Business Strategy & Outlook
Stockland generates about two thirds of funds from operations, or FFO, from its commercial property portfolio, which is roughly two thirds retail property, the rest industrial and some office. Another third of earnings come from residential development. The development business is cyclical and its contribution to earnings swings substantially, while the commercial rental business is relatively stable. The earnings from the residential business will moderate as stimulus measures such as Homebuilder wash out of the pipeline. In late 2021, Stockland revised its target asset mix, reducing retail assets, and increasing exposure to office, industrial and residential. The new target is about one third in residential (up from 15%), one half in office/industrial (up from 35%) and less than one third in retail (down from 50%). The office and industrial as fully priced in 2019, but the move has sidestepped some of the COVID-19 damage to retail property. Stockland continues to divest retail property but faces a choice of selling assets in the near term while recent coronavirus lockdowns weigh on values for retail assets, or holding out for recovery, but facing the risk of the ongoing structural shift to e-commerce. The group’s strategy of remixing toward food, services and entertainment gave early payback, but since mid-2019 that tactic is saturated.
In residential, tougher market conditions should enable Stockland to gain market share. It is Australia’s largest residential developer, usually selling between 5,000 and 7,000 land lots per year, and some smaller players will exit or slow down. That said, the pressure on the large players, and don’t expect the scorching volume growth of 2014-18 again within the 10-year discrete forecast period. Stockland acquired Halcyon in July 2021, significantly stepping up its exposure to the land-lease communities’ business.
Financial Strengths
Stockland is in good financial health, with gearing (net debt to assets) of circa 18%, as at June 30, 2022 (pro forma adjusted for the sale of Stockland’s retirement living business in July 2022). This is below the group’s targeted range of 20%-30%, but the gearing will rise as the commercial property values are expected to be marked down by valuers. Stockland will redeploy capital raised from recent disposals, into further acquisitions, particularly in industrial, and into office developments at North Sydney and its Piccadilly site in the Sydney CBD, plus the recently closed Halcyon purchase. While debt is lower than many other REITs, that is appropriate, given exposure to development activities. Stockland’s debt metrics could deteriorate if earnings from the cyclical residential division took a major hit, though this is unlikely given the level of precommitments and deposits Stockland typically obtains before commencing major construction works. The group could be exposed to refinancing risk if interest rates or credit spreads rose substantially. However, its average cost of debt was a remarkably low 3.4% for fiscal 2022 and about two thirds of debt is hedged, meaning the impact of higher rates is likely to be felt gradually over a number of years. Given a weighted average debt maturity was 5.3 years as at June 30, 2021 this is not a major threat. Cash and undrawn debt lines totalled about AUD 2.2 billion, providing further financial flexibility.
Bulls Say
- The eventual resumption of population growth should support the value of Stockland’s assets and eventually underpin the viability of several development projects.
- There remains demand for quality real estate from the likes of pension funds, sovereign wealth funds and other offshore investors, which should drive buying in the direct property market and push valuations upward.
- Stockland has greater exposure to industrial property than most diversified REITs. Of the major property sectors, the industry is the least impacted by COVID-19 lockdowns and social distancing measures.
Company Description
Stockland is Australia’s largest housing developer, and this division generates about a third of the group’s funds-from-operations. Nearly two thirds comes from commercial property, mostly retail. It also has a growing land-lease business. The mix is evolving. Earnings from the residential development division are volatile and it is expected growth to moderate there. In commercial property the group is trimming retail and adding office and industrial via acquisitions and developments. Stockland-stapled securities comprise one share in the corporation that largely operates developments and one unit in a trust that holds the property portfolio.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Business Strategy & Outlook
Medibank is Australia’s largest private health insurer operating under the Medibank and Ahm brands. The dual-brand strategy has successfully allowed the group to offer differentiated pricing and messaging to grow members and profits. Despite the “free” universal public system in Australia, around 45% of Australia’s population have private hospital cover due to taxation benefits and penalties, shorter waiting times, and a choice of doctors and hospitals. The government policy settings, which promote the take up and retention of private health insurance products, remain in place. With an aging population, higher demand for more intense healthcare will put further pressure on the public health system. Medibank’s current strategy which has seen growth in policyholder numbers and margins, should see the positive trends continue. Initiatives included increasing the number of service providers where individuals pay no-gap, introducing reward programs (such as discounts) for members, investing in the digital offering to make it easier to lodge claims, adding tools and resources such as 24/7 nurse teleservice, and a new focus on in-home care. To help support margins there has also been a renewed focus on claim costs. Medibank secured audit rights with hospitals, which allows the insurer to investigate where rehabilitation referrals of a hospital exceed industry averages and it expanded efforts to identify errors in claims made by hospitals.
