Stockland · ASX:SGP
Stockland — Investor Presentation (September 2009)
56 slides from Stockland's investor presentation, Sep 3, 2009
Slide 1: Retirement Living Investor Briefing
For personal use only Retirement Living Investor Briefing David Pitman, CEO Retirement Living & Head of Group Strategy 3 September 2009
Slide 2: Agenda
Agenda For personal use only 1. Why Retirement Living is a good investment for Stockland 2. Our strategy 3. Wrap up 4. Appendix • Our model in detail • Useful rules-of-thumb • Recap on how we performed in FY09 • Valuing Retirement Living 1 Retirement Living Investor Briefing 3 September 2009
Slide 3: Retirement Living is Real Estate, not Aged Care or Nursing Homes
‘Retirement Living’ is Real Estate, not Aged Care or Nursing Homes Retirement villages are active communities of 65 to 85 year For personal use only old independent residents Unlike Aged Care, retirement villages offer only basic nursing services Our residents travel or participate in sport, c
Slide 4: Retirement Living combines two basic property businesses
Retirement Living combines two basic property businesses and plays to Stockland’s core strengths For personal use only Residential development Acquire land, re-zone, masterplan a community, build a village Development profit – Sales revenue less costs of development – Lower than pure residential
Slide 5: Retirement Living is a good investment for Stockland
Retirement Living is a good investment for Stockland 1. Retirement is a genuine megatrend For personal use only Demand will be strong and growing for many years Rate of growth will accelerate from 2011 as Baby Boomers start to reach 65 years of age Potential for greater take-up rate as product
Slide 6: The demographic megatrend underpins strong industry growth
The demographic megatrend underpins strong industry growth Australian Population Aged 65 or Older Implied Demand For Retirement Village Units For personal use only (As A Percent Of Total Population) (New Units Demanded; Thousands of Units) 25% 350 Forecast 300 20% 50 250 20 by 8% 15% to 200 es ris t
Slide 7: Retirement Living is a good investment for Stockland
Retirement Living is a good investment for Stockland 1. Retirement is a genuine megatrend For personal use only Demand will be strong and growing for many years Rate of growth will accelerate from 2011 as Baby Boomers start to reach 65 years of age Potential for greater take-up rate as product
Slide 8: Residents overwhelmingly like the experience
Residents overwhelmingly like the experience For personal use only Resident Feedback Retirement Living Residents’ Voice Survey, July 2008 0% 20% 40% 60% 80% 100% Conclusions and Actions “My husband and I lived in our last house for 25 years and knew it was home the moment we walked in. We Resident
Slide 9: Retirement Living is a good investment for Stockland
Retirement Living is a good investment for Stockland 1. Retirement is a genuine megatrend For personal use only Demand will be strong and growing for many years Rate of growth will accelerate from 2011 as Baby Boomers start to reach 65 years of age Potential for greater take-up rate as product
Slide 10: Established villages deliver an attractive yield at maturity
Established villages deliver an attractive yield at maturity Key Profit Metrics How The DMF Works: For personal use only Example of a Single Unit Over One Ownership Cycle(1) Typical $520k Yield potential at maturity ~9% • DMF received At full maturity; established only eg: +4%pa • Typically 3%pa o
Slide 11: How cash yield gets to its mature level depends on four variables
How cash yield gets to its mature level depends on four variables Unit Price Growth Cash Yield Maturity Curve Cash Yield Maturity For personal use only Excludes development profit 20% Gross Cash Yield Village Age 18% Tenure on Resale 16% 14% 12% Village Age ƒ 10% Turnover Rate Trend FY09 Average 7.8
Slide 12: Retirement Living is a good investment for Stockland
Retirement Living is a good investment for Stockland 1. Retirement is a genuine megatrend For personal use only Demand will be strong and growing for many years Rate of growth will accelerate from 2011 as Baby Boomers start to reach 65 years of age Potential for greater take-up rate as product
Slide 13: Overall return depends on the mix of established and development
Overall return depends on the mix of established and development For personal use only Indicative Risk-Return By Asset Class Stockland 30 June 2009 Key Valuation Metrics Return Discount rate 12.55% Residential Independently assessed Unzoned Residential Growth rate 3.7% pa* Zoned Growth in capita
Slide 14: Discount and growth rate changes drive changes in DMF valuation
Discount and growth rate changes drive changes in DMF valuation For personal use only Sensitivity of DMF Value for Stockland Established Villages (30 June 2009) ILU “Re-Sale” Value Growth Rate* NPV of DMF Stream ($m) 3.0% 3.7% 4.0% 5.0% 12.00% 277 303 316 366 Discount Rate 12.55% 260 283 294 337 13.
