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Stockland Earnings: Holding Ground While Conditions Are Tough, Well Positioned for Upturn

Illustration of a black two story house outlined in blue and part of a black two story house outlined in yellow in front of a black background depicting the real estate industry

Stockland SGP revealed fiscal 2023 funds from operations, or FFO, of AUD 35.6 cents per share, ahead of our AUD 33.4 cents per share estimate. Despite headwinds in the housing market, no-moat Stockland maintained an attractive 26% development margin in its residential development business. Distributions per security of AUD 26.2 cents per share were slightly ahead of our AUD 25.5 cents per share estimate. Time value of money and the beat of our 2023 estimates increases our fair value estimate by 3% to AUD 4.50. After a 25% rally since September 2022, Stockland securities aren’t as cheap as they were but still screen as slightly undervalued.

Our forecasts remain broadly unchanged, and we don’t think they’re overly demanding. We view 2023 residential settlement volumes of 5,403 lots as slightly depressed, due to interest rate headwinds and ensuing uncertainty, and coming off the back of a couple of years with near zero inbound migration. We assume residential settlements grow to 5,450 in fiscal 2024 and mostly grow at a low-single-digit pace over the next decade. We don’t think settlement numbers will exceed the heady numbers seen around 2017, when Stockland achieved 6,600 settlements. But we think numbers will eventually get near that, given strong migration, a housing shortage, and government policies such as shared equity schemes. As always, there are risks around implementation of policies and regime changes at elections; however, government policy has generally remained supportive regardless of election results.

Housing headwinds appear to be peaking, including rising interest rates, wet weather, labor shortages, and fast rising and unpredictable construction costs. Construction costs aren’t falling, but among major REITs that have substantial development capabilities, feedback is that construction costs aren’t rising as fast and some materials have declined in price. Most developers view overall construction costs as now fairly predictable.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Alexander Prineas

Equity Analyst
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Alex Prineas is an equity analyst for Morningstar Australasia Pty Ltd, a wholly owned subsidiary of Morningstar, Inc. He covers real estate companies and developers in Australia and New Zealand.

Before joining Morningstar's equity research team in 2019, Prineas was an associate director in Morningstar's manager research division, leading Morningstar's research on Australian and global property funds and on passive and exchange-traded funds. He spent a decade in manager research and investment consulting in Australia and the United Kingdom with Morningstar and Old Broad Street Research (now a Morningstar company). Before that, Prineas spent six years with Mercantile Mutual in client and advisor services, marketing, product development, and advice research.

Prineas holds a Bachelor of Commerce with a double-major in accounting and finance from the University of New South Wales. He also holds a graduate diploma in applied finance and investments from the Financial Services Institute of Australasia.

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