Landscape On Real Estate- Stockland Sells 50% Interest in Aura To Capital Property

Real estate sector in Australia is witnessing several changes, with the Reserve Bank of Australia announcing further interest rate cut on 2 July 2019, banking regulator Australian Prudential Regulation Authority (APRA) loosening its lending rules and Liberal-National coalition retaining its power in the May federal election. Over the last couple of years, the Australian property market has lost billions of dollars; however, all these initiatives are likely to stimulate a recovery in the due course.

S&P/ASX 200, the benchmark index, last traded at 6,718 points on 4 July 2019, marginally up by 0.5% from its previous close, with S&P/ASX 200 A-REIT leading the pack with an upsurge of 1.13% to 1,680.4 points.

Let us have a look at what is new in the Australian property market that fuelled the S&P/ASX 200 A-REIT to this upsurge:

Aura Capital Partnership:

Stockland (ASX: SGP), a diversified property group, and Capital Property Group (CPG) have reached a deal concerning Aura, one of the largest master-planned communities in Australia. According to an ASX announcement by SGP on 4 July 2019, it has sold a 50% stake in Aura, located in Caloundra on the Sunshine Coast, to CPG at around 30% premium to book value.

Stockland owns, builds and manages properties, such as business parks, residential communities, shopping centres and logistic centres. The company was established in 1952 and is based out of New South Wales. The company was officially listed on ASX in February 1987.

CPG, which is owned by rich lister Terry Snow, holds an experience of more than 40 years in the development and management of mixed-use properties across multiple asset classes. The company owns and had developed Canberra Airport. Moreover, it has a residential development, named Denman Prospect, in Canberra and a mixed-use project underway in Canberra’s CBD, Constitution Place.

Aura is one among the biggest planned Australian communities with an end value of $5 billion. So far, nearly 1,500 of the 20,000 planned homes at the site, which was bought by SGP in 2004, have been sold. Over the coming 20-30 years, the project will be home to more than 50,000 people.

Under the terms of the deal, Stockland will be responsible for managing the development and ongoing delivery of the Aura community. Additionally, it will handle the roll out of infrastructure, as part of its existing agreements with the local and state government.

The company will recognise the accounting profit associated with this transaction in the financial year 2020, partially offset by lower revenue from its reduced interest in the Aura project.

Mark Steinert, Managing Director and CEO of Stockland, mentioning the deal stated that the partnership with Capital Property Group will enable the development of an outstanding new city on the Sunshine Coast. The development will result in best in class schools, sporting facilities, childcare facilities, business parks, retail town centres and affordable homes, in addition to transport, open space and community infrastructure. The deal highlights the company’s strategy of entering into capital partnerships with players interested in making investments in large-scale projects.

Moreover, such tie-ups enable SGP to boost its balance sheet and make investments in other opportunities across the company’s diversified portfolio, thereby resulting in the business growth, stated Mark Steinert. The company’s diversified portfolio includes workplace and logistics development pipeline and additional residential community acquisitions.

Meanwhile, Capital Property Group’s Executive Chairman, Terry Snow stated that Sunshine Coast as an exciting growth area of Australia and new international airport development project would result in growth in several industries that are expanding on the coast.

Stock Performance: The shares of SGP have given a YTD return of 25.80%. By the end of the trading session, the price of the shares of the company was at A$4.380 (as on 04 July 2019), up 0.922% as compared to its previous close. Stockland holds a market capitalisation of $ 10.35 billion and has approximately 2.38 billion outstanding shares. Its annual dividend yield stands at 6.36%, while EPS is A$0.264.

Property Sentiment and Increased Confidence:

On 04 July 2019, the property industry in Australia experienced another major positive sign. The ANZ/Property Council Survey, which measures consumer sentiment across the commercial and residential industries in Australia, released the results from a survey conducted during May 28 - June 14, reflecting a more positive outlook for the property industry across the country.

Increased confidence in the property market and credit availability are among the main findings of the survey.

The headline index of confidence or the national confidence index in the September quarter jumped by 13 points to 128 from 115 from the survey conducted three months earlier. This increase is also the second biggest leap ever recorded by the survey and above the mark of 100 points which is considered neutral as it separates net optimism from net pessimism.

ANZ/Property Council Survey (Source: Property Council of Australia)

Moreover, sentiment around credit availability also witnessed surge, as the survey highlighted a positive outlook in sentiment towards whether securing credit over the next one year would be easier or harder in the country. Since 2015, credit availability sentiment had turned negative.

The survey noted that a combination of factors boosted the confidence and sentiment towards the country’s property market. The positive turn in consumer sentiments towards property markets and credit availability can be attributed to the victory of Prime Minister, Scott Morrison during the federal election held in May 2019, as it resulted in the removal of uncertainty related to the changes planned by the opposition party to negative gearing and capital gains tax breaks. Moreover, lower interest rates and the announcement by banking regulator Australian Prudential Regulation Authority (APRA) regarding easing its mortgage serviceability rules after the poll had a positive impact on the consumer sentiment. The impact of these factors was also reflected in the recent slight recovery in property prices in Sydney and Melbourne.

According to the survey, all states and territories, except for Australian Capital Territory, registered positive expectations. Confidence levels in Australian Capital Territory (ACT) were low in the September quarter when compared with the last quarter survey, falling by 13 index points. This fall could be the result of the federal coalition victory, as the party had unveiled plans to introduce spending cuts to the federal public service, with the plan likely to have a major impact on Australian Capital Territory than other regions.

ANZ/Property Council Survey (Source: Property Council of Australia)

Strong sentiments were reported towards the NSW and South Australia governments of all the state and territory governments across the country, while sentiments towards Queensland government dipped into negative territory for the second consecutive quarter.

Meanwhile, the survey also highlighted a recovery in expectations toward investments by businesses outside mining, forward work schedule, staffing level, national and state economic growth, and capital growth in office and industrial sectors.

Though the survey has highlighted improved confidence across the country’s property market, there are still some economic challenges that the sector might experience, according to the Property Council of Australia Chief Executive Ken Morrison. Several state administrations have introduced investment-sapping tax upsurges, while budgets of the state governments in Queensland region, situated in Victoria and South Australia have resulted in arbitrary and incompetently designed tax surges for the property sector. All these factors could affect the current sentiment turnaround, said Ken Morrison.

A brief on ANZ/Property Council Survey:

The survey, which was started in 2011, was conducted with 980 respondents which included property developers, property owners, property managers, real-estate agents, service providers and consultants. The ANZ/Property Council Survey focuses on the country’s property industry and evaluates:

• Sentiments of the participants in the property industry towards the outlook for national, state and territory economies in Australia.
• Opinions regarding the performance of property asset class.
• Important industry driving forces.
• Anticipated workflows.
• Employment intentions.

The shift in sentiment towards property market in Australia as highlighted by the survey is expected to encourage national policy makers, as well as the Reserve Bank of Australia to come up with new policy changes and other initiatives to drive the economic growth in the country.

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