Stockland · ASX:SGP
Stockland — Investor Day (May 2012)
75 slides from Stockland's investor day presentation, May 1, 2012
Slide 1: Market Update - 1 May 2012
Highlands, Vic Market Update - 1 May 2012 www.stockland.com
Slide 2: Agenda
Agenda Presentation and Webcast – 9am • Group Update - Matthew Quinn, Managing Director • Capital and Cost Management - Tim Foster, Chief Financial Officer • Q & A - Matthew Quinn, Tim Foster, John Schroder, Mark Hunter, David Pitman Morning Tea Roundtable discussions – 10:30am • Commercial Property
Slide 3: Group Update
Group Update Matthew Quinn, Managing Director www.stockland.com
Slide 4: What we will cover today
What we will cover today Matthew Quinn • FY12 Group performance update • New Retirement Living accounting methodology to closely align with cash flow • Our strategy and the transition over the next few years • Our growth expectations for each business unit Tim Foster • Financial KPIs • Capital Manag
Slide 5: FY12 Group performance update
FY12 update FY12 Group performance update We are on track to achieve FY12 revised EPS guidance of 30.5 cents • Retail NOI comparable growth expected to be 3.5 – 4%1 • Residential Communities leads remain strong, but customers cautious and conversion rates lower • Retirement Living on track to achiev
Slide 6: Change of Retirement Living accounting to closely align with cash flow
FY12 update Change of Retirement Living accounting to closely align with cash flow We are simplifying Retirement Living accounting • Historically earnings were a combination of cash and accrual/accounting adjustments • Going forward, underlying profit will be closely aligned with cash flows • Very c
Slide 7: We are focused on executing our strategy and increasing returns
Strategy We are focused on executing our strategy and increasing returns Asset mix over time 2% Apartments & UK 8% Office & 24% Industrial Office & Industrial 35% Retail ~65% Retail 42% Retail 36% Retirement 11% Retirement ~12% Retirement 4% Residential Residential 22% Residential ~23% 18% 2009 Toda
Slide 8: It is an orderly transition
Strategy It is an orderly transition We are efficiently managing our capital • Growth funded by non-core asset sales • No need for new equity or significant additional debt • Return on new investment in each core business is well above our cost of capital • $2.9 bn to be released for reinvestment fr
Slide 9: Retail, Residential and Retirement Living are a natural fit
Strategy Retail, Residential and Retirement Living are a natural fit Vibrant communities • Enjoyable places for our customers to live, shop and connect with others Speed to market Retail • Governments endorse us being on the ground faster as we deliver broader amenity than our + competitors Resident
Slide 10: Lockerbie: An example of partnering for better outcomes
Strategy Lockerbie: An example of partnering for better outcomes Lockerbie concept plan Stockland outcomes: • Up to 90,000 sqm retail Community Centre • 11,500 residential lots S • Up to 1,000 retirement Private School living units State School Stormwater Management State School Private School Freew
Slide 11: Our strategy is built on population growth
Strategy Our strategy is built on population growth – it’s a safe bet Annual population growth1 350 Bipartisan political support 300 for population growth of 330,000 people p.a. requiring: 250 • 160,000 new dwellings Thousands of people 200 (100,000 detached homes) 150 100 • >500,000 sqm new retail
Slide 12: We provide affordable products for the mass market
Strategy We provide affordable products for the mass market Thin, volatile market $125,000 pa household All businesses target the income same customer demographic Deep and resilient market with over 3 million households Focus on corridors with high • >80% home population growth ownership • <5% u
Slide 13: We are responding to the structural changes in retail
Retail We are responding to the structural changes in retail Spending habits are changing Continued focus on value and convenience • Discretionary spending is declining • Our centres are heavily weighted towards food and services • Online retailing is growing • Specialty retailers are predominantly
Slide 14: We are developing our retail centres for resilience and growth
Retail We are developing our retail centres for resilience and growth Investing to create leading centres in Moving up the retail hierarchy1 growing trade areas • Development capex ~$2bn over 5 years 5 centres Major regional • Average 14% incremental IRR (avg ~70,000 sqm) • Increasing market share t
Slide 15: The market for new housing is nearing a cyclical low
Residential The market for new housing is nearing a cyclical low Annual Residential Building Approvals 220,000 Oversupply 200,000 GST “pull forward” Government 180,000 stimulus Interest rates rise “GFC” 20% upside to long-term 160,000 average Post GFC downturn 140,000 120,000 Floor around 120,000 10
Slide 16: Residential buyers are actively looking but more cautious
