Stockland poised to acquire $1.3 B residential property portfolio from Lendlease

About Stockland Corporation Limited

Stockland Corporation Limited (Stockland, the Group, ASX: SGP) is a diversified property Group with a 75 – 25 percent split between commercial property and residential property exposure respectively. The Group develops, owns and manages retail centres, business parks, logistics centres, office buildings, residential communities and retirement living villages. It holds the 5th largest land bank in Australia for residential communities.

Acquisition of Residential Masterplanned Communities 

Stockland’s proposed $1.3 billion acquisition of 12 actively trading Masterplanned Communities projects from Lendlease is progressing through the regulatory review process with the Australian Competition and Consumer Commission (ACCC). The ACCC has competition concerns with Stockland’s proposed acquisition because it would remove one of Stockland’s largest and closest competitors in the supply of residential masterplanned community housing lots in the Illawarra, Northwest Perth, Ipswich, and Moreton Bay regions. The Commission is concerned that the proposed acquisition may increase Stockland’s incentive to raise the price, delay the supply, or reduce the quality of housing lots in these regions, to the detriment of homeowners. The concerns are strongest in the Illawarra region of NSW where Lendlease and Stockland are the two largest participants in an already concentrated market. The Commission has been deliberating on the acquisition since December 2023 and a final decision is due on 12 September 2024. Given it has been 7 months since the ACCC commenced to adjudicate on the transaction and it hasn’t rejected the proposed acquisition, the most likely outcome is a conditional approval that may see residential lots within the Illawarra region excluded from the transaction.

$49 billion development pipeline

Stockland has a $49 billion long-term development pipeline across Commercial properties and Residential developments. Available liquidity of $2.6 billion, $380 million of capital recycling from the disposal of non-core Town Centres, and moderate gearing of 28 percent, should provide adequate funding sources to enable these developments to proceed as planned.

The Group has a sound investment grade credit rating of A- / A3 from S & P and Moody’s respectively, with stable outlook. Sixty percent of Stockland’s borrowings are hedged at 5.2 percent interest, with a weighted average debt maturity of 4 years. With 40 percent of borrowings unhedged, Stockland may experience the benefit of lower interest rates from 2025.

Looking Ahead

Stockland is well-positioned to maintain consistent earnings results from its Commercial and Residential property exposures. More than 70 percent of the Group’s Commercial property exposure is to essential categories and occupancy rates are currently at 99 percent.  Strong population growth and prospective interest rate cuts in 2025 should support Stockland’s Residential property sales that appear to have bottomed since the sales trough in the September 2022 quarter. If the proposed Masterplanned Communities acquisition from Lendlease proceeds, Stockland’s capital exposure to residential property will increase to 35 percent, from the current level of 25 percent.

Market consensus is that Stockland’s acquisition of Lend Lease Communities, if approved by the ACCC, could increase Stockland’s earnings per share by 4 to 5 percent. Stockland’s target gearing ratio of less than 30 percent, and robust housing demand and resilient rental income from commercial properties exposed to essential categories, should underwrite steady growth in distributions in the decade ahead.