Stockland · ASX:SGP
Stockland — Investor Presentation (December 2009)
23 slides from Stockland's investor presentation, Dec 2, 2009
Slide 1: Retirement Living Accounting Workshop
For personal use only Retirement Living Accounting Workshop David Pitman, CEO Retirement Living & Head of Group Strategy Tania Betts, National Finance Manager, Retirement Living 2 December 2009
Slide 2: Agenda
Agenda For personal use only 1. Scope of the workshop 2. Recap of Retirement Living business model 3. Accounting lifecycle of Retirement Living assets 4. Step through the accounting for each lifecycle phase using an illustrative example 5. Summary of profit and balance sheet positions across the ful
Slide 3: Scope of the workshop
Scope of the workshop For personal use only ► Overview of the accounting entries throughout the four phases of a unit’s development and occupation ► Summarise the profit and loss, balance sheet and cashflow positions during each phase, including a reconciliation back to the disclosure in the Stockla
Slide 4: Recap - Retirement Living combines two basic property businesses
Recap - Retirement Living combines two basic property businesses For personal use only Residential development Acquire land, re-zone, masterplan a community, build a village Development profit – Sales revenue less costs of land, development and construction – Lower percentage margin than pure re
Slide 5: Recap - Established villages deliver an attractive yield through the DMF
Recap - Established villages deliver an attractive yield through the DMF How The DMF Works: For personal use only Example of a Single Unit Over One Ownership Cycle(1) $541k eg: +3.7%pa • DMF received • Typically 3%pa on Exit Price up $176k to a maximum of 30% + 2.5% Capital Gain admin fee(1) $350k $
Slide 6: Lifecycle of Retirement Living assets - an accounting perspective
Lifecycle of Retirement Living assets - an accounting perspective For personal use only 1. Development 2. First lease 3. DMF revaluation 4. Turnover • Period during • Point at which a • Period during which DMF accrues, • Point at which DMF which we acquire resident first analogous to rental income i
Slide 7: This Lifecycle maps directly to our financial result disclosure
This Lifecycle maps directly to our financial result disclosure Recap: Stockland Retirement Living Financial Results FY09 For personal use only “Cash” Events “Non-cash” Events 1 2 3 4 43 19 4 33 51 1 2 (1) 2 22 22 28 (1) 22 6 10 4 Initial Cost of Dev. DMF Receipts O/heads Net DMF DMF Total "Sales" "
Slide 8: Phase - Development period
Phase 1 - Development period For personal use only • Captures all costs associated with village development 1. Development • Equivalent to development of Residential Inventory Assumptions Accounting Entry P&L BS Cash Dr/(Cr) Land and development costs total Property, Plant & Equipment (1) 285 $285k,
Slide 9: Phase - First Leasing – Development Profit Recognised
Phase 2 - First Leasing – Development Profit Recognised • Point at which development profit is recognised For personal use only 2. First lease • Recognised at point resident takes occupation of unit • A recent change to AASB 140 Investment Property will affect both the timing of development profit r
Slide 10: Phase - First Leasing – DMF First recognised
Phase 2 - First Leasing – DMF First recognised For personal use only • Point at which PV of DMF into perpetuity is first recognised 2. First lease • Recognised when resident takes occupation of unit Assumptions Accounting Entry P&L BS Cash Dr/(Cr) DMF into perpetuity recognised Investment Property (
Slide 11: Phase - DMF Revaluation
Phase 3 - DMF Revaluation • DMF “earned” by Stockland during resident occupancy period For personal use only 3. DMF revaluation • DMF valued as a portfolio using discounted cashflows • DMF value is periodically adjusted for the following events: – the passage of time, moving closer to turnover (+ve
Slide 12: Phase - DMF Revaluation
Phase 3 - DMF Revaluation Assumptions Accounting Entry P&L BS Cash For personal use only Dr/(Cr) Unit value increases by 3.7% pa for Investment Property (Fair Value of DMF asset) 37 12 years Value after 12 years $541k Revaluation of investment property (Fair Value (37) movement of DMF contracts) Ini
Slide 13: Phase - First and Subsequent Turnovers
Phase 4 - First and Subsequent Turnovers • Point at which DMF is collected from outgoing resident For personal use only • Loan arrangement with outgoing resident paid out and new loan 4. Turnover arrangement entered into with incoming resident • Income received by Stockland is secure given Stockland
Slide 14: Phase – Make good and refurbishment costs
Phase 4 – Make good and refurbishment costs For personal use only Make Good • As part of the resident agreement, each resident is required to ‘Make Good’ on their unit upon exit • Make Good covers items such as carpet, curtains and any other damage • These costs are deducted from the final payment m
Slide 15: Cash moves closer to accounting profit over time
Cash moves closer to accounting profit over time • As mentioned in Phase 3, the DMF is valued at a portfolio level using discounted cash flows For personal use only • Movements in the DMF value are recognised through the profit and loss statement and represent movements in relation to both the exist
Slide 16: Summary Profit Position - Phases
Summary Profit Position - Phases 1 to 4 For personal use only The following table summarises the underlying profit and statutory result during the four phases shown: Phase 1 Phase 2 Phase 3 (1) Phase 4 Total Profit & Loss Statement Development First lease DMF Reval. Turnover Dr/(Cr) Revaluation of I
Slide 17: Summary Balance Sheet Position – Phases
Summary Balance Sheet Position – Phases 1 to 4 For personal use only The following table summarises the balance sheet position at the end of each of the four phases shown: Phase 1 Phase 2 Phase 3 Phase 4 Balance Sheet Development First lease DMF reval. Turnover Dr/(Cr) Cash (285) 65 65 241 Property,
Slide 18: Recap – Stockland Retirement Living financial position at Jun-09
Recap – Stockland Retirement Living financial position at Jun-09 Extract from Note 44 For personal use only Stockland Annual Financial Report 2009 • Net Present Value of the future stream of DMFs (i.e. the value of the financial asset) • Underlying value of the physical property • Asset side of bala
Slide 19: Recap – Stockland Retirement Living financial position at Jun-09
Recap – Stockland Retirement Living financial position at Jun-09 Extract from Note 44 For personal use only Stockland Annual Financial Report 2009 • Increase in the value of the Investment Property (Capital value) balance sheet “gross up” Comprises: • DMF creation $6m • DMF revaluation $33m • DMF re
Slide 20: Wrap up of key messages
Wrap up of key messages For personal use only ► Retirement Living is both a recurring and trading style business model producing two sources of income, which fits well with Stockland’s overall portfolio strategy ► The trading element is development profit recognised on first leasing (Phase 2) • Prof
Slide 21: Appendix
Appendix For personal use only 20 RL Accounting Workshop - 2 December 2009
Slide 22: Backup: Detailed NPV Calculation for the DMF
Backup: Backup: Detailed Detailed NPV NPV DMF NPV calculations Calculation Calculation for theDMF for the DMF Phase 2 – First Leasing – DMF First recognised (NPV calculated at date resident occupies unit) For personal use only Year 0 12 24 36 Terminal value Unit price increased by 3.7% p.a. 350 541
Slide 23: Disclaimer of liability and contact details
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