The Australian real estate sector witnessed an upward trend in the second half of 2019 after struggling for a long period, with ABS September quarter 2019 release highlighting increased property prices in Sydney and Melbourne (+3.6 percent each), Hobart (+1.3 percent) and Brisbane (+0.7 percent). The year 2020 seems to be a prosperous new year for the market.
Over the coming years, technological innovation is expected to pay a key role in growth of the real estate sector. Digitalisation has become a vital parameter in all the sectors, including real estate. This is justified from the fact that the World Bank in its “Doing Business Report 2020” has adopted the parameter, analysing integration of technology into property related businesses.
In this article, we are discussing four real state sector stocks - CMW, NSR, HPI and SDG, covering their recent developments and performance on the Australian Securities Exchange (ASX), along with their outlook.
Interesting Read: Property stocks with double-digit growth in the last 12 months
Cromwell Property Group (ASX: CMW)
On 27 February 2020, the Company made two significant announcements - one related to its half year FY2020 performance for the period ended 31 December 2019 and other one confirming Mr Leon Blitz as independent non-executive Chair of Cromwell.
CMW’s Phenomenal H1 Performance with 59% Profit Increase
The Company’s results for the six months to December 2019 highlighted its well-positioned property portfolio and balance sheet with total assets under management of $11.9 billion across Australia, Europe and New Zealand.
- Net tangible assets increased from $0.99 per security to $1.04 per security.
- There was a 59 percent year on year increase in statutory profit per security from 5.52 cps ($111.1 million) in H1 FY2019 to 8.78 cps ($227.3 million) in H1 FY2020.
- Operating profit per security was noted at 5.18 cps, up 26 percent from 4.10 cps in the year-ago period.
- Group gearing of 41 percent
- All the major financial attributes delivered a positive change on pcp basis.
The Company has affirmed operating profit at 8.30 cps for full-year FY20, with FY20 distribution guidance affirmed at 7.50 cps.
Management Changes - New Chair to Board
The results report also confirmed reshuffling of the Company’s management and intention towards a strategic review that was earlier announced on 4 February 2020.
In line with the plans, CMW also confirmed Mr Leon Blitz as independent Non-executive Chair of Cromwell, following the retirement of independent Non-executive Chair Mr Geoffrey H Levy, AO.
Mr Blitz joined the Company’s Board as an independent Non-executive Director in 2017 and subsequently in 2019, he became Deputy Chair.
Under the leadership of Mr Blitz, the Company will continue undertaking a strategic review, in conjunction with appointed advisors (Goldman Sachs and UBS AG). The review aims to assess the current ‘Invest to Manage’ strategy, all attributes of the business, and all the possibilities to increase its securityholder value. The Company is likely to complete the strategic review before releasing results for the financial year 2020.
CMW stock closed the day’s trade at $ 1.140 on 28 February 2020, with a market cap of $ 3.06 billion and approximately 2.61 billion outstanding shares. The stock has an annual dividend yield of 6.3 percent and has delivered a negative 4.88 percent return in the last six months.
National Storage REIT (ASX: NSR)
NSR is the largest self-storage owner-operator in ANZ (Australia and New Zealand).
First Half Underlying Earnings up 31%
Recently, the Company released its first half FY20 results for the period ended 31 December 2019, highlighting
- NTA of $1.772 per stapled security, an increase of 9 percent from $1.63 in June 2019
- Total revenue increased by 17 percent on pcp, from approximately $73 million to ~ $85 million.
- Operating profit and underlying earnings increased by 19 percent and 31 percent year on year, respectively.
- Profit after income tax stood at $151 million, compared with $27 million in the year-ago period.
- At 31 December 2019, cash at hand was $33.5 million as compared to $178.8 million (at June 2019), which reflects repayment of debt following the June 2019 capital raise.
- Total Portfolio Occupancy (Australia & NZ) stood at 82.4 percent (+0.3 percent)
- Acquisitions worth $179 million successfully transacted
Update on Takeover Proposals
NSR has received multiple proposals from parties, including Gaw Capital Partners (GCP), Public Storage and Warburg Pincus.
As per the unsolicited, non-binding indicative proposals received from each of the three parties, they urge to acquire 100 percent of the issued stapled securities of the Company. Each of Gaw Capital Partners and Warburg Pincus have proposed a cash price of $2.2 per stapled security, whereas proposal from Public Storage stands at $2.40 per stapled security.
