CEDA Lunch Wednesday 2 April 2008 Matthew Quinn www.stockland.com.au
Agenda The global meltdown The impact on property Our strong position 1
The global meltdown The financial world had a great party 2
The global meltdown But the party is over 3
The global meltdown And we re now seeing those who can drive home 4
The global meltdown and those who can t 5
The global meltdown Why did the party last so long? Wall of money Cheap capital Risk was ignored And the regulators were three steps behind 6
The global meltdown Share prices rocketed 8000 7000 6000 ASX Things start to take off Recent fall 5000 1987 crash 4000 3000 2000 1000 0 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 7
The global meltdown And interest rates were very low (too low?) 14 US interest rates 12 10 8 Sub-prime loan era 6 4 2 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 8
The global meltdown In came the gatecrashers 9
The global meltdown And there were plenty of prey % 50 USA Income share of top 10% richest 45 The new deal The haves & have nots 40 35 Middle class America 30 1920 1930 1940 1950 1960 1970 1980 1990 2000 10
The global meltdown add in the financial engineers How $100,000 of sub-prime becomes $80,000,000 of debt Source: UBS 11
The global meltdown Helped by a lax system asleep at the wheel 12
The global meltdown And you re asking for a problem $bn Sub-prime resets 13
The global meltdown It s now hit the fan how far will it spray? 14
The global meltdown But, it s not about sub-prime this, sub-prime that It s really about Those who were sensible and those who were silly 15
The impact on property 16 Strong property fundamentals Good demand Supply constraints Rising rents But can it last? Rising interest rates Consumer & business confidence Economic growth? Concern about values Credit crunch Forced sellers? Centro contagion
Strong fundamentals Office markets Office vacancies at record lows 3.5% nationally Decent demand in key markets financial services sector? Credit crunch will dampen supply even further $1,000 CBD Market Rental Growth Prime Gross Effective Rent $/m2 $800 $600 $400 $200 $0 Dec-06 Dec-07 Dec-08 (Forecast) Sydney Melbourne Brisbane Perth Canberra Adelaide 17 Source: CBRE Research, Stockland
Strong fundamentals Retail Strong labour market and real income growth has driven buoyant retail sales Real Wage Growth Retail Sales Growth 3% 10% 2% 1% 0% 8% 6% 4% 2% -1% Sep 05 Mar 06 Sep 06 Mar 07 Sep 07 0% Sep 05 Mar 06 Sep 06 Mar 07 Sep 07 18
Strong fundamentals - Retail BUT consumer sentiment is a real worry 160 140 Index 120 100 80 Mar 98 Mar 00 Mar 02 Mar 04 Mar 06 Mar 08 19
The big housing conundrum Rising population growth drives strong residential demand But we re not building enough houses 1.8% 60,000 1.5% 50,000 1.2% 0.9% 10 yr av 40,000 30,000 0.6% 20,000 0.3% 10,000 Population Growth Quarterly Dwelling Approvals 0.0% 0 Sep 93 Sep 95 Sep 97 Sep 99 Sep 01 Sep 03 Sep 05 Sep 07 20
The big housing conundrum Driving house prices up and reducing affordability 70 House price affordability (or lack of) 60 50 Sydney Perth Melbourne Brisbane 40 30 20 10 Mar 85 Mar 89 Mar 93 Mar 97 Mar 01 Mar 05 21
The big housing conundrum Making it cheaper to rent 300% Mortgage Repayments / Rents 250% 200% 150% 100% 50% 0% Mar 85 Mar 89 Mar 93 Mar 97 Mar 01 Mar 05 22
The big housing conundrum Driving the rental vacancy down 5% Residential Rental Vacancy Rate 4% 3% 2% 1% 0% Dec 00 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 23
The big housing conundrum But rents are now ballooning 7% Rental Increases Housing & Units 6% 5% 4% 3% 2% 1% 0% Dec 95 Dec 98 Dec 01 Dec 04 Dec 07 24
The big housing conundrum Making middle Australia very angry (where do they live?) 150 Time to buy a home index - National 130 110 90 70 50 Dec 01 Dec 02 Dec 03 Dec 04 Dec 05 Dec 06 Dec 07 25
The big housing conundrum Especially when they re hit by the interest and don t get much of the tax break 20,000 16,000 Higher interest rates (full year impact) Tax cuts Share of tax cuts to mortgage holders $bn 12,000 8,000 4,000 0 Jun-07 Source: UBS Jul-07 Aug-07 Nov-07 Jan-08 Feb-08 Mar-08 May-08 Jul-08 26
Our strong position Despite the strong fundamentals, we ve all been crunched $10.00 Stockland share price $9.00 $8.00 $7.00 $6.00 $5.00 $4.00 Mar 03 Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 27
Our strong position But it s all relative we ve really outperformed 430 Total Shareholder Return 380 330 280 230 180 130 80 30 ` Stockland LPTs ASX 2000 2001 2002 2003 2004 2005 2006 2007 28
Our strong position Why because of our strong balance sheet 50 Gearing 40 LPTs % 30 20 Stockland 10 0 FY03 FY04 FY05 FY06 FY07 1H08 ^ 29
Our strong position Our good debt management Potential Risk Best Placed Stockland Gearing High Risk Deferred Risk Source: JP Morgan Term of debt 30
Our strong position And our strong profit growth Net profit December half year 31
Our strong position We also look after our people 32
Our strong position And we care about our footprint 33
So in summary The credit crunch is a major concern It s still got a way to go We re all being impacted despite strong property fundamentals We re in very solid shape to deal with it By keeping on doing what we re doing and doing it well PS No more rate rises needed it s getting very painful 34
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