Stocks’ Details

Stockland

Resilience in Residential and Retirement Living Communities Sales: Stockland (ASX: SGP) is one of the largest diversified property groups in Australia which owns, manages, and develops a range of assets including shopping centres, office and industrial assets, residential communities, and retirement villages. As on 5 August 2020, the market capitalization of the company stood at ~$7.94 billion. During the third quarter ended 31^st March 2020, the company maintained investment grade credit ratings of A-/A3 with a stable outlook from S&P and Moody’s, respectively, and reported a decent liquidity position with available liquidity of ~$1.6 billion. Despite these challenging times, the third quarter saw resilience in Residential and Retirement Living Communities sales and settlements with 3,853 contracts under residential communities and 225 net reservations under Retirement Living as at 30 April 2020.

Retirement Living Net Sales (Source: Company Reports)

Estimated Distribution Update: The company has announced a distribution of 10.6 cents per Ordinary Stapled Security, equating to a full-year distribution payment of 24.1 cents per Ordinary Stapled Security. The 2H20 distribution payment will be made on 31 August 2020. The company expects to release its FY20 results on 25^th August 2020.

Key Risks: Investments in the company are subject to a variety of risks including its ability to deliver on strategic priorities in challenging market conditions, increased competition and changing market conditions which may impact opportunities for growth, impact of housing affordability on dynamics of the Australian Housing market, etc. 

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company retains a resilient customer base and continues to sell over 80% of homes and lots to owner-occupiers. Stockland expects that gearing will remain within the target range of 20 to 30 percent as at 30 June 2020. The company is accelerating its logistics development pipeline and is future-proofing town centres. As per ASX, the stock of SGP gave a return of 26.62% in the past three months. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price offering an upside of low double-digit (in percentage terms). Considering the decent returns in the past three months, resilient customer base and positive long-term outlook, we recommend a ‘Buy’ rating on the stock at the current market price of $3.34, up by 0.3% on 5 August 2020.

GPT Group

Growth in Total Centre Sales and Stable Balance Sheet: GPT Group (ASX: GPT) is engaged in property development and management. As on 5 August 2020, the market capitalization of the company stood at ~$7.66 billion. During the quarter ended March 2020, the company retained a decent financial position with low gearing, limited debt maturities and significant available liquidity, providing the flexibility to manage the current challenging operating environment. During the quarter, the company completed 27,600 square meters of office leasing with portfolio occupancy of 97.5% and Logistics leasing of 38,500sqm with portfolio occupancy increasing to 98.6%. In the same time span, the company recorded total Centre sales growth of 3% and Combined Specialty sales growth of 3.9%.  The company has issued 12-Year Medium Term Notes of $300 million and retains a liquidity headroom of $1.27 billion with less than $5 million of debt expiry by December 2021.

Debt Maturity Profile (Source: Company Reports)

Distribution and Valuation Update: As at 31 May 2020, the Group had its seven directly held retail assets independently valued, which resulted in a reduction in the value of $476.7 million, or approximately 8.8% compared to the 31 December 2019 book value. These reflect the effects of COVID-19 and social restrictions on retail assets. GPT will target to distribute 95 to 105 percent of Free Cashflow under its payout policy.  The company expects to release its H1 2020 results on 9^th August 2020.

Key Risks: GPT is exposed to financial market risks, including interest rate risk on borrowings and foreign exchange rate risk on foreign currency borrowings. The company is also exposed to refinancing risk wherein unfavorable interest rates and credit market conditions may result in an unacceptable increase in interest cost.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company is focused on growing its logistics portfolio through acquisitions and development and expects logistics development pipeline end value of over $1 billion when fully developed. As per ASX, the stock of GPT is inclined towards its 52-week low of $2.82, proffering a decent opportunity for investors. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and arrived at a target price offering an upside of low double-digit (in percentage terms). Considering the current trading levels, portfolio occupancy growth rate and future expectations, we recommend a ‘Buy’ rating on the stock at the current market price of $3.84, down by 2.29% on 5 August 2020.

Centuria Office REIT

Decent Increase in Revenue and FFO: Centuria Office REIT (ASX: COF) is a registered managed investment scheme domiciled in Australia and invests in commercial property. As on 5 August 2020, the market capitalization of the company stood at ~$941.58 million. During FY20, COE retained 23 high quality assets with a portfolio value of $2.1 billion. The company has an occupancy rate of 98.1% and portfolio WALE of 4.7 years. The company has a balanced geographic diversification with exposure to most major Australian office markets. During the year, debt headroom increased to $131 million, providing ample liquidity. The company reported a gearing of 34.5% and interest cover ratio of 6.3x.

During FY20, total revenue of the company went up by $41.2 million to $149.3 million and fund from operations increased to $85.4 million. During the year, the company distributed 17.8 cents per share, reflecting a payout ratio of 95.8%.

FY20 Financial Highlights (Source: Company Reports)

Future Expectations: The company has provided guidance for FY21 wherein it expects distribution per unit of 16.5 cents and forecasted distribution yield of 9.0%. The company is focused on generating sustainable and quality income streams and executing initiatives to create value across a portfolio of quality Australian office assets. It aims to unlock opportunities to create further value and continues to enhance the portfolio and upgrade asset quality.

Key Risks: The Trust is exposed to a variety of financial risks as a result of its activities. These potential risks include market risk (interest rate risk), credit risk and liquidity risk. The COVID-19 pandemic has given rise to uncertainty in the market which may have an impact on key drivers of property valuations.

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (Illustrative)

Price to Earnings Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has a strong track record of managing real estate funds for over 20 years and has strong tenant covenants with Australian Federal and State Governments representing circa 25%. As per ASX, the stock of COF is inclined towards its 52-weeks’ low level of $1.375 and thus retains potential for further growth. We have valued the stock using the Price to Earnings multiple based illustrative relative valuation method and arrived at a target price offering an upside of low double digit (in percentage terms). For the said purpose, we have considered Aventus Group (ASX: AVN), Charter Hall Retail REIT (ASX: CQR), Shopping Centres Australasia Property Group (ASX: SCP), etc., as peers. Considering the current trading levels, opportunities to create further value and distribution guidance for FY21, we recommend a ‘Buy’ rating on the stock at the current market price of $1.950, up by 6.557% on 5 August 2020, owing to its recent release of FY20 results.

Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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