Looking through the volatility

Sunland Group was established in 1983 by architect Dr Soheil Abedian as a Queensland based property development company and was responsible for many projects across the east coast of Australia, spanning both iconic towers such as Australia’s tallest building, Q1 on the Gold Coast and house and land projects in emerging suburbs.

Except for a failed offshore expansion, and the difficult period during the Global Financial Crisis, Sunland has been a highly profitable and well managed business. Its core “House and Land” business consistently delivered solid returns which is a highly valued attribute of any listed company.

The high-rise business created iconic towers that produced some large profits upon completion. However, by its very nature, this led to a volatile income stream – something that many share market investors are uncomfortable with.

Alignment of interest

The founding Abedian family maintained a large stake in Sunland throughout its listed life, thereby maintaining a strong alignment of interest with minority shareholders. However, the share market did not value the company appropriately, and over the period from 2009 through to 2020, the stock traded at a significant discount to its book value. A low share price does however enable a financially astute management team to buy back their own stock, reduce the number of shares on issue, and increased the value per share of all remaining shares. Using a combination of retained profits and inventory selldowns, Sunland bought back and cancelled over 55% of its own shares. This is a low-risk way of adding value.

The combination of good capital allocation, an aligned management team and a compelling valuation was attractive to Phoenix and a position in the stock was initiated in August 2014. This position was ultimately held until the company delisted in October 2023.