- The company has not needed to tap the market for equity in recent years
- CWP has traditionally built to sell
- A strong housing sector has boded well for CWP
In part 1, Cedar Woods’ Nathan Blackburne spoke about the company’s investor profile, with part two, below, exploring the company strategy and outlook for the remainder of the year.
Strategy
The company is debt funded through a corporate facility comprised of three banks: NAB, Bankwest, and ANZ.
“It’s a facility with a mixture of three and five year debt, giving the company funding security for an extended period of time.”
Mr Blackburne added Cedar Woods is fortunate to have multiple long-term projects in the portfolio that are generating strong returns for the business.
“… [along] with our fairly consistent policy on paying out approximately 50 per cent of earnings in dividends and retaining the balance to invest back into the business, we have not in recent years had the need to tap the market for further equity giving rise to dilution for existing investors.”
“We’ve been able to recycle the capital and be self-funding in a sense for the benefit of existing shareholders.”
Cedar Woods adjusts or grows its corporate debt facility as required, maintaining optimum gearing ratios for the business.
“We work to maintain conservative gearing levels, as a general rule, noting that the quantum of drawn debt moves up and down throughout the financial year as respective stages in projects settle.”
Build to sell
Traditionally, Cedar Woods has developed and sold, rather than developed and retained. Mr Blackburne said, “This has historically served our business well.”
He used the example of Cedar Woods’s Melbourne development: Williams Landing.
“[The site] has approximately 17 hectares or 20 sites that are fully serviced, and can be developed for commercial, retail, or residential purposes. In that project, we have delivered some major single tenant office buildings, where we have secured the tenant, funded the delivery of the building, and then sold it to an institutional investor upon completion.
“We’ve also undertaken strata office developments. In fact, we are launching our 3rd strata office development at Williams Landing. Like an apartment project, we have a five or six storey office building that is divided up into eighty to a hundred square metre strata office units, that are on sold to owner occupiers or investors.”
Mr Blackburne added that “… there remains the potential in the future for Cedar Woods to reconsider that strategy of selling completed commercial assets.”
Pandemic
Much of the real estate sector has weathered the pandemic reasonably well, barring some challenges around labour and materials shortages, construction delays, and related increased costs.
The buoyant market conditions boded well for Cedar Woods, Mr Blackburne said:
“It is more usual for Cedar Woods to experience varied market conditions around the country, with a couple of states performing well, and others less so. But, for the past couple of years and we hope into the next few, we are experiencing very strong enquiry and sales of residential property.”
“This is leading to some positive language that our business has been using as to its earnings outlook over the medium term, where we have expressed confidence in our ability to continue to grow earnings backed by strong fundamentals… but also relative affordability of the markets, some of the markets that we operate in such as Adelaide, Brisbane, and Perth.”
The business has also weathered the increased construction costs fairly well, Mr Blackburne said, “We’ve been very fortunate that, around the country, the revenues have increased more than costs have increased, so we’ve been able to more than offset the increased cost base of our projects, resulting in net improved margins for several key projects.”
Mr Blackburne did note that not all projects were able to achieve this outcome: “There are projects within the portfolio that have seen stronger or higher construction cost rises than we’d been able to achieve for product pricing, and it’s our expectation that there will continue to be cost pressures for the next six to twelve months, particularly in WA and Queensland.”
He also said the opening of borders will be an important step to assist industry: “The opening of state and international borders is important in this regard to help plug staffing shortages that our builders are experiencing.”
Final note
It’s a positive outlook for the near future, Mr Blackburne said, “We are confident in our ability to deliver earnings growth for our investors over the medium term, backed by solid fundamentals supporting the new housing sector, the quality portfolio that we have, and the extensive pre-sales that we are taking into FY22, FY23, and FY24.”
