Stockland is believed to be closely scrutinising its $1.1 billion retirement arm, with suggestions that the country’s largest listed residential developer may be considering a plan to spin off the division from its balance sheet into a separate wholesale fund.
Selling down the business to pension funds and sovereign wealth funds via a separate trust structure could be something Stockland is looking at, amid improving sector sentiment.
Whether advisers have been hired by Stockland is unclear, although the thought is that Macquarie Capital, known for its track record of securing global capital for real estate funds, may be behind work on a spin-off. Another possible candidate is UBS.
Stockland, which recently posted a 71 per cent lift in its annual statutory profit to $903 million, counts retirement property as one of its core areas of investment.
However, it is widely known that listed groups have not always been so committed to the retirement sector as an investment due to the lower cash returns it offers compared to other asset classes.
Previously, groups have held on to the investments, often because of a lack of buyers in the market.
In the aftermath of the global financial crisis, the sector was out of favour for wholesale investors, many of whom were burnt by the demise of various groups at the time, such as Retirement Villages Group.
But sentiment has changed for various superannuation funds and large investors, which may be running out of lucrative investment options for exposure to the country’s ageing population at a time when interest rates are low and cash yields in the sector are improving.
Stockland declined to comment on the speculation.
During the company’s full-year results presentation last month, head of retirement Stephen Bull said that Stockland was now two years into a five-year plan to achieve 7 per cent cash returns on assets, and the returns were now about 5.3 per cent.
After buying existing retirement villages in the past, the company’s development pipeline is increasing over time, which will boost the returns.
As an aside, it will be interesting to see whether Stockland makes any attempt to secure the $400m David Jones site in Sydney for a lucrative apartment play.
However, while the residential developer is thought to be keen to make a play for the asset, it is more likely that the site will be swallowed by Westfield shopping centres owner Scentre Group, which owns the adjoining property.
This article first appeared in The Australian Business Review.