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Is Stockland Corporation Ltd building towards a big 2015?

Diversified property business Stockland Corporation Ltd (ASX: SGP) has announced an an underlying profit of $555 million for FY 2014, up 12.2% on the prior year, while earnings per share were up 7.1%.

Over the past year Stockland’s shares have risen more than 16% compared to the 9% return of the S&P ASX 200 Index (INDEXASX:XJO). Stockland’s upswing has been aligned to price lifts in residential property markets across the nation, with the group recording strong buyer demand in its role as one of the country’s largest residential property developers.

The group said the Sydney residential property market remained strong, while the Sunshine Coast also saw strong price lifts. More moderate performers were Victoria and Western Australia. Overall the residential property business was the star performer recording a 57.2% operating profit growth.

However, Stockland’s main business is the development and management of retail property portfolios, where profit growth was 7.5%, while profit in its business park type developments increased 5.5%. Occupancy rates, rents and tenant retention are the key metrics for retail developments and supporting these requires constant reinvestment and development to upscale assets to make them more attractive to consumers and tenants alike. Stockland now competes directly with the newly formed Westfield spin-off, Scentre Group Ltd (ASX: SCG), and will need to keep upscaling to keep ahead of the competition.

Stockland is also in the lucrative business of developing retirement communities for an Australian population that is living longer and subsequently placing more demand on these types of developments. A rival retirement community developer, Aveo Group (ASX: AOG), has seen its shares soar more than 46% over the past year, while Stockland stated it sees a “clear path to continued profit growth” in its own retirement living business.

Selling for $4.14 Stockland trades on an yield of 5.79% based on an expected payout of 24 cents per share for the coming financial year, previous payouts have not included franking credits. Stockland also forecast earnings per security growth of 6% – 7.5%, which is the kind of steady return expected from a giant property group. Overall, it remains an attractive proposition for defensive investors seeking a reliable income.

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Motley Fool contributor Tom Richardson owns shares in Scentre Group. You can find him on Twitter @tommyr345

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