Shareholders in property manager and developer Stockland Corporation Ltd (ASX: SGP) haven't had much to get excited about in the past year with the share price declining 0.5%. In comparison, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has gained nearly 5%.
Investors in Stockland aren't alone though; peers Mirvac Group (ASX: MGR) and GPT Group (ASX: GPT) have both underperformed the index as well.
Given the record high property prices being experienced around the nation and data pointing towards a home building boom, investors in these property companies have been left scratching their heads.
One of the main reasons Stockland haven't been performing as well as other property exposed stocks is due to its diversification. Stockland operates in 3 distinct market segments: Commercial Property, Retirement Living and Residential. Let's take a look at each segment one-by-one.
Stockland's commercial property portfolio continues to perform well and delivered solid results of $258.7 million in net operating profit for the December half. The strong result is despite facing headwinds from a lacklustre retail sector and higher vacancies in the industrial business.
Secondly, is the retirement living portfolio. This business reported a significant 42% rise in operating profit to $17 million during the first half and continues to benefit from the long-term tailwind of an ageing population. While shareholders should benefit from this segment over time, currently it is the smallest of the three segments in terms of its contribution to the bottom line.
Finally, we have Stockland's residential portfolio. This business is indeed enjoying increased profitability thanks to the property boom; the first half results were up an impressive 39% on the previous corresponding period to $39 million. Management reports that the residential business is well placed for the second half with strong sales and momentum at its project developments.
As you can see, the problem facing Stockland shareholders is that the residential segment contributes only a small percentage of profits to the overall group. For this reason Stockland doesn't provide a leveraged play on the property boom as the residential portfolio is swamped by the size of the commercial portfolio.
