MMP222 2014 T2 Assignment 1 Haroon Sufi

Research and Critical Analysis

Of

Listed Property Development Companies

MMP222 Advanced Property Development

Trimester 2 2014

By Haroon Sufi: 211001153

Due : 22nd of August 2014

Contents Introduction ............................................................................................................................................ 3

Brief History ............................................................................................................................................ 4

Stockland Pty Ltd ................................................................................................................................. 4

GPT Group ........................................................................................................................................... 4

Asset Structure of Companies ................................................................................................................. 5

Stockland Pty Ltd ................................................................................................................................. 5

GPT Group ........................................................................................................................................... 5

Critical Evaluation of Stockland & GPT Group .................................................................................... 6

Types of Development projects undertaken .......................................................................................... 7

Stockland Pty Ltd ................................................................................................................................. 7

GPT Group ........................................................................................................................................... 7

Critical Evaluation of Stockland & GPT Group .................................................................................... 8

Priorities for Companies ......................................................................................................................... 9

Sustainability & Social Responsibility – Stockland .............................................................................. 9

Sustainability & Social Responsibility– GPT Group ............................................................................. 9

Critical Evaluation of Stockland & GPT Group .................................................................................... 9

Financial Performance .......................................................................................................................... 10

Financial Performance of Stockland ................................................................................................. 10

Financial Performance of GPT Group ................................................................................................ 11

Critical Evaluation of Stockland & GPT Group .................................................................................. 12

Recommendation .................................................................................................................................. 13

Appendix 1.1 ......................................................................................................................................... 14

References ........................................................................................................................................ 15

Introduction

The purpose of this report is to research and critically analyse two listed property development

companies. This report is created for an investor who is looking to invest a large sum of capital in a

listed property development company in Australia. The two companies that this report will research

and analyse are Stockland (SGP) & GPT Group (GPT).

This report will help the investor gain a better understanding of who they should invest their capital

in. The report will be in five parts. The first part of this report examines the history of the two

organisations and their development strategies. The second part of this report looks at the asset

structure of the two companies and critically analyses them comparing the differences. The third

part of this report also looks at the nature of the developments undertaken. The fourth part looks at

the most important priorities for the companies and the fifth part critically analyses the financial

performance in the most recent years.

This report has been established to meet the requirements of the API Guidelines and the client who

are requesting the brief. This report has been established to meet the requirements of Deakin

University Unit MMP 222- Advanced Property Development.

Brief History

Stockland Pty Ltd

Stockland was founded in 1952 with a vision to become one of Australia’s leading diversified

property groups. It owns, develops and manages a large portfolio of shopping centres, office and

industrial assets, residential communities and retirement villages. They have a diverse portfolio of

these sectors and have a deep commitment to being a diverse, socially concerned and

environmentally responsible organisation.

Stockland primary objective is to “deliver earnings per share growth and total risk-adjusted

shareholder returns above the Australian Real Estate Investment Trust index average, by creating

quality property assets and delivering value for our customers” (Stockland Annual Review 2013). The

organisation is committed to deliver value to their stakeholders and how they do it is in a number of

ways, but more importantly, by leveraging their core competencies in asset management and

development to drive value, maintain a strong balance sheet, focus on cost and efficiency, leverage

strong customer and community value proposition and maintain a desirable, engaged and

productive workplace. Stockland have around 45,000 security holders in Australia and overseas.

Today, Stockland portfolio is diversified with retail being 49% of its business, 20% residential, 13%

office, 10% retirement living, 7% industrial, and 1% in UK. The organisations future direction is to

have 70-80% of its portfolio invested in Commercial property and 20-30% of its portfolio invested in

residential and retirement living overall. This is the future direction of where the company is going.

GPT Group

GPT was founded in 1971 by Dick Dusseldorph as The General Property Trust (GPT) and was created

to provide an opportunity for ‘mum & dad’ and retail investors to own an interest in a portfolio of

investment grade property assets. “Dusseldorph recognised the community of interest that existed

between shareholders, employees and management and this became an enduring value in the group

of companies he founded” (gpt.com.au).

Today, GPT is the owner and manager of high quality portfolio of Australian office, logistics, business

parks and prime shopping centre assets. GPT’s Investment Management team is focused on

maximising returns across the portfolio.

Today, GPT Groups portfolio is diversified with retail being 56% of its core business, 32% office and

12% logistics as of 31 December 2012 respectfully. The shareholders who own a security holding of

the company are 49% Australians, 22% North Americans, 18% Asia, 6% Europe and 5% from the UK.