Residential Residential buyers are actively looking but more cautious Customer leads are at record levels Stockland leads1 vs net deposits • House prices are stabilising 10,000 3,000 • Rents are going up • Interest rates are trending down 8,000 Leads (LHS) 2,500 2,000 But conversion rates are lower
Slide 17: The yield curve points to a more positive outlook
Residential The yield curve points to a more positive outlook Housing sentiment tied to interest rates 1 200 4% Sentiment towards home buying follows interest rates 150 6% • The mood can change quickly 100 8% 50 The market is pricing in significant rate cuts • Futures pricing suggests a 100 bps rate
Slide 18: Our affordable products are attracting value-conscious buyers
Residential Our affordable products are attracting value-conscious buyers ~$200k is the affordability threshold for residential lots • Need to reduce lot sizes to capture sales and maintain margins Our product strategy is a clear differentiator • Delivering innovative products that meet customer nee
Slide 19: Our existing land bank will deliver a big volume increase by FY15
Residential Our existing land bank will deliver a big volume increase by FY15 Expected annual lot sales from existing land bank ~3,000 Base level volumes ~1,500 based on current market conditions >6,500 We expect conditions to >5,000 improve by FY15 and volumes should increase further FY12 Projects
Slide 20: Our Residential portfolio is in good shape but some impairment is required
Residential Our Residential portfolio is in good shape but some impairment is required We carry Residential inventory at the lower of Category No. projects No. lots cost or Net Realisable Value (NRV) Core projects • We review carrying values each quarter outperforming 39 75,000 Core projects in line
Slide 21: Retirement Living underpinned by attractive industry fundamentals
Retirement Living Retirement Living underpinned by attractive industry fundamentals Compelling demand drivers Growth of >65 year old demographic is an opportunity Population aged 65+ years • Expect demand for new developments of circa $35b over the next 20 years Millions of people 2.7% pa • Industry
Slide 22: Retirement Living has strong growth prospects
Retirement Living Retirement Living has strong growth prospects Retirement Living returns growing quickly Cash returns will continue to grow Potential ROA upside if DMF • Strong customer demand for retirement living created is monetised products • ROA expected to grow through operational DMF created
Slide 23: Capital and Cost Management
Capital and Cost Management Tim Foster, Chief Financial Officer www.stockland.com
Slide 24: Delivering our strategy through strong financial discipline
Financial KPIs Delivering our strategy through strong financial discipline EPS growth: Average 5-6% per annum through the cycle ROE: Focusing on cash returns on cash invested Will disclose FY12 actuals in August Earnings mix: 60-80% recurring, 20-40% trading Delivering earnings resilience and growth
Slide 25: Enhancing shareholder returns through capital management
Capital management Enhancing shareholder returns through capital management ▲Grow ▼Reduce Business Revenue – Cost Unit ROA = Cash invested ▼Be more efficient A simple and transparent measure… … reflecting our focus on efficient growth • Numerator akin to EBITDA • Sale of lower returning non-core ass
Slide 26: We have several accretive investment options
Capital management We have several accretive investment options Redeveloping Retail centres • Investing $400m pa in retail development • Average incremental IRR 14% Buying Residential land • Opportunistically investing in our growth corridors • Buying on capital efficient terms where possible • Incr
Slide 27: We continue to drive operational efficiencies
Cost management We continue to drive operational efficiencies Focus on reducing overheads across all Unallocated Group overheads ($m) 1 businesses and support functions Generating economies of scale from growth • Example: Retirement Living Targeting 66 63 further Cross-business synergies <55 savings
Slide 28: Aligning Retirement Living reporting to focus on cash returns
Retirement accounting Aligning Retirement Living reporting to focus on cash returns We are simplifying Retirement Living accounting Underlying Profit under both methods • Replacing DMF accrual with actual turnover cash margin • Removing unsettled development profit • Community facilities are a fixed
Slide 29: Outlook and summary
Outlook and summary • We have a clear strategy with a path to be a market leader in each of our core businesses • We have a pool of non-core assets that will be progressively sold to fund growth at higher returns and return capital to shareholders • There is plenty of upside in our residential inven
Slide 30: Commercial Property – Roundtable
Stockland Shellharbour, NSW Commercial Property – Roundtable John Schroder, CEO Commercial Property www.stockland.com
Slide 31: A leading retail developer and manager
A leading retail developer and manager Our strategic objectives • Deliver stronger, stable returns by moving our retail assets up the hierarchy • Have the number one shopping centre in our trade area or number two with a strong point of difference • Be a retail landlord of choice How we will deliver
