Sunland has met expectations and interest coverage remains strong as it completes its highrise Abian project. With the bonds trading at 102.40 and a yield to worst* of 6.88%, we think the bonds offer good value
FY16 results summary:
- NPAT of $31.5m above company guidance of $25 to $29m
- The group generated revenue of $258.7m from 443 settlements during the period (FY15: $289.0 from 387 settlements)
- The development margin across the portfolio represents a return on costs of 35% (FY15: 29%) which exceeds the groups objective of 20%
- Gearing (debt/debt+equity) increased to 36.1% in FY16 from 24.1% in FY15, as the multistorey Abian project in Brisbane was completed. Abian has an estimated gross value of circa $240m and is 100% sold. A higher leverage is utilised to finance multistorey projects as the development programs are longer and equity can be retained to pursue other opportunities. This is in comparison with the lower geared land and housing segment
- Interest serviceability however improved, with EBITDA interest coverage increasing to 11.3x from 7.0x
- Liquidity is adequate with $19.9m in cash and $97.4m in undrawn working capital lines
- The group completed its on market share buyback programme which commenced in 2009. Sunland has bought back a total of 17.8m shares for a value $28.0m decreasing shares on issue by approximately 50%. The group will now continue its dividend payment policy of between 40% and 50% of net operating earnings
The group’s full results and presentations can be found here.
Sunland has in excess of 6,300 residential homes, urban land lots and multistorey apartments, representing $4.3bn in end value.
The proportion of the portfolio currently under construction has a total value of $1.44bn. Of this 68% or $977.9m has been settled or is under contract.
During the year the group replenished the portfolio with site acquisitions/commitments totalling $73m.
After several years of capital management, consolidation and portfolio replenishment, Sunland is now in a delivery phase of with up to nine projects scheduled to be launched and 13 already under construction during FY17.
The Group’s Multistorey portfolio will become more active and make a greater contribution to earnings. In addition, forecast contributions from Sunland’s highrise projects will be significant, commencing with Abian in the Brisbane CBD which is anticipated to settle during FY17 and then from the proposed developments at Grace on Coronation, Mariner’s Cove and Labrador which are pending final approvals from the respective planning authorities.
Profit guidance will be given at the group’s AGM on 24 November 2016.
The following chart details the trading margins of various high yield property companies.
Source: FIIG Securities
We believe Sunland is offering attractive relative value especially when compared to Stockwell (WAS). In our opinion, Sunland has a better credit profile with a stronger balance sheet, and greater financial flexibility. Noting the higher spread and earlier maturity, we view Sunland as offering better relative value.
Sunland’s fixed rate 25 November 2020 bond is indicatively available to wholesale investors at a yield to worst* of 6.88%.
*In this instance, the yield to worst represents the yield to maturity.
Note: Pricing indicative and accurate as of 30 August 2016 but subject to change.