there are a number of issues that make these projects more difficult than projects of a smaller scale. It is a reflection of how Finbar has grown over the years and the intellectual property and in-house expertise it has built that we were able to commit to this project with our joint venture partners and progress it to its current point where construction is well underway.
The pre-sales achieved at the project stand at more than $117 million which is testament to the quality of Finbar’s developments and a reflection of the trust and goodwill we have earned over the years from the West Australian market.
Civic Heart will be an outstanding apartment development within the local community, bringing great amenity and a range of food and beverage options. The sales to date show it is an extremely attractive proposition for a range of people with pre-sales reflecting buyers coming from many different areas.
As with Civic Heart, construction at Finbar’s Perth CBD Project – AT238 is also progressing well with the structure now reaching level three at the time of writing and with $21.1m in pre-sales secured.
We look forward to completing this project in the next financial year.
In closing, I want to take the opportunity to thank our sales agents, our builder – Hanssen, our joint venture partners and our banking partners for their ongoing support. I also want to thank all of our shareholders and look forward to working on your behalf with our senior management, as we focus on delivering our current and future projects to market.