Slide 32: We are delivering on our strategy
We are delivering on our strategy Developing the best assets in the trade area Key achievements since 2009 Sold ~$1.1bn of Office and Industrial, and $30m of Non core Retail asset sales Masterplanning, design, development and project management now core capabilities Occupancy costs 14%, new la
Slide 33: Continue to optimise performance of Office and Industrial assets
Continue to optimise performance of Office and Industrial assets Portfolio occupancy remains high Portfolio concentrated in large quality assets Office and Industrial assets by book value 1 • Office 94% - majority of vacancy in Sydney CBD, $b which remains a tough market 2.0 ~$1.9b 1.8 • Industrial
Slide 34: Weighting the portfolio to larger retail centres creating better returns
Weighting the portfolio to larger retail centres creating better returns Investment risk vs return1 (Rolling 10 year returns by asset class, 2001-2011) Total return 14% • Quality retail rarely changes hands – product creation is an essential capability in this sector Super Regional • The risk/return
Slide 35: We are moving our assets up the hierarchy
We are moving our assets up the hierarchy Neighbour- Sub Regional1 Major Super hood regional1 regional1 regional Stockland’s Our “Sweet spot” sweet spot Big enough to be “first choice” whilst still offering convenience and community focus ~$400m Merrylands development pa “Big 3” (Under Townsville St
Slide 36: Development unlocks value in our existing portfolio
Development unlocks value in our existing portfolio Strong incremental development returns ~2% • Developing highly productive retail assets in 4-5% strong trade areas to achieve average ~14% incremental IRRs of 14% 11.0% 7-8% 7.0% • Harnessing internal capability advantages in development and projec
Slide 37: Shellharbour Case Study: The value creation journey
Shellharbour Case Study: The value creation journey Acquisition Development phase Post-development 2003 Operational phase (Pre-development) FY15 FY12 - 14 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 Net operating 42 Income1 18 25 16 18 17 ($m) 11 12 12 14 (3) (2) (2) (1) (2) (2) Capital Invested ($m) (1
Slide 38: We have some of the best real estate in the trade area
We have some of the best real estate in the trade area Most of our Retail assets are #1 by market share 1 Retail spend ranking in main trade area $3.4b Larger centres in growing regions 67% ranked 24 #1 $1b $133m $44m 7 3 2 $2.9b 1 2 3 4 or More 75% 5 ranked #1 Most of our Retail assets are #1 by pr
Slide 39: Our centres have higher productivity than industry benchmarks
Our centres have higher productivity than industry benchmarks Above average centre productivity Stronger specialty shop performance National shopping centre productivity1 Specialty productivity2 (Turnover per sqm) (Specialty turnover per sqm) 6% $8,532 $7,532 8% $8,172 $8,060 14% 8% $6,994 $7,574 $6
Slide 40: Our strong relationships with retailers underpin sustainable growth
Our strong relationships with retailers underpin sustainable growth Research shows we are well respected • Continue to develop and nurture retailer Retailer perception of Stockland and peers1 relationships to increase retention and new project leasing 100% • Our strong market position in growing non
Slide 41: Our retail sales and rents continue to grow
Our retail sales and rents continue to grow Value and convenience supporting MAT growth • Supermarkets, food catering and services Solid retail sales growth supporting 3.4% total comparable MAT SGP Comparable MAT growth1 • Low vacancy and arrears underpinned by solid sales growth and affordable occu
Slide 42: Residential Communities – Roundtable
North Shore, Townsville, Qld Residential Communities – Roundtable Mark Hunter, CEO Residential Communities www.stockland.com
Slide 43: Creating affordable high quality residential communities for middle Australia
Creating affordable high quality residential communities for middle Australia Our strategic objectives • To be Australia’s leading greenfield community developer • To be a trusted partner with government • Maintain market share above 25% in active corridors • Increase profits and ROA How we will del
Slide 44: We are delivering on our strategy
We are delivering on our strategy Delivering affordable high quality residential Key achievements since 2009 communities for middle Australia Portfolio mix now more balanced across four Extend market reach states Entered new corridors Acquired projects Several projects acquired on deferred ter
Slide 45: We will activate our land bank to increase volumes and returns
We will activate our land bank to increase volumes and returns Growing the business Anticipated lot volumes • Grow lot volumes to ~6,500 in FY15 assuming no market improvement ~3,000 ~1,500 • EBIT margins in line with 25% target >6,500 >5,000 • Achieve project IRRs >20% FY12 16 Projects 16 New FY15
Slide 46: The markets where we operate are near the bottom of the cycle
