Investors yesterday understandably took Stockland Group (ASX: SGP) down the 2.76% needed for its closing price to match the previous day’s $400 million institutional raising at $3.88 a share.
The offer was priced at a 2.5% discount to Monday’s close of $3.98 and comes after the country’s largest residential property developer’s market capitalisation had been boosted about $1 billion by share price increases since the start of the year.
Stockland is valued just below rival Goodman Group (ASX: CMG), but ahead of GPT Group (ASX: GPT) at about $7.3 billion and Mirvac Group (ASX: MRG) at $6.6 billion. Of course they’re all dwarfed by the combined weight of Westfield (ASX: WDC) and its spin-off Westfield Retail Trust (ASX: WRT) at $25.5 and $10.4 billion respectively.
Stockland’s moves come hot on the heels of Mirvac’s raising of the same amount – $400 million at a 3.2% discount — to help pay for its $584 million purchase of an office portfolio from General Electric. And, like Mirvac, Stockland’s placement came after its share price appreciation had taken its value past net tangible assets; in this case by about 11% at last Monday’s strategy day.
The raising, which the company said was supported by local and offshore invetors, will help repay some debt, but more importantly help fund its new focus on just one of its “three Rs” — retail, with an expansion of its shopping centre portfolio. It’s seen as the company’s expression of faith in that sector rather than the other two “Rs” — its relatively ailing residential and retirement divisions.
Just how well the change of emphasis works remains to be seen. So far the concensus seems to be that the company has done the right thing by shoring up its balance sheet, dropping its gearing to a likely 25% and giving itself enough capital for retail acquisitions or upgrades.
Stockland will also issue a share purchase plan for retail investors. And Credit Suisse analysts have reportedly told clients the equity raising would offset a later distribution reinvestment plan.
The move emphasises the two main points of the new strategy outlined by managing director Mark Steinert: keeping a strong balance sheet and a greater regard for growth in the retail sector. Stockland aims to have more than half, and possibly two-thirds, of its assets in retail property ownership by 2018, with a value nudging $7.5 billion. It’s got 18 properties currently scheduled for development.
With the price of banks looking pretty bloated, Telstra fully valued and mining stocks under pressure, investors could understandably turn back to A-REITs (ASX real estate investment trusts). Whether Stockland is the one to choose over others is a big call, but one thing’s for sure, we’ll be seeing a lot more activity in this sector in the coming months.
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