Stockland Firing On All Cylinders

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Stockland posted a strong FY25 result and guidance, highlighting growth potential in residential and commercial property, while addressing funding concerns.

-Stockland posts FY25 and FY26 guidance beats
-Master-planned communities growth a highlight in residential
-Data centre partnerships to drive commercial
-Analysts praise a reduced dividend payout

By Greg Peel

Wilsons has released its summation of the August reporting season and subsequent changes to the stockbroker’s Focus Portfolio based on what it labels “the good, the bad and the ugly”. The “good” was added to the portfolio, the ‘bad” had its portfolio weighting reduced, and the “ugly” has been removed.

The “ugly” was James Hardie ((JHX)). The “bad” was CSL ((CSL)). The “good” was Stockland ((SGP)).

Wilsons had previously flagged property developer/manager Stockland as the A-REIT offering the greatest exposure to Australia’s housing market recovery, which was reflected in its strong FY25 result.

In FY25, Stockland generated funds from operations (FFO) up 2.7% year on year, which was slightly ahead of consensus expectations. The highlight of the result was the developer’s master-planned communities (MPC) settlements, which grew 22% year on year to 6870 units, comfortably above guidance of 6200-6700 lots.

Management demonstrated its preference towards organic funding, with the combination of a lower dividend payout ratio (reduced from 75-85% to 60-80%), an active dividend reinvestment plan, and continued capital partnering.

FY26 guidance is for FFO growth of 6-9% year on year, and management flagged it expects MPC settlements of 7500-7800, which at the mid-point is 3% above consensus.

Residential Growth

Citi believes Stockland’s June quarter residential sales number, and the FY25 settlement as well as FY26 settlement guidance, all point to an improved residential environment. With increased first home buyer support to be put in place by January 1, 2026, Stockland is considered well placed to grow residential and land lease earnings strongly.

A key takeaway for Jarden from the FY25 result was an accelerating growth profile with Stockland well positioned at the start of a more supportive residential cycle. This, combined with a strong, and growing, medium-term pipeline, should support ongoing growth in residential developments, Jarden suggests.

The growing contribution from the Lendlease Communities business (which Stockland acquired last November), and growing percentage of developments in the joint venture structure, should improve returns, earnings composition and the risk profile, in Jarden’s view, which makes this a more attractive business throughout the cycle.

Looking ahead, further RBA rate cuts are anticipated, and with first home buyer support to be put in place, Citi believes Stockland’s residential business is well set up to take advantage of the improved residential environment.

Importantly, notes Citi, Stockland is also benefitting positively from its Lendlease acquisition with better than feasibility pricing and volumes being seen this period.

In line with Wilsons’ view, Stockland management pointed to house price and volume growth over the next twelve months across the Eastern Seaboard (NSW, Victoria and Queensland), supported by pent-up demand, interest rate cuts, government incentives supporting first home buyers and tight supply (particularly in NSW and Queensland).

With key forward indicators –-including June quarter sales, enquiries and contracts on hand-– showing positive momentum into FY26, Wilsons expects Stockland to be a material beneficiary of an acceleration in house prices and turnover over the medium-term.

Commercial Growth

Another key takeaway for Jarden was the growing commercial development pipeline with focus on logistics and a new data centre partnership. Stockland has significantly grown its Logistics pipeline –now at $10bn– through organic growth and new partnerships.

The company has forecast $162m in incremental spend for logistics projects under construction that are expected to complete in FY26 (estimated $316m end value). The new data centre partnership with EdgeConnex is not a complete surprise to Jarden, and could deliver attractive returns.

This growing commercial pipeline is not without execution risk, Jarden warns, but risk appears to be well managed through joint venture structures and a gradual roll-out.

Stockland has eight partnerships across sectors and strategies providing capital to grow and enhance return on capital employed via fees, Macquarie notes.

Stockland formed two new partnerships in the second half FY25: John Boyd Properties on the $3.5bn redevelopment of the 18.3ha Kogarah (Sydney) golf club and EdgeConnex to develop, own and operate Australian data centres, with seed asset Macquarie Park (Sydney) Stage 2 to offer more than 100MW of capacity in FY27.

The commercial development pipeline has expanded by $3bn over the last twelve months, and Citi sees upside catalysts over the next 12-18 months by further growth in the pipeline as data centre sites are secured and from profit generated from sell-downs to capital partners.

The Funding Issue

Funding is the key debate, Citi notes, but management believes capital efficient acquisitions, increased capital partnerships and a lower dividend payout ratio should help Stockland bridge the gap.

The developer has plenty of funding flexibility, Jarden suggests. While the market was getting more concerned about rising capex requirements, Stockland seems to be in a strong position with plenty of debt capacity, a growing list of joint venture partners, potential for further capital recycling, and an improving cost of equity if needs arise.

With this in mind, Jarden believes the cut to dividend payout targets makes sense.

The lower payout, with FY26 guidance reflecting a payout ratio of 69% of FFO, also makes sense to UBS in light of substantial forward capital requirements across the business (funding recent logistics and residential acquisitions on deferred terms and/or with future capex).

Undervalued?

Jarden sees Stockland as well positioned for an accelerating earnings growth profile, with improving residential momentum and a growing residential and commercial development pipeline. Management is achieving this while diversifying and improving its earnings composition, closely managing its risk profile and benefiting from a wide range of funding options over the medium term.

While this has driven a gradual re-rating over the last two to three years, its twelve-month forward price to adjusted FFO multiple (19.0x) remains at a discount to most large-cap REITs, especially when combined with earnings growth and quality. Jarden sees further evidence of improving market conditions and execution in its pipeline as a catalyst for further share price strength.

Wilsons quotes a price to FFO multiple of 17x (not “adjusted”), noting FFO is the REIT sector’s preferred measure of cash flows, which is slightly below the ASX 200 A-REIT average of 18x. This apparent discount contrasts with Stockland’s superior growth outlook, with a three-year FFO (or earnings per share) compound annual growth rate of 9% (with upside risks from housing tailwinds), compared to the sector average of 5%.

Jarden has an Overweight rating (one behind Buy), lifting its target to $6.80 from $6.35.

Citi re-iterates its Buy rating, seeing the business as materially improving providing access to residential and logistics/data center tailwinds. Citi’s target rises to $6.90 from $6.00.

Stockland is executing on its strategy, has an attractive earnings growth profile and the new partnerships are accretive, Macquarie concludes. But Macquarie maintains Neutral on valuation grounds, with a target increase to $5.90 from $5.20.

UBS has a Neutral rating and $5.55 target.

Ord Minnett (Hold) raised its target to $5.35 from $5.00 in early July, but has not yet responded to Stockland’s result. Nor has Morgan Stanley (Overweight), who last updated in June.

At that point, Morgan Stanley lifted its target to $6.75 from $6.50.

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