The markets where we operate are near the bottom of the cycle Vacant land market property clock Rising sales Peak Flat sales Strong price growth Weak price growth Vendor’s market Cautious market Significant upside as market returns to long term averages Mel Syd Bottom of the cycle Perth Stable sales
Slide 47: Third quarter sales were impacted by the soft conditions
Third quarter sales were impacted by the soft conditions Leads remain strong, deposits are subdued Leads at record levels, conversion rate down 8,035 • Sales improving in WA 8000 7,598 2,000 1,757 • Vic impacted by increased cancellations and 6000 254 6,284 1,377 1,500 159 competition 287 1,112 1,09
Slide 48: Current downturn not structural – rents rising and undersupply growing
Current downturn not structural – rents rising and undersupply growing Rents and Housing Market Balance1 CPI and Rental Index 1972=100 1,200 400 Housing undersupply driving rental growth in excess of CPI Rents (LHS) 1,000 300 800 CPI (LHS) 200 ‘000 dwellings 600 100 Undersupply 400 - Oversupply Hous
Slide 49: Affordability continues to improve and renters are looking to buy
Affordability continues to improve and renters are looking to buy Mortgage repayments as % of household income1 Affordability improving across all states 50% • Incomes growing faster than house prices 40% 35% “affordable” benchmark • Resource states most affordable 30% 20% 10% 0% 1993 1995 1997 1999
Slide 50: As the market improves we are well positioned in key growth corridors
As the market improves we are well positioned in key growth corridors Projected annual population growth per corridor1 Our 26 Corridors capture >50% of future ~6,400 pa national population growth • We select high growth corridors based on deep market analysis • We secure the best sites in these corr
Slide 51: Stockland Communities target the affordable mass market
Stockland Communities target the affordable mass market Our active projects are in the affordable range1 Average national house price Indicative house and land price range Impaired projects 2009 Impaired projects 2012 Top 20% - ~$1.0m Middle 60% - ~$540k Bottom 20% - ~$325k Highland Reserve Augustin
Slide 52: Innovative affordable products are widening our appeal
Innovative affordable products are widening our appeal Significant scope to reduce lot sizes We continue to drive down lot sizes and prices Lot size • House and land packages under $300,000 in all (sqm) 500 main states 400 Stockland average lot size: 451sqm 300 • Partnerships with key stakeholders u
Slide 53: Short term market outlook is challenging, medium term improving
Short term market outlook is challenging, medium term improving • FY13 will be challenging in the absence of an improvement in buyer sentiment • Projects coming to market in FY14 and FY15 will require early investment in infrastructure and amenity, impacting FY13 cashflows from additional developmen
Slide 54: Retirement Living – Roundtable
Retirement Living – Roundtable David Pitman, CEO Retirement Living www.stockland.com
Slide 55: Building a profitable, investment-grade asset class
Building a profitable, investment-grade asset class Our strategic objectives • Be Australia’s leading Retirement Living operator • Full, happy villages • Demonstrate investment value by increasing cash returns How we will deliver • Profitably developing new villages on Stockland land • Achieving ope
Slide 56: We are increasing returns through scale and development
We are increasing returns through scale and development Cash returns will continue to grow • Portfolio ROA of at least 8% by FY17: Potential ROA upside if DMF created is monetised - Upside potential of 12% ROA by FY17 by securitising DMF created through development 12% DMF created 4% through 9% deve
Slide 57: Robust business performance - the strategy is working
Robust business performance - the strategy is working Resilient demand • Strong sales in FY12: - On track to settle over 800 total sales in Good underlying profit growth under both methods established and development villages New Accounting Method Previous Accounting Method - Margins slightly better
Slide 58: Sales are tracking well despite softer residential markets
Sales are tracking well despite softer residential markets Recent campaign result an all-time record Net reservations during recent campaigns • Net reservations of 257 homes over an 8 week campaign: Pre-Aevum - 150 established 257 - 107 development 248 - All states and regions performed well 72 87 -
Slide 59: Our customers are less affected by cycles in the residential market
Our customers are less affected by cycles in the residential market Moving decision is influenced by life events Reasons for moving to a retirement village • Key driver of demand is an actual or expected health issue which will make it harder to live in a full-size home - Moving to a retirement vill
Slide 60: Future returns less sensitive to residential price growth
Future returns less sensitive to residential price growth Contract mix becoming less sensitive to changes in prices • Turnover cash has two components - Base fees (DMF) - Share of capital gain (50% shared with resident) 40% 60% 75% • Base fees historically account for circa 50% of turnover cash 60%
