Stockland Corporation Limited (Stockland, the Group, ASX: SGP) is a diversified property Group with a 70 – 30 percent split between commercial property and residential property exposure respectively. The Group develops, owns and manages retail centres, business parks, logistics centres, office buildings, residential communities and retirement living villages. It holds the 5th largest land bank in Australia for residential communities.
Capital deployment shifts to the Residential Sector
The Australian Consumer and Competition Commission (ACCC) has decided to not oppose Stockland’s proposed acquisition of 12 residential master-planned community projects from Lendlease. This acquisition will increase Stockland’s exposure to residential development towards 35 percent of its property portfolio. This redeployment of $1.3 billion of capital towards residential sectors is a deliberate strategic decision by Stockland. Progressive settlement will occur in three tranches of $370 million, $695 million and $239 million over the next 18 months.
The portfolio comprises 12 high-quality, actively trading master-planned community projects with an average of 2,300 lots in each project. Ninety-six percent of the lots are weighted to the Eastern seaboard, in well-located, deep markets. The projects will be housed in the Stockland Supalai Residential Communities Partnership. This is a joint venture with Supalai, which is a real estate development company listed on the Thai stock exchange. Supalai was established in 1989 and has been recently active in Australia through existing partnerships with Stockland and other major Australian developers. Since 2014, Supalai has participated in 12 major residential development projects with a total end value of $5 billion.
Compelling residential market fundamentals
Australia’s housing undersupply is exacerbated by ongoing constrained land supply amid a rapid and unplanned population boost driven by net overseas migration. This has resulted in dwelling completions not keeping pace with housing requirements. The National Housing Accord with states and territories, local government, institutional investors and the construction sector requires 240,000 new dwellings per annum over the next 5 years. Currently Australia’s new housing completions are running at 175,000 per annum and are forecast to increase to 180,000 per annum.
Positioned for future growth
The 12 newly acquired master planned community projects are a step change in Stockland’s property portfolio by expanding Stockland’s reach into new, complementary residential corridors. The acquisition increases Stockland’s landbank by 27,600 residential lots to 95,600 lots. This does not include potential upside from adjacent opportunities that include 2,500 Land Lease Community homesites.
Uncertain macroeconomic conditions over the past 24 months have weighed on vacant land sales and pricing. However, the prospect of a lower and stable interest rate environment in the years ahead, continuing first home-buyer grants, stamp duty concessions on newly built homes and shared-equity schemes may go some way in alleviating the current housing shortage
Stockland finished the 2024 financial year in a strong capital position with gearing of 24 percent, comfortably within the Group’s target range of 20 to 30 percent. This strong financial position and the latest land acquisition have enabled Stockland to strategically restock the Group’s residential pipeline. This leaves the Group strategically positioned for a recovery in the residential property market. Investors with a five-to-ten-year outlook can reasonably anticipate steadily increasing free cash flows that support consistent shareholder distributions at least over the medium term.
