Mirvac FY21 Results exceed Guidance but lower than FY20

Mirvac Group announced its full year results for the financial year ended 30 June 2021 with statutory profit up 61% to $901m and EPS of 14.0c, exceeding earnings guidance of greater than 13.7cpss, but -8.5% lower than FY20.

Mirvac’s CEO & Managing Director, Susan Lloyd-Hurwitz, said, “We saw momentum accelerate right across the business in FY21, with our powerhouse asset creation capability continuing to generate significant value. We secured the highest number of residential sales since FY16, made key disposals well above book value, and our outperforming investment portfolio achieved significant property revaluation gains and strong cash collection rates. The Group has shown great resilience in the face of the ongoing uncertainty and disruption caused by the pandemic and we are currently well placed to continue to build towards recovery in FY22.”

The Group reshuffled their organisation last year to create separate teams for the investment assets (called Integrated Investment Portfolio) and the development assets (called Commercial & Mixed Use division).

Ms Lloyd-Hurwitz said, “In its inaugural year, our Integrated Investment Portfolio delivered an EBIT of $576m, a 6% increase on FY20. This result was driven by NOI growth from newly completed office asset developments, improved cash collections and lower COVID-19 rental relief, particularly in Retail.”

In the Commercial & Mixed Use division, earnings are more volatile with EBIT of $201m, down -32% on FY20 due to the lumpiness of projects. The residential business which contributes 85% of this division benefiting from strong lot settlements of 2,526, comfortably ahead of guidance target of >2,200 lots, but operated on lower margins due to a record year of apartment settlement in FY20. Mirvac released over 3,300 lots, including an acceleration of over 1,500 master planned community lots in response to stimulus demand. Apartments sales have slowed and reflect lower stock held by the group.

Mirvac has provided operating EPS guidance of at least 15.0cpss for FY22, which represents an increase in earnings of at least 7.1%, and distribution guidance of 10.2cpss, providing DPS growth of 3%. 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 concluded, “While FY21 has been characterised by extended lockdowns and restrictions, vaccine supply is improving and vaccine coverage is increasing daily. I am confident this, along with other mechanisms such as a vaccine passport and Rapid Antigen Testing, will enable Australia to open up again safely, providing a pathway towards recovery in FY22. We are currently in a good position to harness the strong momentum across the Group to continue into FY22 – our 50th anniversary year – when we will be ideally placed to meet the changing demands of our customers, as we continue to reimagine urban life.”

Mirvac is not on our Top Picks List.

The REIT commenced the year with a security price of $2.21 against a NAV of $2.54 (-13% discount to NAV) and closed the year at $2.98 against a NAV of $2.98 (12% premium to NTA). The REIT provided a 9.9c distribution for FY21, equating to a 4.5% yield, which together with a 34% lift in unit price would provide investors with a total return of 39%.

Key financial and operational highlights for the period are:

Financial highlights:

• Statutory profit of $901m, up 61% (June 2020: $558m);
• Operating profit of $550m, down 9% (June 2020: $602m);
• Operating EBIT of $704m, a decrease of 12% (June 2020: $796m);
• Total distribution of $390m, representing a DPS of 9.9c, an increase of 9%;
• EPS of 14.0c, a decrease of -8.5% on FY20 (June 2020: 15.3c)
• Gearing of 22.8% at the lower end of the Group’s target range of 20 to 30%;
• Group ROIC of 7.2%, an increase of 200 bps (June 2020: 5.2%);
• NTA of $2.67, up 5% (June 2020: $2.54);

Operating highlights:

• Achieved 3,375 residential sales, the highest residential sales result since FY16;
• Residential settlements of 2,526 lots, comfortably exceeding guidance of >2,200 lots;
• Extended the Group’s development pipeline to ~$28bn across mixed use, office, industrial, residential and build to rent, offering future value and optionality;
• Launched the Group’s first build to rent project, LIV Indigo at Sydney Olympic Park, which is 80% leased and extended the build to rent pipeline to ~1,860 apartments, with an estimated end value of ~$1.4bn across four projects;
• Secured a new direct investment partnership with Australian superannuation fund, Sunsuper;
• Reduced the Group’s carbon footprint by 80% across the investment portfolio;
• Named Australia’s Most Innovative Property Company (topping the Property, Construction and Transport category) by AFR BOSS in 2020 for the second consecutive year; and
• Ranked number two in the world and number one in Asia Pacific for gender equity by Equileap for the second year in a row.

Portfolio update

Integrated Investment Portfolio key metrics and highlights:

• EBIT of $576m, up 6% (June 2020: $545m);
• NOI of $581m, up 5% (June 2020: $554m);
• Cash collection rate of 98%, with total aged tenant arrears of $32m as at 30 June 2021, 100% covered by ECL provision;
• Investment property revaluations provided an uplift of $274m driven by strong demand for Industrial property (13.1% net increase) and high-quality long WALE Office assets (3.8% net increase);
• Completed 342 leasing deals across ~144,000 sqm;
• High occupancy of 97.4%4 and a WALE of 5.6 years;
• Assets under management increased to $25bn, leading to a 7% increase in asset and funds management earnings of $30m (June 2020: $28m);
• Signed an agreement to sell Cherrybrook Village, Sydney at a 43% premium to book value, with settlement expected to occur in FY22;
• Recognised an 11% valuation uplift on our 50% interest in EY Centre, 200 George Street, following the sale of the other 50% interest by our co-owner
• Exchanged contracts, together with our joint venture owner of the Tucker Box Hotel Group (Travelodge), for the sale of the portfolio of hotels for a headline price of $620m reflecting a premium of 19% to the JVs carrying value; and
• Maintained an average NABERS Energy rating above 5.2 stars across the Office portfolio.