Slide 15: Historical median house price growth suggests 3.7% pa is conservative
Historical growth in the median house price in our village locations suggests 3.7% pa is conservative Historical Price Growth Comparison For personal use only 19% 17% 17% 15% 13% 10% 11% Average growth rate of the median house 9% price where we have villages 7% 5% 5% 5.6% Average growth rate of Stoc
Slide 16: A larger portfolio reduces earnings volatility and risk
A larger portfolio reduces earnings volatility and risk For personal use only Earnings Volatility and Portfolio Size Turnover Portfolio (% p.a.) 100 units 16% 3500 units 14% 12% 10% 8% 6% 4% 2% 0% Time in years A A small small portfolio portfolio is is vulnerable vulnerable to to statistical statist
Slide 17: Retirement Living is a good investment for Stockland
Retirement Living is a good investment for Stockland 1. Retirement is a genuine megatrend For personal use only Demand will be strong and growing for many years Rate of growth will accelerate from 2011 as Baby Boomers start to reach 65 years of age Potential for greater take-up rate as product
Slide 18: The role of the DMF is to pay for the community facilities
The role of the DMF is to pay for the community facilities For personal use only Proforma IRR Decomposition (%) 5 5 25 25 20 IRR on Cost of Development DMF Overall IRR Living Units Community IRR Creation Facilities • Selling prices • # Units • Cost to build • Land cost • Time The DMF makes it possib
Slide 19: Latest Community Centre floor plan and elevation
Latest Community Centre floor plan and elevation Gowanbrae Village “Clubhouse” For personal use only Lead element in building vibrant resident communities Incorporates design elements from resident feedback – Solicited in focus groups and surveys – Observations of how residents use the facility
Slide 20: Retirement Living is a good investment for Stockland
Retirement Living is a good investment for Stockland 1. Retirement is a genuine megatrend For personal use only Demand will be strong and growing for many years Rate of growth will accelerate from 2011 as Baby Boomers start to reach 65 years of age Potential for greater take-up rate as product
Slide 21: Overall return depends on the mix of established and development
Overall return depends on the mix of established and development For personal use only Return Blended Return 20% Residential Unzoned Residential 18% Zoned Our portfolio Commercial Retirement IRR = Hurdle rate as we develop Development Development = 15 to 20% 16% out our pipeline Retirement IRR = Dis
Slide 22: Retirement Living is a good investment for Stockland
Retirement Living is a good investment for Stockland 1. Retirement is a genuine megatrend For personal use only Demand will be strong and growing for many years Rate of growth will accelerate from 2011 as Baby Boomers start to reach 65 years of age Potential for greater take-up rate as product
Slide 23: Retirement fits well into Stockland's portfolio
Retirement fits well into Stockland’s portfolio due to its unique and balanced characteristics For personal use only Residential Communities Commercial Retirement Development profit Lease-like income stream Is Locations driven by local demand ‘Tenant’ management Development process On-go
Slide 24: Agenda
Agenda For personal use only 1. Why Retirement Living is a good investment for Stockland 2. Our strategy 3. Wrap up 4. Appendix • Our model in detail • Useful rules-of-thumb • Recap on how we performed in FY09 • Valuing Retirement Living 23 Retirement Living Investor Briefing 3 September 2009
Slide 25: Stockland Retirement Living's strategy
Stockland Retirement Living’s strategy 1. Develop new villages to capture a growing share of the For personal use only bulging 65+ demographic Continuously improve design through close interaction with our residents Middle and upper-middle Australians in metro and outer-metro areas Build a str
Slide 26: Stockland/ARC has a long tradition of growth through development
Stockland/ARC has a long tradition of growth through development New Units Developed – Last 10 Years For personal use only (units, pa) Pre Stockland Post Stockland 72 231 239 182 161 166 156 163 153 111 103 66 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Fiscal Year Stockland’s Stockland’s
Slide 27: Development pipeline with direct access to Stockland's land bank
This tradition will continue, but now with the added advantage of direct and open access to Stockland’s large land bank For personal use only Project State FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Gowanbrae VIC Fig Tree QLD North Lakes Extension QLD Project 1 VIC Project 2 NSW Pro
Slide 28: Our development pipeline will provide geographic diversification
