Cedar Woods Properties Limited (Cedar Woods, the Company, ASX: CWP) is a national developer of residential communities and commercial properties. The Company’s product mix includes land subdivisions in emerging residential communities, medium and high-density apartments and townhouses in inner-city neighbourhoods, and supporting, co-located retail and commercial developments.
The Company was established in 1987 as a developer of master planned communities in Western Australia before listing on the ASX in 1994. The Company expanded into Melbourne in 1997, then Brisbane in 2014 and Adelaide in 2016. Today about 45 percent of its operations are based in Western Australia.
Development pipeline underpins long-term earnings growth
A development pipeline of more than 10,000 undeveloped dwellings, residential lots and offices across four states in a chronically undersupplied housing market is expected to drive the Company’s earnings growth over the next few years.
Australia needs new housing supply at scale and Cedar Woods has the land stock and capital backing to fulfil this requirement, over time. Timing of housing delivery is impacted by workforce and builder capacity constraints. This is evidenced by national dwelling completions running at their lowest level since 2016 due to labour shortages, approval delays and high construction costs. So kt’s not a matter of if this housing demand will be met, but when, because housing is an essential, non-discretionary commodity. These current housing industry dynamics are favourable to providers of housing stock like Cedar Woods. This market dynamic is unlikely to change significantly in the medium term.
Australia’s dwelling stock deficiency, as measured by demand verses supply, is currently around 146,000. This figure continues to rise and is expected to reach 164,000 dwellings in 2027. This deficiency is driving median house prices higher across all major capital cities, especially Perth. While median house prices are not directly related to new residential dwelling prices, the current market fundamentals are resulting in favourable conditions for Cedar Woods’ products. Any interest rate decreases in calendar year 2025 will support new dwelling demand.
Capital-efficient strategic partnerships
In a recent strategic shift, the Company is now partnering with major equity capital providers to fund selected acquisitions that scale up the business and leverage existing operations and skills to diversify earnings and drive return metrics higher. when partnering with capital providers.
Currently, Cedar Woods has a 50/50 joint venture agreement with QIC to jointly develop land owned by QIC adjacent to the Robina Town Centre in South East Queensland. QIC is an independent Queensland Government sponsored entity that manages the Queensland Government’s Future Fund and its Defined Benefit superannuation scheme. QIC has $100 billion in funds under management. The joint venture seeks to leverage Cedar Woods’ residential development capabilities to unlock the embedded value in the Robina land, by developing 400 apartments and townhouses.
Cedar Woods also has announced similar joint venture arrangements with Tokyo Gas Real Estate to jointly develop projects around Australia. Three joint venture projects have been announced and additional projects are currently being explored. Tokyo Gas Real Estate is owned by Tokyo Gas, which is Japan’s largest gas supplier and an owner of significant LNG assets in Asia. It seeks to deploy surplus capital into property developments, primarily in Australia, with a focus on developments that can deliver sustainability outcomes. Approximately $600 million has been allocated for deployment in suitable real estate development activities by 2030.
Ten percent profit growth target for FY25
At 30 June 2024, Cedar Woods has $559 million in presales that are expected to settle over FY25 and FY26. The Company maintains a strong balance sheet and the partnerships with QIC and Tokyo Gas Real Estate are progressing well.
Land within master-planned communities and townhouses, which comprise most of Cedar Woods’ portfolio, have outperformed apartments due to the relative affordability and better builder availability.
Cedar Woods is experiencing strong enquiry and conversion levels, with the $559 million pipeline of presales contracts substantially underpinning FY25 earnings. This reinforces confidence that the Company’s FY25 10 percent earnings growth forecast is eminently achievable. The Company’s portfolio of affordable residential allotments in an undersupplied housing market, at a time of full employment, strong population growth and the prospect of a lower interest rate environment in FY26, should support medium-term share value accretion.
