Diversified property group Stockland Corporation Limited (ASX: SGP) is looking to support its sagging share price by riding the wave of popularity supporting the retirement accommodation sector.
Management is seriously considering plans to divest its $1.1 billion retirement arm through a separate wholesale fund aimed at pension funds and sovereign wealth funds, according to The Australian.
One would think that Stockland would also probably be considering listing its retirement assets in a new entity given the strong investor interest in the sector.
You only need to look at the strong share price performance of aged care facilities operators like Japara Healthcare Ltd (ASX: JHC) and Estia Health Ltd (ASX: EHE) to get a clue on investor appetite for defensive dividend paying businesses amid growing speculation that Australia is poised to slip into a recession for the first time in 25 years.
Signs of a slowdown in the residential property market are fueling talk of a recession. While an economic contraction will hit the share market hard, Stockland will take its fair share of the beating as it is Australia's largest residential property developer.
Aged care facilities operators will fare better given our aging demographic, the fact that the industry is more removed from the economic cycle and the relative attractiveness of their sustainable yields in the face of record low-interest rates.
Selling its retirement assets to shore up Stockland's balance sheet to protect itself from growing headwinds makes a lot of sense in the current environment as such assets haven't always been in favor with investors due to its lower returns than other investments.
It is believed that listed groups have held on to aged care assets because no one else was willing to buy them.
It is unclear how close the company is to striking such a deal or whether it has even appointed advisors to undertake the transaction.
The Australian suspects that Macquarie Group Ltd (ASX: MQG) may be working behind the scenes for Stockland given the investment bank's strong track record for securing capital for real estate funds, although UBS is also touted as another possible advisor.
Stockland posted a 71% increase in its full year statutory profit to $903 million last month and considers its retirement property division as one of its core businesses.
The stock is starting to look attractive after its sell-off as it trades on a 2015-16 consensus price-earnings of around 13.6 times and yield of around 6.5%.
But that will count for little if we slip into a recession.
