Stockland, Australia's biggest residential property trust, might have stormed back to full-year profit because of increased sales in its residential communities business, and no asset impairment losses, but its taking a very circumspect view of the next year.

It expects to lift earnings, but it also sees that the slowdown in the housing sector will restrain growth, even though it has a lot of contracts on hand which will produce valuable income in the 2011 year.

But management have confirmed they, like so many other businesses in the domestic economy, remain hostage to interest rates and are hoping that we've seen the back of RBA rate rises for a while after six in the year to June 30.

Building approvals for new homes have dropped by over 20% in the past few months, while new home loans for owner occupiers are off 25% in the past 14 months. Its figures like those that have got investment analysts and big shareholders looking hard at how Stockland is placed.

Judging from its report yesterday and statements by management, the company seems to be OK.

The company yesterday said statutory profit was $478.4 million in the 12 months ended June 30 compared with a loss of $1.8 billion a year earlier.

Underlying earnings rose 10% to $692 million from $631 million in 2009 (The big loss was caused by asset write-downs and impairment losses caused by the collapse of the geared real estate sector of the market, especially in the UK. Stockland is still exiting the British market.)

That saw the shares edge higher at first to $3.85, but then dip a touch to end at $3.78, down 4c on the day.

That wasn't a bad performance given the near 2% fall for the wider market.

Stockland will pay a distribution of 21.8c per security for the full year.

It expects earnings per share in 2011 to be 7% higher than the 2010 result, which would put underlying earnings above $740 million and the statutory figure around more than $520 million.

CEO Matthew Mr Quinn said in the outlook statement yesterday: "The hard work of the last two years is paying off and our business enters FY11 in a strong position, well prepared for any further market volatility.

"While we will maintain our conservative and disciplined approach to capital management, we are also looking to capitalise on growth opportunities.

"Our strong, diversified business model and sound property expertise will enable us to deliver increased securityholder returns," Mr Quinn said.

"Stockland expects to achieve FY11 EPS growth of 7% from FY10. "

"The biggest threat for sustained recovery both to the market and for us is potential increases in bank variable mortgage rates," Mr Quinn said on a conference call.

"We're really hoping that bank variable mortgage rates don't increase significantly. In our guidance, we have allowed for some modest increases and we do hope that will be the end outcome for the next couple of years."

"Today's announcement of a 10 per cent increase in Underlying Profit is a solid result in line with our guidance. We delivered consistent growth in our operating businesses and maintained our strong capital position, " Mr Quinn said yesterday.

"Our customer insight and product innovation in Residential Communities enabled us to increase sales in all market segments and achieve record settlements. We're in a very strong position for FY11, with record contracts on hand.

"We remain focused on creating a large scale, national Retirement Living business. We have six new projects underway and last week we announced a cash offer to acquire Aevum which, if successful, would almost double the size of the retirement business.

"Commercial Property asset values are stabilising and through our internal asset management, leasing and development capability we delivered steady returns in a challenging market. We have started a number of substantial retail development projects which will enhance the quality and security of earnings over coming years.

"Stockland is in good shape; we have a clear growth strategy, good earnings momentum and a strong balance sheet," Mr Quinn said.

The company's residential communities business is the one that is being closely watched by the market. It reported Earnings Before Interest and Tax of $274 million and operating profit of $213 million, thanks to record lot settlements and the first home buyers surge in the first half of the year.

"The strong FY10 Residential Communities performance was driven by a combination of volume growth, with increased settlements in all states, and higher productivity, with a 12% increase in the average sale price per square metre.

"Residential Communities sales were underpinned by significant increases in both upgraders, who now account for the majority of leads, and investors driven by strong rental demand and low vacancies. Investor sales more than doubled during FY10 and are now back within the target range of 15% to 25% of sales.

"The end of the First Home Owner Boost saw first home buyers return to Stockland's target range of 20% to 30% of sales, but they still remain particularly active in Victoria where the state government grant has been extended to June 2011.

"FY11 EBIT margins are expected to remain in the middle of the Group's 25% to 30% target range. The FY11 result is likely to be skewed to the second half due to high production levels, which are still lagging sales."

The company said it had 2,249 contracts on hand which will provide a valuable stream of income (more than $400 million) while the sector remains under pressure.

Stockland warned that following the rapid recovery in 2009, "The residential market is now coming under pressure with recent interest rate rises impacting affordability.

"Further increases in bank variable mortgage rates remain the most significant threat to a sustained recovery.

"However, Stockland's ability to offer a variety of value for money products that cater to a range of buyer segments provides flexibility to meet this challenge.

"The Residential business will continue to enhance its market-leading position and grow market share by acquiring new land above replenishment levels in key growth corridors across the country.

"The Retirement Living development pipeline will add significant scale over the next few years and this would be further enhanced through the proposed Aevum acquisition.

"Stockland's Commercial Property business will significantly enhance the quality of its assets through recycling capital from the sale of non-core Office and Industrial assets into its Retail development pipeline."