Asset Structure of Companies

Stockland Pty Ltd

The Stockland asset portfolio is across 5 major sectors, which include Retail, Industrial, Office,

Residential and Retirement living. The following is an outline and break down of the assets owned by

Stockland Pty Ltd.

Portfolio Size NOI WALE Occupancy

Retail $ 5.3 b 5% + 6.4 years 99.4%

Industrial $ 0.8 b 18% - 3.3 years 89.1 %

Office $ 1.6 b 16%- 4.6 years 96.0%

Residential $21.2 b 5.5%+ N/A years N/A

Retirement Living $ 1.7 b 6% + N/A years 94.0%

Table 1.1 Sources: Stockland Annual Result 2013

Retail 41 retail centres

Industrial 13 industrial properties

Office 16 office buildings

Residential 25,200 lots approx

Retirement Living 8,082 established units

Stockland Asset Outlook Source: Stockland Annual Review 2013

GPT Group

The GPT asset portfolio is across 3 major sectors, and has maintained strong performances. The

following is an outline and break down of the assets owned by the GPT group.

Portfolio Size Comparable Income Growth

WALE Occupancy

Retail $4.96 b 3.0% 4.4 years 99.5%

Office $2.76 b 3.8% 5.4 years 95.8%

Logistics & Business Parks $0.99 b 2.7% 5.8 years 98.2%

Total $8.71 b 3.2% 4.9 years 98.1%

Table 1.2 Source : GPT Annual Result - Overview

GPT Asset Outlook Source: GPT Annual Result 2013

Critical Evaluation of Stockland & GPT Group

When looking at Stockland and GPT Groups asset structures we can clearly see the differences in

both businesses which are listed on the Australian Stock Exchange. In regards to Stockland, table 1.1

outlines the 5 areas in which they are investing into. This in comparison to table 1.2 which outlines

GPT groups asset structure, we can clearly see they are only invested across 3 areas. The GPT Group

have no invested interest in residential and retirement living.

$ million Stockland GPT Group

Current Assets $ 227.1 $ 310.1

Non-Current Assets $ 13,146.0 $ 8,509.3

Other Assets (if any) $ 696.6 $ 523.8

Total Assets $ 14,069.7 $ 9,343.2

Table 1.3 Critical Evaluation Comparison -Source: Stockland Annual Result 2013 & GPT Annual Result 2013

Whilst looking at the Annual Report for the two companies (Stockland & GPT Group) table 1.3

outlines the assets and breaks it down to Current Assets, Non Current Assets and other assets.

Stockland have in 2013 declared to have $14,069.7 (million) worth of total assets compared to GPT

Group which have declared to have $9,343.2 (million) worth of assets. When we compare these

figures to both companies and critically evaluate the two, Stockland are in a better position asset

wise by $4,726.5 (million) compared to The GPT Group.

Types of Development projects undertaken

Stockland Pty Ltd

Stockland’s operation is spread across 5 areas of property development. The nature of the business

includes Retail, Industrial, Office, Residential and Retirement Living. The fact that they are able to

spread across 5 areas shows they are well positioned for a diverse portfolio. They are the largest

retail property owners, developers and managers in Australia with just over 40 retail premises. Their

industrial portfolio comprises of 14 properties and just less than one million square metres of

building area, and their office portfolio comprises of 15 properties in key locations. On top of all of

this, they are knows to be the largest residential developers in Australia and having a business

focused on delivering a range of master planned communities in growth areas across the country.

Stockland have 65 communities and have 83,800 lots under development remaining. They also are a

top three retirements living operator within Australia by having over 8,000 established unites across

five states and Australian Capital Territory.

Map 1.1 of Locations across Australia Source: Stockland Property Portfolio 2013 Dec

GPT Group

The GPT Group core portfolio consists of high quality properties in Retail (56%), Office (32%) and

Industrial (12%) sectors. When considering their retail portfolio, they have 17 shopping centres

across Australia which consists of 1,100,000 SQM of gross lettable area. The GPT Group office

portfolio consists of 20 properties and 910,000 SQM of net leasable area. They have 300 + tenants

who are currently leasing floor space in their office sector. Finally, their third sector Logistics &

Business Parks consists of a 28 property portfolio. This portfolio has 640,000 SQM of gross lettable

area and has 70 + tenants.