Despite larger players generating a respectable return on equity on mid-single-digit profit margins, smaller providers have less capacity to absorb the expected claims inflation. This could eventually lead to industry consolidation, or at the least a pullback in marketing expenses and policyholder acquisition costs. Medibank’s Other Health Services division provides in-home healthcare services such as nursing, rehabilitation, and health coaching for corporates. Medibank health also includes the sales of travel, life, and pet insurance, where Medibank is not the underwriter but is paid a commission.
Financial Strengths
In a debt-free position Medibank is in sound financial health. Medibank can fund long-term organic growth from cash flows, while maintaining the current 75% to 85% target dividend payout range. As at June 30, 2022, Medibank held AUD 1.95 billion in capital, equating to 13% of annual premiums, the top end of the firm’s 11%-13% target range. Given low claims volatility in health insurance the insurer could carry some debt, but given a large acquisition is not expected, the conservative balance sheet is likely to remain a feature of Medibank. Investment assets of AUD 3.4 billion were allocated 22% to cash, 59% to fixed income, and 19% to equities, property, and other assets as at June 30, 2022.
Bulls Say
- Industry growth is tied to a steadily increasing population, aging demographics and the rise in healthcare spending. Governments will continue to incentivise participation in private health insurance to share the burden of escalating healthcare costs.
- Premium growth is generally tied to the increasing cost of healthcare.
- The symbiotic relationship with the private hospital operators and buyer power over general practitioners is a key strength of Medibank’s business model. The majority of private hospital income is paid by the insurers.
Company Description
Previously owned by the Australian government, Medibank is the largest health insurer in Australia. Its two brands, Medibank Private and ahm, cover around 5 million people. Medibank and Australia’s fourth-largest health fund NIB Holdings are the only listed health insurers. In addition to private health insurance, the firm provides life, pet, and travel insurance, as well as health insurance for overseas students and temporary overseas workers. The Medibank Health division provides healthcare services to businesses, governments, and communities across Australia and New Zealand.
(Source: Morningstar)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Investment Thesis
- Lackluster FY23 distribution guidance.
- SCP’s share price is trading on par to its NTA.
- Sustainable distribution yield.
- Strong and experienced management team.
- Retail properties continue to be a softening broader market in Australia.
- Current low interest rate environment fosters growth and demand in the retail industry.
- Improving trends in supermarket sales growth, with strong performance from Woolworths.
- Robust development outlook and potential upside from development pipeline and new acquisitions.
- Increasing exposure to anchor and non-discretionary customers, providing sustainable and longer-term cashflows and rental income.
- SCP’s portfolio occupancy rate is 98.3%; it has in excess of 1,300 tenants. The bulk of gross rent comes from Woolworths and Wesfarmers, and of the remaining portion, there is a heavy weighting towards non-discretionary categories.
Key Risks
- Potential further Covid-19 impacts may result in rental earnings and valuation declines.
- Likely increases in interest rates or deterioration in credit/capital markets in coming years. This narrows the interest rate-dividend yield differential.
- Digital trend of online shopping reduces demand for retail spaces especially with the entrance of Amazon in the Australian market. Hence, this may also affect valuations of assets.
- Any deterioration in property fundamentals especially delays with developments, declining asset values, retailer bankruptcies and rising vacancies.
- Lower sales growth for WES/Coles and WOW because of Costco and Aldi taking market share.
Key Highlights:
Relative to the pcp and on a constant currency basis: Net Profit After Tax of $487.1m, up +5.2%. Funds from Operations (FFO) of $192.7m, up +21.2%, or FFO per unit of 17.40cpu, up +17.9%. Adjusted Funds from Operations (AFFO) of $169.5m, up +24.8%, or AFFO per unit of 15.30 cpu, up +21.3%.
- SCP declared distributions of 15.20 cpu, up +22.6% and represents a payout ratio of 99.8% of AFFO.
- Gearing of 28.3% at 30 June 2022, is down from 31.3% at 30 June 2021 mainly due to valuation uplift. Gearing remains below the lower end of target range of 30-40% (with management highlighting they prefer to remain below 35% at this point in the cycle).
- SCP’s average cost of debt is 2.5% (versus 2.4% in FY21), with 69.6% of debt fixed or hedged at FY22-end (versus 50.8% at FY21-end). Subsequently, management noted the percentage of debt fixed or hedged was increased to 81%. SCP has no debt maturities until June 2024.
- Property portfolio value of $4,460.9m, up $460.9m since FY21-end driven by $421.0m valuation uplift and acquisitions of $347.5m, offset by divestments of $307.6m. SCP’s net tangible assets of $2.81 per unit at FY22-end, is up +11.5% from $2.52 at FY21-end due to the investment property valuation increase.
