Australia | Jul 21 2021
On acquiring Halcyon, Stockland is expanding its presence in the land lease sector, which is considered a positive strategic move
-Halcyon should provide Stockland with a strong brand to scale up in this segment
-As a result there should be an improvement in rental and development margins
-A positive strategic move yet does not inspire brokers to change their views
By Eva Brocklehurst
Stockland ((SGP)) is expanding its presence in the retirement living sector, acquiring land lease operator and developer Halcyon for $620m. The acquisition comprises 1500 established sites and 2300 development sites, the majority being in Queensland.
Halcyon should significantly accelerate Stockland's scaling up in an attractive segment, Citi believes, given it provides an affordable housing solution to a growing group of ageing Australians.
Following the acquisition, Stockland will have a portfolio of 1500 rental units, all from Halcyon, and 6300 development units, comprising of 37% from Halcyon. In a land lease model the home is owned but the land on which it is situated is leased from the community operator.
Rent is paid for the right to occupy the site with a manufactured home or transportable dwelling. Stockland intends to fully integrate Halcyon while the founders will remain involved and provides consulting services for at least 12 months.
UBS notes Halcyon villages are unique and therefore arguably deserve some premium for the quality and location, although around 67% of the acquisition relates to development where the value is less clear.
As Stockland achieves scale in this area there should be an improvement in both rental and development margins, currently 55% and 10% respectively, on the initial Halcyon portfolio, Macquarie suggests.
The cost of the acquisition is elevated compared to previous transactions in this segment, the broker adds, yet it should provide Stockland with expertise and a strong brand that can be used across its roll-out.
The first tranche of the price will be paid upon completion of the transaction, expected in August 2021, with the balance of $310m deferred until July 2022. Around $200m of the transaction price is attributable to rent-collecting assets and the remainder to the development portfolio.
This reflects $138,000 per occupied site. These sites generate a margin of 55-60%, equating to a passing yield of 4.3%. Management expects to lift the margin to 65%. The passing yield is significantly firmer than the capitalisation rate of 6.25% for book values of listed peers, Ord Minnett notes, such as Lifestyle Communities ((LIC)) and Ingenia Communities ((INA))