Thursday, February 8th, 2018
ASX code: SGP
Share price: $4.17
Industry: Real Estate
Forecast FY2018 Dividend: $0.265 per security
With origins dating back to the 1950s, Stockland (ASX:SGP) has grown to become one of the largest diversified property groups in Australia.
SGP owns, manages and develops a wide range of real estate assets including shopping centres, logistics centres, business parks, offices, residential communities and retirement living villages.
SGP has long attracted investor interest for its solid mix of passive income-producing properties held within its trust, coupled with the more active earnings from its corporation.
About 70 per cent of the group’s assets are in the trust, which owns retail malls, offices, logistics centres and business parks. The 30 per cent remainder support the large-scale development of residential and retirement living properties.
Recent results were sound, building further on the solid record of previous years. In its first-quarter update, SGP maintained FY2018 guidance for growth in cash flow per security of five to 6.5 per cent and a distribution per security of 26.5 cents.
While there is an oversupply of apartments in some suburbs, SGP emphasises the development of affordable detached, medium-density housing for first home buyers and owner-occupiers market. Due to population growth and state government incentives for first home buyers, this part of the residential market is proving more resilient to regulatory controls on bank lending to investors and interest-only mortgage borrowers. In its first quarter, Stockland took 1,672 deposits for lots and townhomes, of which 77 per cent were from owner-occupiers. Conditions remain favourable in Melbourne and Sydney, where the markets are undersupplied, so Stockland’s development of 184 hectares of land it recently bought in Marsden Park in Sydney’s northwestern growth corridor should perform well.
Market conditions in Queensland are supported by strong affordability relative to the southern States and the WA market is stabilising.
SGP’s retail sales were flat in the first quarter, consistent with the subdued retail environment and reflecting price deflation, slow wages growth and energy price rises. These conditions are challenging, however, services, food, lifestyle, mini-majors, entertainment and leisure offerings continue to perform well and are the focus for SGP’s remixing of its malls. The resulting enhancements to sales growth should support the valuations of the malls in a world of rising interest rates.
Over many years SGP has proved itself as a consistent performer that has paid an attractive stream of biannual distributions. At current prices, the stock offers a yield of 6.3 per cent.
This year’s selloff in response to rising bond yields has left SGP at a discount to our valuation of $4.56, in line with equity per share around $4.19 and at a small premium to net tangible assets per share. This rating by the market is inconsistent with the outlook for growth of over five per cent.
Originally published in The Australian, Tuesday 6th February 2018.