Graph 1.1 GPT Portfolio Diversity Source: GPT Annual Result 2013

Critical Evaluation of Stockland & GPT Group

When looking at Stockland and GPT Groups types of development undertaken, we can clearly

identify the differences in both businesses which are listed on the Australian Stock Exchange.

Stockland have diversified their portfolio throughout 5 key areas of property growth compared to

GPT Group which are focused on only 3 areas. The difference between both companies is Stockland

are market leaders in the residential and retirement side of their business as well as having a strong

footing with the retail/office/industrial part division.

When distinguishing both companies Retail Portfolio, Stockland have 41 centres and hold 953,303

SQM of Gross Lettable Area (GLA), compared to GPT Group which has only 17 shopping centres but

1,100,000 GLA. Stockland have 24 more centres, but GPT Group has 146,697 SQM of GLA more than

Stockland. This means, GPT Group are focused on much larger centres compared to Stockland, which

will have smaller centres, to cater for the local community shopping.

Stockland GPT Group Difference Strength

Retail Portfolio 41 Centres 17 Centres 24 Centres Stockland

Retail GLA 953,303SQM 1,100,000 SQM 146,697 SQM GPT Group

Retail Value $5.3 b $5.0 b $0.3b Stockland

Table 2.1 Critical Evaluation Comparison (Retail) -Source: Stockland Annual Result 2013 & GPT Annual Result 2013

Stockland GPT Group Difference Strength

Industrial Portfolio 14 Centres 28 Centres 14 Centres GPT Group

Industrial GLA 1,022,450 SQM 640,000 SQM 382,450 SQM Stockland

Industrial Value $0.9 b $0.99 b $0.09b GPT Group

Table 2.2 Critical Evaluation Comparison (Industrial) -Source: Stockland Annual Result 2013 & GPT Annual Result 2013

Stockland GPT Group Difference Strength

Office Portfolio 15 Centres 20 Centres 5 Centres GPT Group

Office GLA 370,490SQM 910,000 SQM 539,510 SQM GPT Group

Office Value $1.5 b $2.8 b $1.3b GPT Group

Table 2.3 Critical Evaluation Comparison (Office) -Source: Stockland Annual Result 2013 & GPT Annual Result 2013

Stockland GPT Group Difference Strength

Residential Portfolio 65 Communities - 65 Communities Stockland

Residential GLA 83,000 Lots - 83,000 Lots Stockland

Residential Value $20.8b - $20.8b Stockland

Table 2.4 Critical Evaluation Comparison (Residential) -Source: Stockland Annual Result 2013 & GPT Annual Result 2013

Stockland GPT Group Difference Strength

Retirement Portfolio 62 Communities - 62 Communities Stockland

Retirement GLA 8,208 established - 8,208 established Stockland

Retirement Pipeline 3,390 units - 3,390 units Stockland

Table 2.5 Critical Evaluation Comparison (Retirement) -Source: Stockland Annual Result 2013 & GPT Annual Result 2013

The tables 2.1-2.5 gives an evaluation the types of development undertaken by both companies

Stockland and the GPT Group. It clearly illustrates the differences between the two companies,

outlining GPT Group do not have any Residential and Retirement Living developments, however, in

their Office portfolio, they are the leaders.

When evaluating the retail and industrial properties, Stockland has more centres, as mentioned, but

GPT Group have more gross lettable area, compared to industrial, where GPT has more centres, but

Stockland have more gross lettable area available.

Priorities for Companies

Sustainability & Social Responsibility – Stockland

Stockland are committed to making their communities and assets stronger, healthier, connected and

more resilient. They understand the importance of the environment and their core competencies is

making sure they are developing sustainable and vibrant places by improving water efficiency,

indoor environmental control, energy efficiency, reduced running costs, transport and material. The

key achievements in 2013 include:

- 62% reduction in lighting energy consumption, insulation and glazing

- Indoor air constantly monitored, natural light is optimised, and materials are reduced

- Cost savings since 2006 represents an operational saving of avoided costs of over $35m

- Reduction of greenhouse gas emissions by over 55,000 tonnes

- Passing savings onto customers for FY13 of $4m for their tenants.

Sustainability & Social Responsibility– GPT Group

GPT is committed to reducing its environmental impact, aspiring to be an overall positive contributor

to environmental sustainability. Their key achievements in 2013 include:

- 34% reduction in energy intensity since 2005

- 42% reduction in emissions intensity since 2005

- $17.4 million of electricity and $402,985 of gas related avoided costs

- 112,247 t C02e greenhouse gas emissions avoided.

