This article is from the Australian Property Journal archive
DIVERSIFIED property developer Mirvac has ridden the wave of the housing market rebound to post an interim funds from operations increase of 37%.
Higher net valuations cut 5% from profit to $613 million, compared to the prior corresponding period, but revenue lifted 4% to $1.62 billion with an increase in residential settlements.
The full year target of more than 2,500 settlements remains on track, with 1,232 locked away, and defaults remained under 2%. Housing market sentiment is at a near six-year high, and price forecasts have been revised upwards as the turnaround in house prices continues, interest rates remain low and credit becomes more attainable.
However, its share price fell by 3.2% as some considered settlement numbers to be soft and the residential recovery may have started to ease.
“We have capitalised on the recent moderation in the residential market and commenced restocking the portfolio with several new sites. Our robust development pipeline means we are well positioned to take advantage of the housing market as it continues to recover,” chief executive officer, Susan Lloyd-Hurwitz said.
Funds from operations jumped to $346 million, and operating profit by 21% to $352 million. Half year distribution grew 24% to $240 million, at 6.1 cents per stapled security.
Full year operating earnings per security guidance of between 17.6 and 17.8 cps was reaffirmed, reflecting growth of between 3% and 4%, and distribution guidance remains at 12.2 cps, a 5% uplift.
Net tangible assets increased 3% to $2.58 per stapled security.
Mirvac boosted its built to rend pipeline to almost 1,700 apartments, with new projects at Brunswick, where it has bought a one hectare site for $40 million, and Flinders West in Melbourne on the former Melbourne Convention Centre site, for which it just acquired for $200 million.
First residents are expected to move in to its Sydney Olympic Park project in the first half of 2021, while constructed has kicked off at the Munro site in the Queen Victoria Market precinct.
The group is targeting a yield on cost of more than 4.5% and unlevered IRR of over 7.5% on its build to rent portfolio, which it believes has a potential to 5,000 apartments over the medium term, funded through a combination of balance sheet and third party capital.
Matthew Moore, vice president and senior credit officer, corporate finance group, Moody’s Investors Service said Mirvac’s balance sheet “remains well-positioned for its rating, with ample capacity to support its ongoing growth pipeline”, reflecting its low gearing levels and strong leverage and coverage metrics.
He said Mirvac’s robust first half fiscal 2020 results reflect its “high-quality and diversified commercial property portfolio, the ongoing shift towards passive income, and a recovery in residential earnings”.
“We expect the company’s earnings and credit metrics will continue to benefit from solid office and industrial sector performance in its key markets of Sydney and Melbourne, along with improving residential market conditions.”
The residential segment’s operating result was up 148% to $144 million. Office and industrial was down 5% to $251 million, and retail slipped 2% to $83 million.
Mirvac’s office portfolio occupancy is 98.5%, with a weighted average lease expiry of 6.9 years. Like-for-like net operating income growth was 5.6%, while more than 33,000 sqm of leasing activity was completed and a valuation uplift of 3%, or $208 million, was recorded over the previous six month period, reflecting an average capitalisation rate of 5.25%.
Its $3.1 billion office development pipeline is 91% pre-committed and includes the Olderfleet project on Melbourne’s Collins St, South Eveleigh and the Locomotive Workshops in Sydney and 80 Ann St, Brisbane.
Full occupancy was recorded across its industrial portfolio, and its $1.2 billion pipeline is weighted entirely towards the popular Sydney market.
“Sydney’s industrial market continues to benefit from growing e-commerce and over $30 billion of new road and transport infrastructure for Western Sydney. Moreover, supply remains tight and rents continue to increase,” Lloyd-Hurwitz said.
Despite difficult conditions, Mirvac’s retail portfolio posted a high occupancy of 99.0%, positive leasing spreads of 1.4%.
