Mirvac profit falls on lower property revaluations, settlement timing
Diversified property group Mirvac said it is on target to deliver its planned earnings growth with most of its earnings skewed to the second half of the year, but has suffered a profit decline from a lower number of property revaluations.
The developer and landlord's revenue for the six months to December fell 28 per cent to $984 million from $1.36 billion a year earlier, while operating profit fell a smaller percentage of 8 per cent, the company said on Thursday.
The discrepancy in revenue is captured on its balance sheet as unearned revenue and inventories as it awaits skewed residential settlements in the next half of the year. Skew aside, Mirvac's residential earnings performance is in line with its full year target.
The main cause of the diversified group's decline in operating profit is lower property revaluation gains in its investment portfolio, mostly in offices, compared to the prior year.
"In line with guidance provided at our FY17 results, there will be a strong skew of earnings to the second half of the financial year due to the timing of residential settlements. We remain confident in our ability to deliver operating earnings growth of between 6 and 8 per cent in FY18," Mirvac chief executive Susan Lloyd-Hurwitz said.
Mirvac has reaffirmed an operating earnings per share guidance for the full year of between 15.3 cents and 15.6 cents a stapled security, representing growth of between 6 and 8 per cent and a distribution guidance of 11 cents a stapled security, also representing growth of 6 per cent.
The group also said it's gearing range is 23.8 per cent, within the target range of 20 to 30 per cent. Confident of its capital position, the group has also commenced a share buyback.
"Given our strong capital position, and as part of our disciplined capital allocation strategy, we have also announced plans to initiate an on-market buy-back program for up to 2.6 per cent of Mirvac securities on issue," Ms Lloyd-Hurwitz said.
The buyback is expected to commence on February 23 and will last 12 months.
Defaults in its residential business remained below 2 per cent, in line with historical averages.
In the first half of the year, the business achieved $2.9 billion in pre-sales of dwellings, up from $2.7 billion last year. It released a fresh batch of 1100 lots for sale and will offer another 1100 lots in the second half.
It also settled sales of 1164 lots and is eyeing 3400 by the end of the year.
Despite a quieter market compared to previous years, as demand, while still strong, eases down, Mirvac says well-located properties sell well and plans to continue to roll out more dwellings over the next four years.
"Although sales activity has moderated to more normalised levels in Sydney and Melbourne, we are still seeing consistent demand for well-located, quality product, particularly in our masterplanned communities," Ms Lloyd-Hurwitz said.
"A number of our forward-looking projects in Sydney are also set to benefit from new transport infrastructure, and our ability to buy at the right time has ensured we can release approximately 13,000 lots over the next four years, while taking a prudent approach to restocking our pipeline."
Gross margins for the residential business sit at 22.5 per cent, in line with the group's target of between 18 and 22 per cent.
Capital gains or (upward) revaluation of Mirvac's office portfolio is lower this year, at $169 million this half year, compared to $230 million last year, trickling down to the group's lower overall profit.
Indicators show the portfolio continues to perform well with an occupancy of 98 per cent, and there was over 50,250 square metres of space leased in the first half of the year.
Eighty-four per cent of its new offices including 664 Collins Street and 477 Collins Street in Melbourne, and Australian Technology Park in Sydney have been pre-leased.
Mirvac's industrial occupancy is not dissimilar to other periods, at 99.3 per cent and over 44,000 square metres of space was leased.
It also formed the Mirvac Industrial Logistics Partnership with Morgan Stanley Real Estate Investing with two seed assets in Victoria.
The group's retail sales productivity grew to $10,149 a square metre, up from $9,864 a square metre in the same time last year, and it leased another 29,000 square metres. Occupancy is 99 per cent.
Its retail portfolio has grown from increased ownership in East Village, Zetland and the proposed South Village Shopping Centre, Kirrawee, both in Sydney. In contrast it has sold a 50 per cent interest in Kawana Shoppingworld on the Sunshine Coast, QLD to ISPT for $186 million.
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