GPT Group aspired to be an overall positive contributor to communities, people and the

environment. It aims to manage its sustainability performance in a way that invites their

stakeholders to hold accountable. GPT Groups purpose is to maximise the financial potential of

Australian property with solutions that fulfil the aspirations of their investors, tenants and

communities.

Critical Evaluation of Stockland & GPT Group

When looking at Stockland and GPT Groups priorities, we can establish that they are fairly similar.

Both, Stockland and GPT Group are committed to reducing the impact they have on the

environment and implement that throughout their business model. Cost saving measures with

electricity to water and waste reduction, they both are very strong and are using their abilities to

reduce as much as they can. Stockland are committed to being Australia’s largest property

development company, whereas GPT group are focused on providing high quality Retail, Office and

Industrial developments.

Financial Performance

Financial Performance of Stockland

Stockland’s financial performance in the financial year of 2013 is 26% down from the 2012 financial

year. In 2013 Stockland’s profit was recorded at $494.8million respectively. This is 26% less from

$676.1million in 2012. Table 5.1 outlines the underlying profit for Stockland since 2009.

FY 13 FY 12 FY 11 FY 10 FY 09

Overall Profit $494.8 m $676.1m $752.4m $692.3m $631.4m

% -26% -10% 11% + 9% +

Table 5.1 Financial Performance of Stockland -Source: Stockland Annual Result 2013

Stockland’s diversification of 5 sectors contributed towards the $494.8m profit for the financial year

of 2013. Table 5.2 identifies the Net Operating Income (NOI) from their retail, industrial, office,

residential and retirement living businesses.

Retail Industrial Office Residential Retirement Living

NOI $324 m $63m $119m $60m $38m

NOI % 5% + 18% - 16% - 5.5% + 6% +

Table 5.2 Financial Performance of Each Sector -Source: Stockland Annual Result 2013

The distribution for the year of 2013 for Stockland was 24.0c and was consistent with the financial

year of 2012. The share price as of 18th of August 2014 is AUD$4.17c per share.

Image 5.1 – Share Price for Stockland Source: Google.com

Image 5.1 gives an indication of the past 12 months and the share price. Since September 2013 the

share price has increased by 13% to $4.17c per share as of the 18th of August 2014. The trend is

cyclically trending positive, although in Nov 13 there was a slight decline from a peak.

Financial Performance of GPT Group

GPT Group’s financial performance in the financial year of 2013 was recorded at $571.5m

respectively. This has seen reduction of 3.9% from the 2012 financial year of $594.5m. Table 5.3

outlines the underlying profit for GPT since 2009.

FY 13 FY 12 FY 11 FY 10 FY 09

Overall Profit $571.5m $594.5m $246.2m $707.3m $1,070.6m

% -3.9% 141.5% + 65.2% - 166%+

Table 5.3 Financial Performance of GPT Group -Source: GPT Annual Review 2013,2012,2011,2010

GPT Group diversification of 3 sectors contributed towards the $571.5m profit for the financial year

of 2013. Table 5.2 identifies the Net Operating Income (NOI) from their retail, industrial, and office

businesses. .

Retail Industrial Office

NOI $264.3 m $144.1m $76.2m

NOI % 12% - 12% + 9%+

Table 5.4 Financial Performance of Each Sector -Source: GPT Annual Review 2013,2012,2011,2010

The distribution for the year of 2013 for GPT Group was 20.4c and an increase of 5.7% from the

financial year of 2012. The share price as of 18th of August 2014 is AUD$4.06c per share.

Image 5.2- Share price for GPT Group Source: Google.com

Image 5.2 gives an indication of the past 12 months and the share price. Since September 2013 the

share price has increased by 11% to $4.06c per share as of the 18th of August 2014. The trend is

cyclically trending positive, although in Dec/Jan there was a slight decline from a peak, but

regardless it is trending up.

Critical Evaluation of Stockland & GPT Group

When looking at Stockland and GPT Groups Financial Performance for the financial year of 2013 we

can clearly compare the performance of both companies by looking both their overall profit for the

financial year and net operating income. The financial performance indicators that distinguish their

performances are by looking at their net profit and their earnings per share/distribution per share.

When comparing the profit for the financial year of 2013 for Stockland and GPT Group, table 5.5

outlines the differences.

