Property prices are expected to keep running hot into the new year and share market investors looking at gaining exposure to this thematic can do so through a number of listed property stocks.
But there’s one in particular that stand above the crowd, according to Morgan Stanley which picked the Stockland Corporation Ltd (ASX: SGP) share price as the one to own in 2020.
That’s an interesting choice as Stockland is the laggard among its large cap peers on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index. The stock may have jumped 40% plus since January, but that’s well behind the Mirvac Group (ASX: MGR) share price and Lendlease Group (ASX: LLC) share price. These are up 52% and 64%, respectively.
The underperformance of Stockland may be due to concerns about its lower quality retail property portfolio. These second-tier malls make up 40% of group earnings and retail is going through a tough patch.
Morgan Stanley acknowledges this as much but thinks investors have missed the point.
“While we remain structurally bearish on Retail, we think the market has overlooked the steps that SGP has taken to address issues in its mall portfolio, and think further downside from here (in the form of earnings downgrades/de-valuations) is more subdued vs. peers,” said the broker.
Big cuts lower risks
Stockland devalued 86% of its malls over the past year by around 7% (from peak book value) and is the most aggressive in cutting valuations on its retail properties.
In comparison, Vicinity Centres (ASX: VCX) and Scentre Group (ASX: SCG) have only devalued half of their properties with an average 2% cut to book value, noted Morgan Stanley.
“SGP has been realistic about the need to reset rents in its centres, flagging -7% re-leasing spreads for FY20 (deepest in the sector), and cutting overall rent assumptions by -7% since FY17,” added the broker.
“This is supported by our analysis of SGP’s occupancy costs, which suggests that specialty rents have been cut by an average of 5% in its centres – helping to create a more sustainable revenue base.”
Re-rating opportunity for Stockland
What’s more, sales growth in Stockland’s malls have been improving and that means there is a re-rating opportunity for the stock in 2020, particularly if the residential property market continues to rebound.
Morgan Stanley calls Stockland it’s top pick in Australian property and noted the stock is trading on a relatively generous dividend yield of nearly 6%.
The broker rates the Stockland as “overweight” (meaning a “buy”) with a price target of $5.50 a share.
If you are looking for other well priced dividend paying stocks to buy in 2020, you might want to read this free report from the experts at the Motley Fool
Follow the link below to find out more.
The post Morgan Stanley picks the best property stock to own in 2020 appeared first on Motley Fool Australia.
When Edward Vesely -- our resident dividend expert -- has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 147%) and Collins Food (up 105%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.
In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.
Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.
- Man bets $221,666 on one ASX stock
- Top analysts name their top 3 ASX blue chip shares for 2019
- 3 quality dividend shares to boost your income
- NEW: Free report names top 3 ASX dividend shares to buy for 2019
- 5 Stocks for Potentially Building Wealth After 50
Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019