Sleeping Stockland stirring as restructure and recovery take hold

One of the worst performing Real Estate Investment Trusts, Stockland may be best placed to benefit from a real estate recovery

If success is as much about timing as anything else, Mark Steinert, the recently appointed chief of Stockland Group, may well have found himself in the right place at the right time.

A new boss, a new management team and a fresh approach to the future categorised this morning’s earnings result which, on some measures, was slightly worse than expected.

One of the worst performing AREITs of the past few years, Stockland Group (SGP) has cleaned out the cupboards, announcing a whopping 79% decline in net profit to just $104.6 million following a previously announced $355 million impairment to its residential property book.

Underlying profit dropped 26.8% to $494.8 million, worse than the 25% drop expected by the market. The final dividend, however, was kept steady at 12c, delivering an attractive 6.3% yield.

But Stockland, after taking a beating from a poor residential performance, now has one of the better growth profiles as the massive cuts in domestic interest rates of the past 18 months finally appear to be stirring interest in residential property (see Adam Carr's The coming uplift in equities and property).

Stockland is actively reweighting its portfolio, reducing its exposure to office assets and diverting attention to retail and industrial properties. The company has sold $1.5 billion in non-core assets during the past two years, which has been reinvested in retail assets and a share buyback.

On the residential side, Stockland continues to offload its impaired portfolio while shifting to higher margin developments. Crucially, it also is shifting towards more medium density developments, a market sector that has shown far greater growth as the market recovers.

A star performer was its retirement division with earnings growth of about 6%. Steinert sees the division as a growth asset with returns rising to 4.5%, which is projected to rise to 6.5% by 2015 and 8% by 2018.

While there has been speculation of a possible takeover of Australand, the company this morning reiterated its intention to maintain a strong balance sheet with gearing now down to 22.7% following the $400 million equity raising in May.

Maintaining the dividend, despite the earnings slump, is a clear sign that Steinert is unconcerned about the blowout in the payout ratio and sees growth ahead.