Our development pipeline will provide geographic diversification QLD – Current Greater Brisbane For personal use only New geographies in our development pipeline … VIC – Current Greater Melbourne … plus more planned for Greater Melbourne 27 Retirement Living Investor Briefing 3 September 2009
Slide 29: Case Study: North Lakes Extension resident-inspired design elements
Case Study: North Lakes Extension resident-inspired design elements Unit Design Elements For personal use only Lots of natural light and cross ventilation Indoor and outdoor entertaining areas Functional space that evolves with residents as they slow down Example: The Tandem Garage Observation
Slide 30: Stockland Retirement Living's strategy
Stockland Retirement Living’s strategy 1. Develop new villages to capture a growing share of the For personal use only bulging 65+ demographic Continuously improve design through close interaction with our residents Middle and upper-middle Australians in metro and outer-metro areas Build a str
Slide 31: Stockland's total Residential Communities land bank is rich and diverse
Stockland’s total Residential Communities land bank is rich and diverse Retirement Living Development Strategy For personal use only Tap this land bank as a source of project land Integrate retirement living as a key part of building masterplanned community developments Darwin Northern Territory
Slide 32: North Lakes Extension construction commenced in July 2009
North Lakes Extension construction commenced in July 2009 North Lakes Masterplan For personal use only North Lakes Extension Retirement Village (Development) Stage 1 North Lakes Retirement Village (Established) 31 Retirement Living Investor Briefing 3 September 2009
Slide 33: Stockland Retirement Living's strategy
Stockland Retirement Living’s strategy 1. Develop new villages to capture a growing share of the For personal use only bulging 65+ demographic Continuously improve design through close interaction with our residents Middle and upper-middle Australians in metro and outer-metro areas Build a str
Slide 34: Stockland's diversified model provides competitive advantages (I)
Stockland’s diversified model provides competitive advantages (I) Synergies with Residential Communities For personal use only Rich land bank Advantaged locations in areas where the population is in the right age group now and in the near future Proprietary research Price growth strategies in re
Slide 35: Stockland's diversified model provides competitive advantages (II)
Stockland’s diversified model provides competitive advantages (II) Synergies with Commercial Property For personal use only Asset management Redevelopment and repositioning of assets to ensure they remain relevant to customers over the long term Property management Staffing model for management,
Slide 36: Stockland Retirement Living's strategy
Stockland Retirement Living’s strategy 1. Develop new villages to capture a growing share of the For personal use only bulging 65+ demographic Continuously improve design through close interaction with our residents Middle and upper-middle Australians in metro and outer-metro areas Build a str
Slide 37: Going forward, a greater emphasis on 'cash' over 'non-cash'
Going forward, a greater emphasis on ‘cash’ over ‘non-cash’ Illustrative Only NOT TO SCALE For personal use only “Cash” Events “Non-cash” Events More DMF receipts Less DMF revaluation expected – As villages mature – FY09 delivered structural uplift More development profits in prices – Large pi
Slide 38: Agenda
Agenda For personal use only 1. Why Retirement Living is a good investment for Stockland 2. Our strategy 3. Wrap up 4. Appendix • Our model in detail • Useful rules-of-thumb • Recap on how we performed in FY09 • Valuing Retirement Living 37 Retirement Living Investor Briefing 3 September 2009
Slide 39: Recap of key points
Recap of key points Success in Retirement Living relies on Stockland’s For personal use only fundamental property skills and capabilities – Combination of Residential development and Commercial asset management The asset class is a very sound long term investment – Strong underlying demand – Goo
Slide 40: Agenda
Agenda For personal use only 1. Why Retirement Living is a good investment for Stockland 2. Our strategy 3. Wrap up 4. Appendix • Our model in detail • Useful rules-of-thumb • Recap on how we performed in FY09 • Valuing Retirement Living 39 Retirement Living Investor Briefing 3 September 2009
Slide 41: Stockland's model
Stockland’s model Stockland Coordination Stockland Stockland does not charge a portfolio For personal use only management fee as do some external management models in the industry Operations - Established sales, legal, Village Managers Operations Development refurbishment & upgrades (incl turnov
Slide 42: The Loan-Lease model provides efficient funding