Slide 61: Affordable to enter, affordable to live in
Affordable to enter, affordable to live in Affordable product: Price-points in Stockland portfolio Potential energy savings from downsizing1 Independent Living Unit Serviced Apartment Potential Annual Energy Costs Annual Saving 3 Bed Single 2 Bed Story 1970s/80s Stockland Home Retirement $ % Home NS
Slide 62: We have created an industry-leading development capability
We have created an industry-leading development capability • Largest developer in the sector Development pipeline is delivering - Currently producing a new home every calendar Project Project Settlement Forecast day on average FY12 FY13 FY14 FY15 FY16 FY17 - Capabilities well-established from Reside
Slide 63: We are delivering on what we outlined a year ago
We are delivering on what we outlined a year ago From cottage industry to investment-grade asset class Key achievements last 12 months Aevum acquisition finalised; targets exceeded Asset management platform established Build the foundation DMF contracts standardised 40 out of 62 villages now
Slide 64: Retirement Living delivering profitable growth
Retirement Living delivering profitable growth Customers well positioned against softness in residential market • Record sales campaign with 257 reservations on hand • Customers are able to sell their existing homes as they are located in affordable markets, at affordable prices • Have achieved pric
Slide 65: Annexure
Annexure www.stockland.com
Slide 66: Stockland Return on Assets methodology
Group Stockland Return on Assets methodology Numerator Denominator EBIT (including EBIT from impaired Average Net Funds Employed (NFE) (excluding capitalised Residential projects1) less overheads interest and adding back impairment provision 2) Add: Working capital allocation (including development
Slide 67: ROA – Residential example
Residential ROA – Residential example Example of an active project delivering benchmark returns. ROA calculation for Residential also takes into consideration overheads and non active projects, in accordance with definitions on page 65. Numerator $m Denominator $m Revenue 53 Land 40 COGS (Land and d
Slide 68: ROA – Residential impairment example
Residential ROA – Residential impairment example Example of an impaired project. ROA calculation for Residential also takes into consideration overheads and non active projects, in accordance with definitions on page 65. Numerator $m Denominator $m Revenue 30 Land 40 COGS (Land and development expen
Slide 69: 16 projects with first settlements by FY15
Residential 16 projects with first settlements by FY15 Summary of new projects Timing of first Approximate Approximate Project settlements total lots in project life of project Lochinvar FY14 660 6 yrs Anambah FY14 2,050 8 yrs NSW East Leppington FY14 3,200 10 yrs Marsden Park FY14 2,300 8 yrs Brook
Slide 70: 16 projects completing prior to FY15
Residential 16 projects completing prior to FY15 Summary of completing projects Lots remaining to sell Project Timing of final settlements Total Lots (as at 1H12) McKeachies Run FY14 1,017 677 Darcys Peak FY13 222 108 Waterside FY14 609 345 NSW Lakewood FY12 517 32 McCauleys Beach FY13 285 113 Glenm
Slide 71: Commercial Property asset disposals – FY12
Commercial Property Commercial Property asset disposals – FY12 Property Disposed Asset Class Settlement Date Disposal Value ($m) Bank West Tower Office Jul 2011 130.0 Lilydale Retail Jul 2011 28.0 Wacol Industrial Nov 2011 – Dec 2011 35.2 52 Martin Place Office Nov 2011 172.2 Riverside Plaza Office
Slide 72: Retail development case studies
Commercial Property Retail development case studies Shellharbour - Financial Metrics Masterplan Forecast Total Development Cost $330 million Forecast Value on Completion $670 – 700 million Forecast Enhanced Valuation $75 – 105 million Forecast Incremental Yield 7.6% Forecast Incremental IRR 14 - 15%
Slide 73: New reporting pro forma
Retirement Living New reporting pro forma Re-stated historical performance of Stockland Retirement Living in new reporting format Units FY09 FY10 FY11 1H12 FY12F • Total value of newly-developed Development properties settled in the period First lease receipts $m 51.0 66.7 72.4 37.7 TBD1 • All cash
Slide 74: Aevum acquisition targets exceeded
Retirement Living Aevum acquisition targets exceeded Target Guidance provided during bid Outcome EPS accretion - FY12 ~2.5% accretive in FY12 +2.9% in FY12 Cash coverage Expect to achieve ~45% cash coverage in FY12 70% in FY12 Estimated savings of ~15% of combined costs per annum Synergies 23% by en
Slide 75: Stockland Corporation Limited and disclaimer of liability
Stockland Corporation Limited ACN 000 181 733 Stockland Trust Management Limited ACN 001 900 741 25th Floor 133 Castlereagh Street SYDNEY NSW 2000 DISCLAIMER OF LIABILITY While every effort is made to provide accurate and complete information, Stockland does not warrant or represent that the informa