Company Overview - Stockland Corporation Limited is an Australia-based property company. The Company develops, owns and manages retail centers, business parks, logistics centers, office buildings, residential communities and retirement living villages. It operates through four segments: Residential, which delivers a range of master planned and mixed use residential communities in growth areas; Retirement Living, which is engaged in the design, development and management of communities for retirees; Commercial Property, which invests in, develops and manages retail, office, logistic and business park properties, and Other, which includes its other assets in the United Kingdom, former apartments and aged care businesses and other operations. It has residential properties in areas, such as New South Wales, Queensland, Victoria and Western Australia and retirement living communities in areas, including New South Wales, Southern Australia and Victoria. It also owns shopping centers in Australia.


SGP Details
 
Ongoing strength in Residential and Retirement Living business: Stockland Corporation Ltd’s (ASX: SGP) focus on Residential business have paid off and accordingly got 1,706 net deposits during the third quarter of 2016, driven by the solid NSW performance on the back of Altrove (Schofields) contribution. The group’s new projects and new townhouse sales enabled them to win 279 further sales as compared to the same period of last year. Management confirmed that the group’s Residential business is on track to deliver a total year settlements in the target range of 5,000 to 6,000 lots, driven by the recovering market conditions in New South Wales and Queensland. The group’s projects in Victoria are strong while they even got good response to their efforts in Western Australia. During the third quarter of 2016, the Victoria deposits were affected as the Arbourlea, Selandra Rise and Allura projects were nearing to end. Residential sales for the group surged by 60% yoy during the quarter as compared to the two years earlier. Over 90% of SGP Residential capital is currently in projects and accordingly the group’s sales would reap growth in the coming periods. The group is actively selling lots at Aura and Newport in south east Queensland; as well as Altrove in North West Sydney and expects to shortly start sales at Pallara, south west of Brisbane. SGP has also been expanding its customer base during the quarter and accordingly took over 260 townhomes as well as finished 75 homes during the fiscal year to 2016. Over 77% of the buyers during the third quarter of 2016 were owner occupiers. As per the Stockland Corporation’s Retirement Living business, the group generated 264 net reservations during the third of quarter of 2016. SGP continues to focus on Retirement Living development pipeline to leverage the growing demand for retirement and is positioning itself to finish and settle Cardinal Freeman and Willowdale in New South Wales and Lightsview in South Australia for further two quarters.
 

Strong residential sales performance (Source: Company Reports)
 
Moderate retail sales despite tough market conditions: Stockland Corporation reported a moderate retail sales growth by 2.5% on a yoy basis during the third quarter of 2016. Comparable specialty moving annual turnover (MAT) surged by 3.5% on a yoy basis during the quarter while overall comparable annual sales across all retail categories enhanced by 2.3% on a yoy basis. Meanwhile, the segments like communication technology, retail services and food catering/fast casual dining rose by 16.9% yoy, 6% yoy and 5.1% yoy respectively. The group is planning to finish Harrisdale (WA) retail developments by mid of 2016 and already got around 85% of rental income. Meanwhile, Stockland Corporation is also redeveloping Stockland Green hills (NSW) to double its high productive center which started in January 2016. The project is expected to start in three phases and estimates Best & Less 23 specialty stores and kiosks by middle 2017. By Late 2017 the target constitutes 88 specialty stores and kiosks. The group also submitted for stage 2 DA for adding eight screens cinema complex.
 

Retail performance for March quarter (Source: Company Reports)
 
Improving portfolio via acquisitions and developments: The group finished the rest of the 50% acquisition in Bundaberg shopping Centre, Qld while started the marketing efforts for its Port Adelaide Distribution Centre. SGP started $372 million redevelopment of Stockland Green Hills, NSW. Management also reported that they would be able to finish $228 million redevelopment of Stockland Wetherill Park by second half of 2016, which is earlier to their prior estimates. The group also acquired 116 hectare property at Coomera on the Gold Coast for residential development as well purchased Satellite Corporate Centre at Mulgrave, Victoria. Stockland Corporation reported that their construction efforts at Ingleburn Distribution Centre, NSW are ongoing. The group also started their residential sales at Aura, Newport and Pallara in Queensland and Altrove at NSW. First settlements were made at Cloverton, Victoria during the quarter.
 

Stockland’s portfolio as of third quarter of 2016 (Source: Company Reports)
 
Expanding logistics and business parks portfolio: The group continued its leasing activities with 290, 000 sqm in the logistics and business parks and is on track to develop over $400 million of development. The facilities at Oakleigh, Victoria, Stage One and Erskine Park, NSW, are on track to be finished by the second half of 2016. Stage one Ingleburn development is estimated to finish by August 2016. The group also lodged two DA’s for approval and is documenting three more DA’s. The group also got three blue chip firms as tenants to its acquired modern business park at Mulgrave which has an initial yield of 7.1% and has a WALE of 8.5 years. Meanwhile, SGP continues to maintain a steady 95% of portfolio occupancy. Most of the group’s portfolio at Sydney CBD, North Sydney and St Leonards have been performing strongly, while the group has over 70% of its office portfolio at Sydney alone.
 

Logistics and business parks performance (Source: Company Reports)
 
Stock Performance: The shares of Stockland Corporation Ltd (ASX: SGP) have been under pressure during the year of 2015 on the back of challenging market conditions in Australia and across the world. Accordingly, SGP fell over 2% in the last one year (as of April 29, 2016). On the other hand, SGP shares have been recovering this year and generated over 6.6% (as of April 29, 2016), at par with its peers given the recovering environment across the globe and Australia. In fact the shares rallied over 4% (as of April 29, 2016) in the last four weeks alone as well as surged over 2.6% in just last five days given the group’s third quarter performance. Moreover, the group also delivered a strong residential and retirement living business performances and has been continuously expanding its portfolio base. Management also reported that they are on track to achieve underlying EPS rise in the range of 6.5% to 7.5% as well as forecasts an FFO per security growth in the range of 9% to 10% for fiscal year of 2016, with the assumption of no major change in the market conditions. Moreover, the group forecasts a decent dividend yield of A$0.245 per Share. Meanwhile, Stockland Corporation intends to achieve over 7% to 8% range for its retail segment. SGP forecasts a range of 11% to 14% incremental internal rate of returns for its $1.6 billion development pipeline. With regards to the logistics and business parks, which comprises over 14% of the group’s portfolio, SGP estimates a target yield of 7% to 8% range as well as incremental internal rate of returns of 11% to 14% range for its $ 400 million development pipeline. Residential portfolio accounts over 20% of the group’s portfolio and the group’s solid efforts in the segment would continue to generate support in the coming months. Management is continuing to focus on its Retirement living portfolio, which comprises over 9% of its portfolio and is implementing its Care strategy that has six sites at present, and is planning for future sites agreed with Opal and other players. On a valuation perspective, we believe that the stock is trading at cheaper levels against its peers. SGP has a low P/E while has a strong dividend yield. Based on the foregoing, we maintain our “BUY” recommendation on the stock at the current price of $4.35

 
SGP Daily Chart (Source: Thomson Reuters)

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