Stockland have shifted their strategy today as Managing Director & CEO Tarun Gupta seeks to re-shape the business for the new economy.
Gone are the 3 “Rs” of Residential Communities, Retirement Living and Retail development which became Stocklands mantra through the last decade. The new core focus is on Residential, Workplace & Logistics and Town Centres.
Managing Director and CEO, Tarun Gupta said: “As a leading creator and curator of connected communities, our strategy is designed to build on Stockland’s strong platform and to capitalise on structural long term trends including urbanisation and urban renewal; growth in institutional capital; digital acceleration and the continued momentum in ESG.
“Our focus is on using our specialist end to end, multi sector capability to create value at each stage of the real estate life cycle.”
Stockland have a $33bn development pipeline, including $21bn in Residential Communities and $12bn in Workplace & Logistics opportunities, both of which are expected to deliver strong earnings over the coming decade.
The residential pipeline includes 75,000 lots across their master planned communities, townhomes, land lease communities and apartments (both Build to Rent and Build to sell).
The pipeline is hungry for capital and the Group will seek to partner with institutional capital partners but also redeploy capital from the sale of non core assets in order to fund the delivery of projects in the pipeline and enhance the fee revenue to the business.
Stockland will continue to shift its over 55’s business away from traditional retirement village and toward the preferred land-lease village model. The Groups’ recent $620m investment in Halycon represents the new model where residents acquire the house but pay a rent on the land, often subsidised by social security payments such as Commonwealth Rent Assistance.
These land lease communities, or manufactured housing estates, can fit within larger master-planned communities, are more accepted by the sector, and offer a far more predictable revenue stream than the traditional deferred management fee model.
Over the next 5 years, Stockland will need to earmark $2.6bn in Retail and Retirement Living assets to sell, both to facilitate the re-deployment of capital into their pipeline but also to meet their lower exposure targets of 30% of Net Funds Employed (NFE). Stockland currently hold $5.4bn in 25 Retail Town Centres and $1.1bn in 59 Retirement Living assets.
The traditional retirement village assets will not be easy to dispose of. Lendlease elected to exit the sector and have a clear preference to sell 100% of their interest but have been only able to sell down 50% of their business to Aware Super and APG Asset Management in early 2021.
The change in direction for the Group comes as the impact of being under-invested in the Wholesale and Logistics sector have significantly affected performance over the past 2 years.
In 2020, valuation write downs, primarily in the Retail Town Centres, wiped off $452m in profit, whereas in 2021 valuation gains in the Logistics portfolio added $433m to statuary profits. Stockland earnings have also suffered. In FY21 earnings were -4.6% lower than FY20 and whilst its forecast for FY22 is a 6% lift to earnings, Goodman and Charter Hall are each delivering earnings growth of +15% and +38% respectively.
Stockland haven’t revealed any new targets for earnings growth in the short term and no doubt, the shift in strategy will take some time to play out.
The immediate tasks for the Group will be to exit its Retail and Retirement assets, using the opportunity to bring new capital partnerships to the fore.
Tarun Gupta said: “This strategy builds on our strengths and reweights our business towards sectors underpinned by long term trends and targets third party capital to create new, recurring income streams and drive higher return on capital, while maintaining a strong balance sheet.
“We are starting from a position of financial strength with diversified sources of capital, high investment grade credit ratings, strong operating cash flows and a competitive cost of debt.
“With key senior appointments already in place, we are moving at pace and with conviction to deliver on our priorities. I am confident we have the right strategy, capabilities and culture to grow Stockland in a way that delivers for all our stakeholders.”