All three entities are presently conducting non-exclusive due diligence on their part and each of the party is in discussions with the Company’s management and its advisors. However, there is no certainty that these discussions are likely to result in a final recommendation offer, as per the Company.
The Company is targeting underlying earnings of $78 million and underlying EPS growth of 4 percent. However, earnings growth might get impacted in the short term by potential takeover. For the remaining time period of FY20, the acquisition pipeline remains strong (more than $100 million).
NSR stock closed the day’s trade at $ 2.230 on 28 February 2020, with a market cap of $ 1.85 billion and approximately 788.06 million outstanding shares. The stock has an annual dividend yield of 4.17 percent and has delivered a 26.34 percent return in the last six months.
Also Read: 5 Property stocks - ABP, SCG, INA, NSR, LIC
Hotel Property Investments (ASX: HPI)
The Company is engaged in real estate investments in freehold pubs in Australia.
HPI lodged its half year FY20 results for the period ended 31 December 2019, highlighting a 9.3 percent increase in total revenue to $27.1 million, a statutory profit of $29.6 million and a final dividend distribution of 10.3 cents per stapled security.
- Rent revenue from investment properties stood at $24.7 million, an increase of 9.21 percent on pcp.
- Adjusted funds from operations (AFFO) and distributions increased by 5.6 percent year on year from $14.3 million to $15.1 million, owing to reduced variable funding costs and rent revenue increase.
- Profit after tax was noted at $20.4 million
- Cash at hand at the end of December stood at $0.5 million
Also, the Company provided its distribution guidance of 20.7 cps for FY20.
Fully Underwritten Institutional Placement Completed
On 27 February 2020, the Company updated the market regarding fully underwritten institutional placement completion. Under the placement raising approximately $30 million, ~ 9.3 million new securities at $3.23 per security are to be issued. The new securities will settle on 2 March 2020 while allotment and normal trading is scheduled on 3 March 2020.
The placement is fully underwritten by E&P Corporate Advisory Pty Ltd and J.P. Morgan Securities Australia Limited.
HPI has acquired 100 percent freehold interests in two metropolitan hotel properties, as mentioned below, for a total consideration of $60 million.
- Gregory Hills Hotel ($40 million): This property is situated in the high growth corridor of South Western, Sydney and it is the Company’s first entry into the metropolitan Sydney market.
- Acacia Ridge Hotel ($20 million): This hotel is among the top 10 gaming hotels in Queensland.
Partial funding of the acquisitions and associated transaction costs will be fulfilled from the institutional placement. The remaining balance of acquisition cost will be covered from various debt facilities.
The expected date for the settlement of the acquisitions is the end of March 2020.
HPI stock closed the day’s trade at $ 3.230 on 28 February 2020, with a market cap of $ 475.36 million and approximately 146.72 million outstanding shares. The stock has an annual dividend yield of 6.3 percent and has delivered a negative 6.90 percent return in the last six months.
Sunland Group Limited (ASX: SDG)
Its portfolio comprises 3,853 residential homes, urban land lots, multi-storey apartments, and 18,000sqm of retail, representing $2.8 billion.
Below are the Company’s first half FY20 performance for the period ended 31 December 2019.
- Total revenues from ordinary activities slipped by 69.3 percent year on year to $63.3 million.
- Strategic sale of Lakeview and Ingleside properties generated $36.3 million in revenue.
- Profit from ordinary activities after tax attributable to SDGs shareholders stood at $9.4 million, a decrease of 18.8 percent on pcp.
- Earnings per share of 6.9 cents per share as compared to 7.8 cps (H1 FY19)
- Net tangible assets per ordinary security noted at $2.61
- Gearing is 32 percent debt to assets and 52 percent debt to equity.
- Strong balance sheet capacity with $14.3 million in cash and $145.5 million in undrawn working capital lines.
- On market share buyback concluded
- Proposed off market buy-back of up to $60 million.
While commenting on the Company’s future outlook, Managing Director Sahba Abedian said –
On 28 February 2020, the stock of SDG last traded at $1.685, with a market cap of $232.06 million and approx. 136.91 million outstanding shares. The annual dividend of the stock was noted at 4.72 percent, with a positive return of 7.96 percent and 6.94 percent in last three months and six months, respectively.
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