Get up to 2 Years of free subscription by inviting your friends to KALKINE!

For every friend of yours who joins KALKINE, we'll give you 3 months of free subscription (up to a limit of 24 months free subscription). If you recommend 3 friends and they join within a month of you referring them, you get 1 year free subscription to KALKINE reports added to your account (up to a limit of 24 months free subscription). Simply reply to this email with their name, e-mail and phone number.
 

Stock Of The Day - Stockland (Expensive)

Stockland Corporation Ltd (ASX: SGP) operates in Commercial, Retail segment and Retirement living. The company has a huge exposure to the commercial properties and divided the commercial segment into Retail, logistics & business parks and Office segments.  These three segments within the commercial segment comprised over 50%, 13% and 8% of the group’s portfolio as of third quarter of 2015. Residential and Retirement living accounted 20% and 9% of the group’s overall portfolio.


Five years indicative asset mix (Source: Company Reports)

Retail Segment
All the categories in the retail segment performed well, with specialty sales and Mini-Major Categories delivering the highest growth of 4.9% and 5% respectively. Specialty category growth was driven by communication, technology, homewares and food catering segments, while Mini-Major and others segment benefited from cinema, travel agents and non-food majors. 


Retail Sales by Category and projects under development (Source: Company Reports)

As per the development pipeline, Wetherill par has opened, attracting 53 new retailers. Second stage of the project is expected to be completed by mid of 2016. The first stage development at Harrisdale, WA has also started and even got approval to expand over 25,000 sq m in the future. Hervey Bay and Baldivis projects are also launched. 


Wetheriil park Stage and Harrisdale Greenfield development (Source: Company Reports)

Logistics & Business Parks; Office

The firm acquired three eastern seaboard logistics for $66.5 million. Stockland bought 1.5 hectare site for $20.3 million at Botany, Sydney; 9.8 hectare site for $29 million and 11.5 hectare site for $17.2 million. Meanwhile, the firm had over 93.3% portfolio occupancy and a leasing activity of around 132,000 sq m for the nine months to 31^st march. Office Portfolio’s WALE rose marginally to 4.6 years. Piccadilly tower witnessed new leasing activity of over 1,500 sq m. 


Logistics & Business Parks; Office (Source: Company Reports)
 
Residential Segment

Stockland recently reported its intention to commit over $300 million for the development of its biggest project - Caloundra south community project on the Sunshine Coast which is committed to deliver 20,000 homes for 50,000 people over the next 30 years

With regards to the Cloverton community, the $4.6 billion project would be developed in the next 35 years. This project is being built on an 1141 hectares and Construction works of roads and services have started. Stockland expects a positive demand for this project as Victoria's population has been adding over 100,000 a year from 2007/2008.

To leverage the growing demand for affordable housing, the company is also striving to offer affordable housing homes through its Cloverton community. People who are buying homes for the first time will be able to build a three-bedroom house for over $270,000, lower than half of the present Melbourne median house price. The company intends to first release over 34 lots for prices of $230,000 for 846-square-metre block, as compared to median Melbourne house price of $549,000, based on CoreLogic RP Data figures. Overall, Stockland has an objective to deliver 11,000 lots in Victoria which includes the smaller lots.

Meanwhile, the residential net deposits during the third quarter of 2015 decreased to 1,427 net deposits, as compared to 1,500 net deposits in 3Q14 and 1,642 deposits in 2Q15. Slowing demand in Queensland and Victorian are partly responsible for this slight decrease. Moreover, net deposits from NSW category showed a decline due to delay in settlements pending the delivery of trunk infrastructure. Meanwhile, WA volumes improved due to summer sales campaign. Stockland made four acquisitions with over 4000 homes at Scholfields in Sydney, Scarbourgh in Brisbane, Cycle North and point Cook in Melbourne. 


Residential segment performance (Source: Company Reports)

Retirement living

Net reservation at Retirement living also slowed down during the quarter to 214, as compared to 218 in 3Q14 and 281 in 2Q15. Meanwhile, Stockland is making efforts to achieve unit turnover for FY15 in line with the prior year and developing accordingly.

Therefore to boost this segment, Stockland quite recently bought a portfolio of retirement villages in South Australia from Masonic Homes for $75.8 million. The portfolio consists 980 homes as well as a pipeline of over 130 homes or development. The deal is the major retirement living transaction by the company for the year and is a measure of the company’s focus on higher returning assets as a part of its capital recycling program. The development of $160 million cardinal freeman development is also on track.

 
Retirement living performance (Source: Company Reports)

Conclusion

The shares of Stockland haven’t excited the investors as they delivered a year to date returns of just over 3.2% as compared to the S&P/ASX 200 returns of over 3.4%. In fact the stock delivered around 3.2% over the last six months, lower than the S&P/ASX 200 returns of approximately 8.4%. . Although huge residential development by Stockland might drive the firm’s earnings, rise in interest rates or economic slowdown might put the stock under pressure. Meanwhile, the shares are already under pressure over the last few months, posting a negative returns of 3.9% and 3.4% over the last three months and one month respectively.


Stockland Daily Chart (Source - Thomson Reuters)

Meanwhile, Stockland improved its full year EPS growth forecast to 7%-7.5% for FY15, as compared to the previous forecast of 6.75% to 7.5%. The company is on track to achieve its 5,000 to 6,000 lots target for the fiscal year. Although the company raised its full year guidance, we believe that the stock is currently trading at Expensive levels.