- Property Portfolio Highlights. Relative to the pcp: The value of investment properties increased to $4,460.9m during FY22 (from $4,000.0m at FY21-end), due to acquisitions of $347.5m and valuation increase of $421.0m, offset divestments of $307.6m. Total portfolio weighted average capitalisation rate is now 5.43% (versus 5.90% at FY21-end), with sub-regional centres compressing to 5.87% (from 6.35% at FY21-end), neighbourhood centres compressing to 5.28% (from 5.77% at FY21-end) and freestanding centre compressing to 4.63% (5.50% at FY21-end).
- Total comparable store MAT sales are 10.0% higher than pre-Covid.
- Portfolio occupancy of 98.1% by GLA was slightly up from 97.4%, with specialty vacancy of 5.0% of GLA (compared to 5.1% at FY21-end), driven by re-leasing of former Gateway Target vacancy (with a new grocer/deli) and acquisitions with higher occupancy levels. SCP saw leasing spreads increase to 2.0% in FY22, versus (0.4%) in FY21, including 3.3% in 2H22. (4) SCP completed seven acquisitions totalling $347.5m (excluding transaction costs) in FY22. In July 2022, SCP acquired five convenience-based shopping centres from Primewest for $180.0m (excluding transaction costs). (5) SCP’s “SURF 3” fund was wound up in FY22, seeing an internal rate of return of 11% per annum for unitholders. SCP launched a new fund with GIC (‘SCA Metro Fund’) in April 2022; 80% GIC owned, and 20% SCP owned, who will also be the Property Manager and Investment Manager. The Fund has an initial target fund size of $750m. SCP divested seven seed assets to the fund for $284.5m, and post reporting date, the Fund acquired a neighbourhood shopping centre at Beecroft in metropolitan Sydney (NSW) for $65.0m, which brings gross asset value to $349.5m.
Company Description
SCA Property Group (SCP) owns a diversified shopping centres portfolio located throughout Australia. The portfolio is currently valued at $4,426.4 million. SCA Property Group predominantly focuses on convenience retailing through its ownership and management of a quality portfolio of neighborhood and sub-regional shopping centres and freestanding retail assets.
(Source: Banyantree)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.
Investment Thesis
- GMG’s high-quality investment portfolio which is globally diversified and gives exposure to developed and emerging markets.
- Strong property fundamentals which should see valuation uplifts.
- With more than 50% of earnings derived offshore it is expected GMG to benefit from FX translation and a prolonged period of lower rates.
- Transitioning to longer and larger projects in development
- Strong performances in Partnerships such as Cornerstone.
- GMG’s solid balance sheet providing firepower and access to expertise to move on opportunities in key gateway cities with demand for logistics space (and supply constraints) and diversify risk by partnering (i.e. growth in funding its development pipeline) or co-investment in its funds and or make accretive acquisition opportunities.
- Expectations of continual and prolonged lower interest rate environment globally (albeit potential rate hikes in the US) should benefit GMG’s three key segments in Investments, Development and Management.
Key Risks
- Any negative changes to cap rates, net property income.
- Any changes to interest rates/credit markets.
- Any development issues such as delays.
- Adverse movements in multiple currencies for GMG such as BRL, USD, EUR, JPY, NZD, HKD and GBP.
- Any downward revaluations.
- Poor execution of M&A or development pipeline.
- Key man risk in CEO Greg Goodman.
Key Highlights: Relative to the pcp and on a constant currency basis:
- Property Investment saw underlying property fundamentals remain strong leading to like-for-like net property income growth of +3.9%, occupancy increasing +60bps YoY to 98.7% with WALE improving +0.4 years to 5.2 years and continued strong leasing activity with 4.5 million sqm leased, equating to $551.9m of annual rental property income
- Development saw work in progress increase +28% YoY to $13.6bn, with 62% pre-committed (at completion projects were 99% leased on average) and a forecast yield on cost of 6.6%.
- Management saw external AUM grow +27% YoY to $68.7bn driven by $6bn in development completions and revaluations. Partnerships continued to perform well with total returns averaging 21.4% and retained significant financial flexibility with $18.1bn available in equity commitments, cash and debt.
Company Description
Goodman Group Ltd (GMG) own, manage, develop industrial, warehouse and business park property in Australia, Europe, Asia and Americas. GMG actively seeks to recycle capital with development properties providing stock for ownership by either the trust or third-party managed funds, with fees generated at each stage of the process.
(Source: Banyantree)
DISCLAIMER for General Advice: (This document is for general advice only).
This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.
The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require. The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.
The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.
Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.
Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents. Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material. Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.
The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.