Australand Holdings

Australand securityholders have experienced a bumpy ride recently. Since we downgraded the property owner and developer on 27 Apr 10 (Hold – $2.93), the security price has dropped 15%, to $2.50. Far from being disappointed, though, we’re grateful for another opportunity to pick up a property player boasting a strong balance sheet, stable rental income and an attractive forecast yield of 8.2% (mostly unfranked).

In fact, Australand’s properties have virtually been full to the brim throughout the downturn. This provides a level of comfort that the current distribution of 20.5 cents per security can be sustained, and annual rent increases tied to the consumer price index will help protect against the ravages of inflation. Early indications that both property values and rents are recovering also augur well for future distribution growth.

Australand would fit neatly into a diversified income portfolio due to its attractive yield. But if the group’s commercial and residential property development arms capitalise on the upswing in demand, then the stock’s prospective total returns (capital gains plus distributions) could also make it attractive for more aggressive investors. LONG TERM BUY.