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A Broker's Preview - Stockland

Overview: Stockland is an Australian listed “AREIT” (Australian Real Estate Investment Trust), offering investors diversified property exposure across the Tasman. AREIT’s are a massive investment market in Australia, with the 16 companies on the S&P/ASX 200 AREIT index boasting a combined value of $109 billion (dwarfing the NZX 50, ex the 2 big Aussie banks, which comes in at $83 billion).

Pros: Stockland are one of the larger AREITs on the ASX, with 41 retail centres, 21 industrial properties and 10 office buildings on their books, as well as being the largest developer of residential property in Australia. The residential development extends to being a top 3 retirement living operator in Australia with over 8000 units, and 3000 more in the pipeline.

The residential development division of the company is expected the be the main driver of earnings growth in the near term as the company benefits from surging demand for residential housing in Australia.

Rates are expected to stay lower for longer across the ditch. The low interest rate environment has had the double impact of raising demand for property, due to cheap lending, and making Stockland and other AREITs more attached as yield investments to income strapped investors.

Cons: if interest rates start to rise in Australia, the tailwinds pushing up the ARIETs will reverse, crimping margins and decreasing the demand for AREITs from income investors.

The high level of residential development being undertaken by Stockland does increase its risk relative to its peers. This area is expected to drive earnings growth, however if we see a pull back in demand for houses (due to higher interest rates or a faltering economy) then Stockland could be left carrying unwanted properties.

Price performance: The share price has consistently tracked upwards over the last few years after taking a massive dive in the 2008 which saw their share price more than halve. The share price is still well below 2008 levels.

Investment outlook: NZ investors can currently benefit from record high NZD relative to the Australian, meaning they can get more bang for their buck in Australia. Investors will also need to consider the tax implications, as Stockland are a stapled security and therefore subject to the Foreign Investment Fund tax regime.

*A Broker's View is written by Grant Davies, Investment Advisor at Hamilton Hindin Greene Limited. This article represents general information provided by Hamilton Hindin Greene, who may hold an interest in the security. It does not constitute investment advice. Disclosure documents are available by request and free of charge through www.hhg.co.nz

 

 

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