The Loan-Lease model provides efficient funding Retirement Living Value Chain For personal use only Property Established Funding Development Operations Vil 2-Day Up urb & s s de val Le n- ve n le l ut ata Ac d n ta les ild ase Op g e si g qn n -sa a gra /O Mo pro ns La Lo Bu S tr la f Sa y- Re Re De
Slide 43: Property Development is almost identical to our Residential business
Property Development is almost identical to our Residential business Retirement Living Value Chain For personal use only Property Established Funding Development Operations Vil 2-Day Up urb & s s de val Le n- ve n le l ut ata Ac d n ta les ild ase Op g e si g qn n a -sa gra /O Mo pro ns La Lo Bu Str
Slide 44: Established Operations are akin to Commercial leasing and operations
Established Operations are akin to Commercial leasing and operations Retirement Living Value Chain For personal use only Property Established Funding Development Operations Vil 2-Day Up urb & s s de val Le n- ve n le l ut ata Ac d n ta les ild ase Op g e si g qn n a -sa gra /O Mo pro La ns Lo Bu Str
Slide 45: Agenda
Agenda For personal use only 1. Why Retirement Living is a good investment for Stockland 2. Our strategy 3. Wrap up 4. Appendix • Our model in detail • Useful rules-of-thumb • Recap on how we performed in FY09 • Valuing Retirement Living 44 Retirement Living Investor Briefing 3 September 2009
Slide 46: Some useful rules of thumb
Some useful “rules of thumb” For personal use only 1. A mature village delivers a cash yield of up to 9% – Much less in its early years 2. A typical village approaches maturity after 10 years 3. The present value of the DMF for a new unit is 20-30% of the sale price 4. Only at maturity will turnover
Slide 47: Once villages mature, expect a gross cash yield of ~9%
Once villages mature, expect a gross cash yield of ~9% INDICATIVE For personal use only Village Size 100 units # Turns 8.3 Turnover 8.3% Income $730k Tenure on Exit “Re-sale” Value 12 yrs $270k Income/Turn Gross Yield $88k DMF% pa % On Re-sale 9.1% 3% 32.5% NFE/Unit Admin Fee $80k* NFE 2.5% $8m Ty
Slide 48: Until maturity, tenure-on-exit and turnover will be below equilibrium
But until a village reaches maturity, Tenure-on-Exit and Turnover will almost certainly be below their long-run equilibrium levels These two drivers are coupled INDICATIVE once a village is mature For personal use only – One is the inverse of the Village Size other (8.3% = 1/12th) Until then, ho
Slide 49: Higher growth than expected drives a higher IRR on established portfolio
Achieving a higher growth rate than expected drives a higher IRR on the established portfolio For personal use only IRR Sensitivity to Growth Rates: Established Portfolio IRR on Established Villages 14% 13% 12.55% The IRR of the 12% portfolio equals the discount rate in the DCF model as long as 11
Slide 50: Agenda
Agenda For personal use only 1. Why Retirement Living is a good investment for Stockland 2. Our strategy 3. Wrap up 4. Appendix • Our model in detail • Useful rules-of-thumb • Recap on how we performed in FY09 • Valuing Retirement Living 49 Retirement Living Investor Briefing 3 September 2009
Slide 51: Stockland Retirement Living financial performance in FY09
Stockland Retirement Living financial performance in FY09 “Cash” Events “Non-cash” Events For personal use only 163 “Sales” @ Changes in PV of DMFs due to $313k/unit, less changes in assumptions and “COS” $253k/unit actual price growth c$8k/unit given c4,000 units 217 turns @ avg price of $2
Slide 52: H1 mix was heavily non-cash; H2 was cash-oriented
H1 mix was heavily non-cash due to portfolio re-pricing, whereas H2 was cash-oriented due to greater settlement volumes For personal use only Financial Performance Split by Half Years 1HY09 2HY09 FY09 Settlement Volume New units settled 62 101 163 Portfolio Re-Priced Established units 104 113 217 se
Slide 53: There will almost always be some non-cash profit from DMF Revaluation
There will almost always be some non-cash profit from DMF Revaluation Non-cash DMF revaluations were a large component of the For personal use only FY09 profit results ($33m) – This was driven by a number of events in FY09 such as re- pricing of our product in order to address the differential bet
Slide 54: Agenda
Agenda For personal use only 1. Why Retirement Living is a good investment for Stockland 2. Our strategy 3. Wrap up 4. Appendix • Our model in detail • Useful rules-of-thumb • Recap on how we performed in FY09 • Valuing Retirement Living 53 Retirement Living Investor Briefing 3 September 2009
Slide 55: Components of a simple DMF model
Components of a simple DMF model For personal use only Development Profit Assumptions Very similar to Residential Communities lot sales New units settled (units) X It’s a price, volume and margin business Average Price ($) Y Margin (%) Z DMF Creation (above the line) Development Profit X*Y*Z A
Slide 56: Stockland Corporation Limited
For personal use only 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 repr