Stockland (ASX: SGP) has today announced plans to increase its share buyback plan, and to sell another of its property assets, bringing total asset sales in the current financial year to $918 million, according to the company.
Having seen its share price fall from a 5-year high of almost $8.90 in late 2007 to a low of under $2 in the wake of the GFC and tightening of credit markets, Stockland has taken a deliberate strategy to improve shareholder returns by disposing of less attractive properties, and using the proceeds to buy back shares and invest in higher-return assets.
The company wasn't on its own in suffering through the GFC – we saw the likes of Centro go through a significant and painful restructuring, leaving shareholders with effectively nothing, and even stalwarts like Westfield Group (ASX: WDC) and GPT Group (ASX: GPT) feeling the pain of the crisis.
The company recorded a $1.8b loss in the 2009 financial year, but bounced back to profitability with a $480m profit in 2010 and $750m profit in the 2011 financial year.
This latest sale, of its stake in Moorebank Industrial Property Trust, will realise $123m in proceeds, some $10m below book value. While a disappointing result, compared to its carrying value, Stockland CEO Matthew Quinn believes the funds can be better deployed elsewhere, in part going towards the extended buyback to up to 10% of the company's issued capital.
Opportunity among the downtrodden?
Property ownership and development has been on the nose in the past 3 to 4 years, depressing share prices and sending investors scurrying. Often, those are exactly the times you want to be looking for bargains among the unloved, oversold and (hopefully) temporarily impaired.
At the end of December 2011, Stockland was still carrying a hefty $3.2 billion in long term debt and $1.8 billion in other current liabilities (a total of $6 billion with all other liabilities added in), compared to $8.7b in equity. Pre-GFC, that would almost be seen as conservative, but the credit crunch put paid to some of those assumptions.
Share buybacks when the company is undervalued can be a good thing for shareholders, and with a share price of around $3.13 and tangible equity (as of December 31, 2011) of $3.69, shareholders benefit with every share repurchased. Hopefully management have learned the lessons of 2008 and 2009 and are still retaining a significant cash buffer – after all, if the banks don't continue to roll over Stockland's debt, the assets will be seized and/or sold at much less than book value.
Foolish take-away
On balance, Quinn and his team appear to be taking a very shareholder friendly approach, by slimming down the company where they believe they can generate more value by selling than holding on, and repurchasing shares for the benefit of remaining holders.
Stockland looks to be one of the better options in the property space for those looking for exposure to this part of the market.
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Scott Phillips is a Motley Fool investment analyst. Scott owns shares in Westfield Group. You can follow him on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).
