Australia | Nov 10 2021
Stockland plans to reshape its portfolio, reducing the weighting of the retail and retirement segments. Is the timing right?
-Increased weighting of portfolio to office/logistics and away from retail/retirement
-Scaling of capital partnerships should allow more funding of developments
-Stockland will seek to divest -$2bn in net assets over the next 12-24 months
By Eva Brocklehurst
Amid uncertainties on the retail/retirement front, Stockland ((SGP)) plans to weight its portfolio towards the office and logistics segments, putting more capital into these areas while accelerating developments and focusing on capital partnerships.
UBS believes the market will welcome the strategy, but questions whether the capital could not be reallocated faster than planned, and with less dilution to earnings and growth.
Moreover, is this the right time to move out of retail/retirement and into logistics/apartments? Credit Suisse asserts the strategy is in the “if only this had been done sooner” category, but accepts it is now a case of being able to deliver successfully.
Stockland is targeting 60% of income from recurring streams and 40% from developments, which the broker notes is unchanged. Also, there are no firm external funds under management (FUM) targets so the main focus is on repositioning the portfolio.
The company has also provided, for the first time, a target of 6%-9% as a return on invested capital (ROIC) for recurring income business, and 14%-18% for developments. The target is "bold" and UBS calculates an overall return on invested capital of 12%-15% should be achieved.