Stockland A$2.5 Billion Mall Growth to Come From Development

Apr 17, 2014 2:17 am ET

(Updates with total target commercial property weighting in third paragraph, closing share price in seventh.)

April 17 (Bloomberg) -- Stockland, Australia’s biggest diversified property trust, will focus on developments, rather than acquisitions, to grow its retail property assets by as much as A$2.5 billion ($2.3 billion) in five years.

The company will refurbish and expand its existing malls and build new centers on land it already owns to accomplish its expansion plans, said John Schroder, chief executive officer for commercial real estate at Sydney-based Stockland. It also expects to sell about A$300 million of offices by the end of 2015 as it moves away from the asset class, he said.

Retail property transactions reached a record A$7.1 billion in 2013, driven by domestic property trusts selling assets to local pension funds and foreign investors, broker Jones Lang LaSalle Inc. said in a report last month. Stockland plans to increase retail property to between 50 percent and 70 percent of assets by 2019 from 49 percent as of Dec. 31, with total commercial assets accounting for no more than 80 percent.

“There’s a lot of equity, superannuation funds and whole- of-life insurance companies, and sovereigns chasing” Australian property, Schroder said in an April 15 interview in Sydney. “Right now, we create better value for our shareholders by investing in what we own and control today, rather than, in many cases, trying to compete in the outside market.”

Industrial assets may rise to as much as 15 percent from 8 percent, while offices may decline to as low as 5 percent from 13 percent, according to the company’s Dec. 31 earnings statement. Residential and retirement will make up between 20 percent and 30 percent by 2019.

Australand Stake

Stockland managed A$5.5 billion of retail properties, A$1.5 billion of offices and A$900 million of industrial assets as of Dec. 31, and has about A$457 million of shopping center developments in progress, the filings show.

Stockland shares closed 0.5 percent higher at A$3.78 in Sydney, extending gains this year to 4.7 percent. The benchmark S&P/ASX 200 index has climbed 1.9 percent this year.

Since February, when Stockland released its Dec. 31 weightings, the company has progressed on its office reduction with the sale of a 50 percent stake in the Piccadilly Centre in Sydney’s center to Investa Office Fund for A$194.25 million.

Stockland last month took a 19.9 percent stake in smaller rival Australand Property Group, to explore “strategic opportunities” with the company, which develops and manages both commercial and residential property.

Given Stockland’s plans to expand its industrial and residential business, a full takeover of Australand offers “strong strategic merits,” John Kim, head of real estate research at CLSA Asia Pacific Markets, wrote in a client note on March 20.

“However, it is essential for Stockland to find a buyer for Australand’s A$1.2 billion office portfolio,” he said.