Sunland Group (ASX: SDG) shareholders have been through a rough ride since the Global Financial Crisis (GFC). Valued at over $4 per share in late 2007, the shares fell all the way back to 31 cents in 2009 before languishing under $1 until December 2012. Since then they have rocketed 50% higher.
Sunland was founded by Dr Soheil Abedian in 1983 as a Queensland-based property developer focussed on the high end market. It grew steadily, expanding into larger and more complex projects. In its 'hay day', Sunland had a business in Dubai building tall buildings and also created the world's first Versace-inspired hotels.
The GFC put a halt to many of management's ambitions, with Sunland forced to scale back and simplify its operations. Post GFC, Sunland has exited Dubai via an asset swap and in December 2012, it completed the sale, at book value, of its hotel the Palazzo Versace Gold Coast. Having sold the hotel, Sunland is now a pure-play high-end property developer focussing on creating residential communities, primarily in Queensland.
Dr Soheil Abedian, Chairman and Founder of Sunland, controls around 23% of the company, with his son Sahba, who is Managing Director, owning a further 2%. Sunland has also caught the eye of a number of respected fund managers including: Allen Gray Australia with 16.5%, Celeste Funds Management with 5% and Wilson Asset Management owning stock as well.
What most likely drew the fund managers to Sunland was the significant share price discount to net tangible assets (NTA) that the company's property assets were available for. With a land-bank focussed on Queensland and to a lesser degree the cities of Melbourne, Geelong and Sydney, Sunland owns assets with decent development potential. It is also well placed to provide investors with exposure to retirees and an aging population via its developments of land adjoining golf courses and master planned communities.
In 2012, Sunland expanded its land-bank through the purchase of $68.5 million in property. Management appears to be using shareholder funds wisely to selectively purchase land cheaply that can later be developed. For example, amongst the purchases was land in Melbourne bought from administrators.
The land-bank is estimated to hold inventory for 2,889 residential homes with an end value of $1.1 billion. This is excluding the multi-story portfolio inventory for which most projects are still undergoing the approval process. Portfolio sales during 2012 were 503 sales versus 536 in 2011.
Foolish takeaway
With Sunland now trading close to NTA, the 'easy money' has been made by investors who bought in at lower prices. There is still scope for the business to prosper and the shares to do well from this point but the original investment thesis is no longer applicable. There are, however, a number of other property companies that are still trading at significant discounts to their NTA that could be worthy of investor attention.
For example fellow Queensland-based developer Devine (ASX: DVN) is currently trading at a 58% discount to stated tangible book value. Another Queensland-based property developer, Villa World (ASX: VLW) recently provided guidance that it expected NTA to be approximately $1.82 per share at 30 June 2013, while its shares currently trade at $1.13. Thirdly, homebuilder AV Jennings (ASX: AVJ) is trading at a 50% discount to NTA. It looks like this discount has caught the attention of fund manager Paradice Investment Management, which recently became a substantial shareholder in the company.
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Motley Fool contributor Tim McArthur has no financial interest in any company mentioned in this article.
