Mirvac’s profits resilient thanks to office portfolio

Mirvac’s profits resilient thanks to office portfolio

16 August 2019

The continuing strength of Mirvac’s office and industrial property markets has pushed Mirvac’s profit above $1 billion for the fourth consecutive year, despite residential market headwinds.

The results are at the top of Mirvac’s guidance and the company will pay a total of 11.6¢ a share as distribution, representing a 5 per cent rise to the distribution last year.

Mirvac’s CEO & Managing Director, Susan Lloyd-Hurwitz, said, “The strength and resilience of our business were evident throughout the year, underpinned by our award-winning urban asset creation capability, our high-quality investment portfolio and our diversified model. Our robust capital position and the acceleration of passive earnings growth means we are well placed to continue to generate strong returns for our securityholders, while making a positive contribution to our urban landscape.”

The company pointed to its earnings from residential — which fell 34 per cent from the previous year to $201 million — for the hit and underscored the soft housing market. Mirvac said the result was expected and down to fewer apartment lot settlements.

Mirvac had 2611 residential lot settlements for the year, lower than last year’s 3400 but improved its development margin to 27 per cent from 25.4 per cent last year. The group maintained a 2 per cent default rate.

Ms Lloyd-Hurwitz said, “Despite a challenging market, we have seen sustained sales throughout the financial year, and we achieved our settlement target and maintained our default rate at less than 2 per cent. This is testament to the enduring quality of our products and our trusted brand. 

“Looking forward, our strong residential gross margin reflects the capital efficiency of our development structures, and we have carefully restocked in the changing market, with a number of new development opportunities in established Mirvac sub-markets including Henley Brook, WA and Wantirna South, VIC, putting us in a strong position to take advantage of the anticipated upswing.”

However, a strong performance in the group’s office and industrial business offset the slump in its residential arm — supported by the concentration of its portfolio in premium towers in Sydney and Melbourne, where vacancy remains low

Ms Lloyd-Hurwitz said, “In FY19 the strategic weighting in our office portfolio of 85 per cent to the Sydney and Melbourne CBDs maximised our exposure to the favourable market conditions in these locations. This is reflected in our strong leasing performance, high occupancy and net revaluation gains.

“We are now Australia’s second largest office manager, with $15 billion  of assets under management. Our young, low capex portfolio attracts high calibre customers who typically prefer long lease periods and share our vision to reimagine the future of work.
 
“We continue to deploy our unique asset creation capability to improve the quality of our portfolio and generate increasing passive earnings for the Group. Our robust development pipeline, which includes South Eveleigh, Sydney, 477 Collins Street, Melbourne and 80 Ann Street, Brisbane, is expected to add approximately $90 million in additional recurring net operating income by FY23, as well as over $200 million in fair value uplift and over $130 million in development profit.”

Key highlights for the office division included the completion of 664 Collins Street in Melbourne and 477 Collins Street which topped out in July.

Mirvac’s industrial division is also healthy with the company completing and fully leasing its new industrial estate, Calibre at Eastern Creek in Sydney’s west.

The group’s warehouses are 99.7 per cent full and have a weighted average lease expiry of 7.7 years. Around 91,700sq m of industrial space was leased by Mirvac over the financial year.

“During FY19 we extended our industrial pipeline by utilising our asset creation capability to respond to our customers demand for high-quality, well located assets maintaining a 100 per cent weighting to Sydney. We see significant earnings potential for these future industrial estates,” Ms Lloyd-Hurwitz said.

In terms of its retail portfolio, Mirvac maintained a 99.2 per cent occupancy and net revaluation gains of 2.2 per cent underpinned by like for like income growth of 2.6 per cent.

“Our Retail division delivered another solid result, which is pleasing given the highly competitive and rapidly evolving retail sector. Our commitment to constantly curating retail mixes and creating unique experiences has created a portfolio of thriving retail centres that offers the right retail in the right urban locations – densely populated with low unemployment, high incomes and strong population growth. We are also seeing the increase in value that our retail expertise is able to deliver to our office and residential portfolio,” Ms Lloyd-Hurwitz said.