Ms Lloyd-Hurwitz said, “In FY21, we created a dedicated Commercial & Mixed Use division, enhancing our already considerable mixed use asset creation capability and enabling us to take on increasingly complex, large scale urban renewal projects that cater to our population’s changing lifestyles. The value generated by our commercial pipeline continues to accelerate, with the Group recognising profit from our Olderfleet, 477 Collins Street, Melbourne, South Eveleigh, Sydney and 80 Ann Street, Brisbane developments throughout the year.”

Commercial & Mixed Use key metrics and highlights:

• EBIT of $33m, driven by development profits on Olderfleet, 477 Collins Street, Melbourne, South Eveleigh, Sydney and 80 Ann Street, Brisbane, 53% lower than FY20 ($70m);
• Valuation gain of $121m generated from our retained ownership interest in completed developments, 89% higher than FY20 ($64m), relating to the fair value gain on investment properties under construction (Locomotive Workshop, South Eveleigh, Sydney) and the initial fair value uplift from the independent valuations of recently completed projects (South Eveleigh, Sydney and Olderfleet, 477 Collins Street, Melbourne);
• The Locomotive Workshop, South Eveleigh, Sydney is now substantially complete and 97% leased, with 49% sold down to Sunsuper in August 2021 subsequent to balance date;
• Received Stage 1 planning consent for the redevelopment of Harbourside Shopping Centre, Sydney, with the proposed mixed use precinct to include a new landmark residential tower;
• Received planning approval for the proposed mixed-use precinct at 7 Spencer Street, Melbourne;
• Progressed construction of Suncorp’s new headquarters at 80 Ann Street, Brisbane, with the 61,000sqm office precinct now 81% pre-committed. Practical completion remains on track for FY22;
• Advanced the design of the 63,000sqm premium commercial and retail precinct planned at 55 Pitt Street, Sydney, and submitted the Stage 2 DA;
• Signed non-binding heads of agreements for 30% of net lettable area at the Switchyard industrial project in Auburn, Sydney, which is expected to cater for an increase in last-mile related demand;
• Secured rezoning for Aspect Industrial Estate, Sydney and agreed terms with an occupier for the initial development at the estate;
• Secured rezoning for Stage 1 & 2 of Elizabeth Enterprise Precinct, Badgerys Creek;
• Progressed construction at LIV Munro, Melbourne (490 purpose-built build to rent apartments), with completion estimated for late CY22;
• Lodged a planning application for LIV Albert Fields in Brunswick, Melbourne (~500 apartments), with completion estimated for CY24; and
• Received DA approval for LIV Anura, Brisbane following selection by the Queensland Government in its Build to Rent Pilot Project

Key Residential key metrics and highlights:

• Delivered operating EBIT of $168m, down by 25% driven by a greater contribution from masterplanned community projects in FY21, compared to FY20 which benefited from record level apartment settlements;
• Launched several flagship projects during the year with a strong response from the market, including Quay at Waterfront, Brisbane (71% pre-sold), Green Square, Sydney (52% pre-sold), George’s Cove, Sydney (93% of released lots sold)
• Achieved 3,375 sales and 2,526 lot settlements;
• Secured future income with residential pre-sales of $1.2bn;
• Delivered a gross development margin of 26%, up 200bps (June 2020: 24%);
• Defaults for FY21 were 2.7% (0.6% excluding Pavilions, Sydney); and
• Extended the residential pipeline to $15.7bn with 26,569 pipeline lots under control, with new acquisitions at Waverley, Sydney, Smiths Lane, Melbourne and 699 Park Street, Melbourne.

Valuations:

Overall, the total property portfolio has increased by approximately $832m to $12.65 billion for the period, driven by $87m of net acquisitions and $275million in property revaluation uplift. The Weighted Average Cap Rate as at June 2021 is 5.17%, compared to 5.34% as at June 2020. At the end of the period, the REIT’s diversified portfolio is 97% occupied and comprised 51 properties with a long WALE of 5.6 years.

Strengthening the REIT’s capital position

• Operating cashflow of $635m, up 41% (June 2020: $450m);
• No debt maturities until 2023, supporting an average debt maturity of 6.6 years (June 2020: 6.7 years);
• Reduced average borrowing costs to 3.4% per annum (June 2020: 4.0%)
• Maintained adequate liquidity of $867m in cash and committed undrawn bank facilities; and
• Maintained A-/A3 ratings with a stable outlook from Fitch Ratings and Moody’s Investors Service (equivalent to A-).

FY22 Guidance

Mirvac reconfirmed that based on information currently available and barring any unforeseen events or further COVID-19 impacts, FY22 Operating EPS guidance of growth of no less than 7% over FY21 Operating EPS of 15cents. This equates to a forecast FY22 distribution of 10.2cents providing a forecast distribution yield 3.4% based on the closing price as at 1 July 2021 of $2.98.

Trading Chart

Disclaimer: The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.