Western Australia Home Loan Scheme & Real Estate Players – SGP, LLC & MGR

With household consumption going down, and anticipated recessionary pressures made Reserve Bank of Australia cut the rate by 0.25% or 25 BPS; it would be interesting to observe how the WA Government's Keystart scheme revives the sentiments in the home-buyers in addition to the rate cut.

Labor Party started the Keystart scheme in 1989, and the scheme has been expanded by the successive state governments to stimulate the Western Australian housing and construction space. The scheme enables buyers to acquire a loan with low deposits, no mortgage insurance and no monthly account keeping fees.

According to Keystart website, the homebuyers are categorised based on the metro area, regional areas, Kimberley and Pilbara. All of these four classifications have a different cap on the income of the loan applicant. Also, the four classifications have three sub-classifications based on the family size viz, single, dual and family. In a metro area in WA, a single person with less than $105,000 per annum is eligible for the loan.

Further, the eligibility extends to age, existing property, citizenship and the loan is granted to applicants who require a home to live and not rent-out. Additionally, the home should be built or bought in Western Australia.

In metro areas, the scheme has the maximum purchase price of the home at $480,000. Currently, the variable rate for the loan is 5.34% per annum, 2% of deposit is required, and the maximum tenure of the loans is 30 years. Additionally, the scheme offers flexibility in repayment frequency, additional repayments are allowed, and statement frequency is six monthly.

It should be noted that the market is expecting more rate cuts through this year, and any further rate would provide more stimulus to household consumption.

Let’s look at three real estate players from Australia:

Stockland (ASX: SGP)

Stockland (ASX: SGP) is a diversified property group operating under residential, retirement living and commercial property. Recently, the group organised 2019 Investor Day on 13 June 2019 and subsequently a few days later on 17 June 2019, Stockland announced a fully-unfranked interim dividend of AUD 0.141 to be paid by 30 August 2019; with the record date of the dividend being mentioned as 28 June 2019.

Near Term Priorities: In the Investor Day presentation, the property giant shed lights on the near-term priorities which include improvement in the quality of retail town centre portfolio through $400m divestment target within next 12 months, and $284.5 million had been divested by 30 April 2019. Furthermore, the group has a target of $350 million for security buy-back program; as on 28 May 2019, a total of 50,117,773 stapled securities had been bought and cancelled. In addition to these priorities, Stockland intends to increase Workplace & Logistics weighting, and expand the strategic partnerships across all sectors.

Capital Management (Source: 2019 Investor Day Presentation, June 2019)

Group Outlook: The property group is targeting a growth of ~5% in FFO per security for FY19, and some key assumptions and forecasts for the business verticals are:

Residential: It was reported that the profit has been consistent with the company’s expectations, irrespective of the lower settlements of ~5,900. Also, Stockland expects the operating margin above 18% for the full year.

Commercial Property: Stockland expects that a comparable FFO growth of ~2% in the commercial property, and Retail new leases and renewals are expected to grow at ~ -3.5%. Also, it was reported that subdued income growth outlook and cap rate expansion is driving negative revaluations. The company is focused on the divestment of non-core retail assets.

Retirement Living: It was reported that development improved as well as the company established sales, and non-core village divestments are expected in the future.

On 28 June 2019, SGP’s stock was trading at A$4.215, down by 0.355% (at AEST 12:38 PM). The performance of the stock in the past one year is +3.17%, and its year-to-date return is +22.61%. In the past three months and one month, the stock recorded a return of +09.02% and -4.94%, respectively.

Lendlease Group (ASX: LLC)

Global property group, Lendlease Group (ASX: LLC) operates business in the Americas, Europe, Asia & Australia region.

Globally Diversified Business (Source: Company’s Presentation, March 2019)

In April, the company notified that it had been served with class action lawsuit by Maurice Blackburn, and the suit was filed in the Supreme Court of New South Wales. Also, the suit had been filed on behalf of the shareholders who held the Lendlease’ stapled security or American Depository Receipt during 17 November 2017 to 8 November 2018.

In March 2019, Lendlease presented at the Credit Suisse Asian Investment Conference. It was depicted that the strategy of the group is driven by global trends. A couple of global trends & strategies applied by the group are:

Ageing Population: It was reported that the group operates one of the largest Retirement Living businesses in Australia, and it seeks to establish a scale platform in China with the first senior living project in Shanghai secured in FY18.

Urbanisation: With such urbanisation in the world, the company has $59.3 billion in the pipeline for the urban areas. In addition to this, Lendlease has 20 major urbanisation projects (development projects with end value > $1billion) across ten gateway cities.

Outlook: As per the release, the property intends to provide the base for future growth re-setting business, development of pipeline, investments and integrated model. Strategic review of the business demonstrated that Engineering and Services were not required for the group strategy, and it was also reported that discussions were underway – re-setting business. Furthermore, Lendlease is to develop a pipeline that would fit in the integrated model, targeting international markets. Also, the group intends to improve the funding and investment capability for the integrated model, while maintaining strong capital partner relationships and fund and asset management platforms.

It was reported that by these strategies, the group intends to achieve competitive advantage through an integrated model with urbanisation projects and investment platform. Also, it would utilise a disciplined approach in managing the individual property, and diversification across segments, sectors and geography would provide resilience.

On 28 June 2019, LLC’s stock was trading at A$13.090 (at 12:49 PM AEST), down by 0.607%. In the past one year, the return of the stock is -33.25%. The performance in the past one month and three months are -8.80% and +9.66%, respectively.

Mirvac Group (ASX: MGR)

Diversified property group, Mirvac Group (ASX: MGR) has an experience of 45 years in the property industry with capabilities that include integrated development and asset management.

Q319 Residential Results (Source: Company’s Macquarie Australia Conference, April 2019)

Recently, the group entered in a property development deed with Boral Limited (ASX: BLD) in relation to the Scoresby site in Victoria. As per the agreement, Mirvac would manage the urban development of the 171-hectare site over a multi-decade period; this includes new parklands and new housing community.

On 19 June 2019, Mirvac reported that the terms of the sale of its interest in Tucker Box Hotel Trust were not agreed, and it was expected that Mirvac would realise the divestment by the end of FY19. Reportedly, the preliminary FY20 guidance for EPS growth would be greater than 3 per cent versus FY19; this is due to failed transaction related to Tucker Box Hotel Trust. Importantly, the preliminary FY20 DPS guidance of 5 per cent growth against FY19 remains unchanged.

On 28 June 2019, MGR’s stock was trading at A$3.135, up by 0.16% (at AEST 12:55 PM). The performance of the stock in the past one-year is +42.27%, and its return in the past six months is +35.50%. During the past one month and three months, the returns of the stock are +0.32% and +13.41%, respectively.


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