Transcription of interview with Stockland (ASX:SGP) Managing Director and CEO, Mark Steinert
Lelde Smits: How does Stockland generate returns and what is the company’s growth strategy?
Mark Steinert: The Stockland generates returns through the ownership and intensive management of real estate assets and the development of property, where we can deliver a higher and better use. And, in that regard by doing that and undertaking activities that provide a return well above our cost of capital, we’re able to generate growth through the cycle of between four to six per cent. At the moment we’re at a pretty strong part of the cycle, particularly for our residential business and in retail sales. And that’s seeing growth actually running a bit above that, so we’ve been guiding to between 6.75 to 7.5 per cent.
Lelde Smits: How has Stockland’s residential business performed this year and what factors are fuelling performance?
Mark Steinert: The Stockland’s residential business has gone really well this year. So if we look at the interim, our profits were up 73 per cent and there’s a lot of factors that came into that. I think it’s first and foremost, our product’s very middle of Australia targeted to the customer. So half our buyers are first homebuyers; we focus on affordability. The level of interest rates is helping, obviously migration and our natural increase in population, drives demand. An,d we also have an undersupply in the metropolitan markets around Australia. So they’re the macros things.
And, for our business specifically, we’ve been reshaping it, bringing more projects into production that have great access to transport, to public amenity, to shopping. And, as a result of that and those projects having operated in profit margins above 15 per cent, that’s really what’s driven that increase in profit.
Lelde Smits: Which regions is Stockland targeting for new projects and acquisitions and what are some recent highlights?
Mark Steinert: The regions that we’re targeting for acquisitions is really metropolitan eastern seaboard, with a particular focus on Sydney. And in terms of sectors, we’re looking for residential opportunities that adjoin our existing projects, or where we have brand presence. In shopping centres, it’s really about the underlying potential, the trade area and the strength of the trade area. And in logistics, it’s about how well they’re suited to transport infrastructure.
Some examples would include Willowdale and Elara, and Schofields in Sydney metropolitan area. Well serviced relative to trains, and in particular to amenity and shopping; logistics assets in Ingleburn in Sydney. So on those shopping centres, while we’ve bought some centres like Bundaberg. The main focus is organic growth, where we’ve got a $1.5 billion development pipeline, which is focused on lifestyle and leisure, service and fast casual dining and entertainment. And where we can see seven to eight per cent initial yields, and 11 per cent plus internal rates of return, which is highly accretive to enterprise value and to our earnings.
Lelde Smits: How does Stockland’s mix of commercial property, retail, logistics and business parks, and retirement living divisions fit together?
Mark Steinert: So Stockland, as the largest diversified real estate company in Australia, is an easy way to get an exposure to the whole market. 70 per cent of our profit comes from recurring investment assets, the bulk of which are shopping centres. In fact of that mix, 70 per cent of shopping centres and then the balance of logistics and business park assets, and office assets. And then 30 per cent of our profit and asset base is in residential, both in terms of traditional house and land and apartments and town homes. And also retirement living, which has grown off the back of an ageing demographic.
Lelde Smits: What are Stockland’s immediate priorities and guidance for the full year?
Mark Steinert: Our key strategic priority is to grow asset returns and our customer base. And number two is to make sure we maintain a strong capital base with low levels of leverage, and protect our A minus credit rating. And thirdly, to improve our processes and our systems to deliver a great customer experience and deliver on our purpose, which we believe, is a better way to live through really thoughtful and sustainable development.
Ends
