Mirvac sees return of apartments, plans to launch seven new projects
Buyers are returning to apartments, which are rising in price far more slowly than established houses, and developer Mirvac plans to release seven new high-rise projects over the next year to tap the growing demand.
While ASX-listed Mirvac expects residential revenue this year to be dominated by sales of homes in master-planned communities, the 1144 lots it is planning across Sydney, Melbourne, Brisbane and Perth would start to boost earnings from next year and into FY24, chief executive Susan Lloyd-Hurwitz said.
Established house prices had risen 16 per cent over the past seven months, while apartment prices had gained just 8 per cent. And the continuation of this disparity, along with an east coast supply of new apartments expected to be 60 per cent below peak 2018 levels, prompted the new launches, the largest of which would be the 442-lot Nine Willoughby site in North Sydney.
“They will start to come through very strongly in ’23 and ’24,” Ms Lloyd-Hurwitz told The Australian Financial Review on Thursday.
“It’s been very interesting to us to see over the last year during COVID … customer interest in amalgamations of larger apartments, which is definitely a sign of people choosing apartments for value and convenience and amenity.”
The company is counting on the pick-up in residential sales after a year in which adjusted funds from operations – its preferred measure of earnings – fell 23 per cent to $444 million from $573 million a year earlier, as residential earnings fell and commercial landlords increased incentives to retail tenants.
In the year to June, Mirvac settled 2526 residential lots, below the 2563 of the previous year. However, sales of new homes during the year totalled 3375, the highest annual total since 2016, which placed it well to take advantage of rising demand.
The volume of sales – which meant Mirvac had already secured 90 per cent of its full-year EBIT earnings – gave the developer, landlord and investor confidence to predict earnings of “at least” 15¢ per share for the current year – an increase of 7.1 per cent on FY21 – and distribution guidance of 10.2¢, a 3 per cent increase.
“Our full-year guidance is based on the assumption that business conditions will normalise in the last quarter of CY21 when vaccination targets are expected to be met,” Ms Lloyd-Hurwitz said.
The guidance was more cautious than analysts expected.
“[A] solid overall result beating recently upgraded guidance but a softer outlook for FY22 than the market might have expected,” Jarden analysts, led by Andy MacFarlane, said.
“That said, the residential environment remains strong with tailwinds unabated, and a solid near-term development pipeline that could see levers to improve should conditions normalise.”
The main impact of COVID-19 was in retail, with a $20 million reduction in earnings before interest and tax, half of the $40 million hit to retail EBIT earnings a year earlier. Retail cash collection rates were improving as stores reopened, but more tenants were likely to ask for rental support as a result of the current lockdowns across the eastern seaboard, Mirvac said.
The company said it was expecting to start construction, subject to appropriate pre-commitments on its $1.7 billion, 63,000-square-metre, 55 Pitt Street office tower project in Sydney during calendar year 2022.
It also flagged $600 million in non-core assets sales during the current year.
ASX-listed Mirvac said full-year net profit jumped to $883 million, largely due to higher revaluation of investment properties, to June from a restated $572 million a year earlier.
The company declared a 5.1¢ final dividend, bringing the full-year total to 9.9¢, up 9 per cent from a year earlier.
Earnings per share of 14¢ were down 8.5 per cent year-on-year above the company’s guidance of 13.7¢ and market consensus estimate of 13.8¢.
The shares closed 3¢, or 1 per cent down, at $2.97 on Thursday afternoon.
Mirvac said its first build-to-rent property, LIV Indigo in Sydney Olympic Park, was now 80 per cent leased and receiving rents at a 15-20 per cent market premium. In two months’ time, that asset will have been operating for a year, allowing Mirvac a proven cash flow to show potential investors to whom it was looking to sell a stake in its growing BTR portfolio, it said.
The company is looking to expand its current 2175-unit BTR portfolio to more than 5000 apartments over the medium term. It said construction at its LIV Munro project at Melbourne’s Queen Victoria Market remained on track, it has development approval for its LIV Aston project also in Melbourne, has received development approval for LIV Anura in Brisbane’s Newstead and was planning its LIV Albert Fields project in Melbourne’s Brunswick.
The involvement of third-party investors in the BTR portfolio would boost Mirvac’s $9.9-billion total external assets and funds under management (out of a total $25 billion assets under management), a part of the business Ms Lloyd-Hurwitz said “the market doesn’t pay enough attention to”.
This portfolio, which has grown from $2.8 billion-worth in FY15, would likely grow to about $15 billion over the next year, Ms Lloyd-Hurwitz told the Financial Review.