$ million Stockland GPT Group Difference Stronger

Overall Profit $494.8m $571.1m $72.3m GPT Group

Distribution per share 24..0c 20..4c 3.6c Stockland

Share Price $4.17c $4.06c $0.11c Stockland

Table 5.5 Critical Evaluation of Financial Performance - Source: Stockland Annual Result 2013 & GPT Annual Result 2013

When distinguishing both companies and critically evaluating and comparing the factors that affect

their property portfolio and companies success, we can clearly see through their financial

performance how they are going with their decisions and how they are leading to their profit or loss.

Overall, GPT Group is performing well and truly much better than Stockland. Although they are only

diversified into 3 sectors of the market, they are clearly having a competitive advantage compared

to Stockland. As table 5.5 illustrates, the GPT group were $72.3m more profitable than Stockland,

even though the distribution per share is 3.6c more for Stockland, the amount of profit to be

distributed is higher at GPT Group. “GPT is in a good position as the team continues to work

the portfolio hard to deliver consistent returns,” Mr Cameron said. (The Australian 12th

August 2014)

Recommendation

Manhattan Investments

Suite 1202, Level 12,

1 QUEENS ROAD

SOUTH MELBOURNE VIC 3000

www.manhattaninvetments.com.au

Dear Mr & Mrs Client,

RE: Stockland & GPT Group Critical Analysis

I would like to firstly thank you for trusting Manhattan Investments to look at your choice of investing into an ASX property

development company. As per your request we have been instructed to look at Stockland Corporation Ltd (SGP) & GPT

Group (GPT) and produce a case report to critically evaluate and compare the two companies.

To generate an overall conclusion, the factors which were suggested to consider were:

1. History and development strategies

2. Asset Structure of the companies

3. Nature of Development Projects undertaken

4. Most important priorities for the companies in terms of sustainability and corporate social responsibilities

5. Financial performance in the most recent years.

After critically evaluating both companies, Manhattan Investments would like to recommend your investment to be

contributed towards GPT Group. The reason for this decision is firstly they are a relatively younger company compared to

Stockland, but have had phenomenal success. They are focused on the Retail, Industrial and Office sectors, and are market

leaders, compared to Stockland that have their eggs in many baskets. Where Stockland are loosing, they are trying to make

up financially and relying on their other businesses.

GPT Group recorded profit 3.9% less than 2012, of $571.5m, compared to Stockland where their profits were down 26%

from 2012, and only recorded a profit of $494.8. This is a difference of $72.3m. Currently GPT Group share price is cheaper

than Stockland for $4.06c per share. When comparing the FY12 profits, GPT Group 141.5% more profitable than FY11,

whereas Stockland in FY12 was 10% less profitable compared to FY11.

Therefore, our suggestion would be to invest into GPT Group (GPT).

Regards

Haroon Sufi

Director of Manhattan Investments Pty Ltd

Appendix 1.1

Image Stockland North Lakes, QLD Retirement Living Source: Stockland Property Portfolio Dec 2013

References

Department of Infrastructure- “Melbourne 2030- Planning for sustainable growth” October 2002

http://www.dpcd.vic.gov.au/__data/assets/pdf_file/0004/42772/2030_complete.pdf

“GPT Group eyes growth despite revenue dip” The Australian, Redman, E & Danckert S,

12th of August 2014.

Property Portfolio- Stockland December 2013- last viewed 19th of August 2014

http://investor.stockland.com.au/phoenix.zhtml?c=173099&p=irol-portfolio

Richard Reed (2007). The Valuation of Real Estate (Richard Reed) 12th Edition. 12th Ed.

Canberra: Australian Property Institute

Stockland – last viewed 18th of August 2014

http://www.stockland.com.au/

Stockland – Investor Centre- last viewed 17th of August 2014

http://www.stockland.com.au/investor-centre.htm

“Stockland says double-digit house price growth not sustainable” SMH, Carolyn

Cummings, 18th August 2014

http://www.smh.com.au/business/property/stockland-says-doubledigit-house-price-

growth-not-sustainable-20140818-105ezp.html

Stockland – Sustainability - last viewed 17th of August 2014

http://www.stockland.com.au/about/sustainability.htm

The GPT Group- last viewed 18th of August 2014

http://www.gpt.com.au/

The GPT Group – Investor Relations –last viewed 17th of August 2014

http://www.gpt.com.au/Investor-Centre/Investor-Relations

The GPT Group- Sustainability- last viewed 17th of August 2014

http://www.gpt.com.au/Sustainability/Overview