Mirvac strong growth despite Resi & Retail

7 February 2019

Mirvac Group released their results for the half year ended 31 December 2018, this week confirming distribution guidance of 11.6 cents per stapled security (5 per cent growth) and net tangible assets per stapled security growth of 6 per cent from FY18 to $2.44. Whilst the residential markets are turning against residential development groups, Mirvac (with 14% of income from residential) believe that they will outperform the wider market due to their high-quality residential product and their robust investment portfolio. Mirvac’s CEO & Managing Director, Susan Lloyd-Hurwitz, attributed the growth to Mirvac’s high-performing Investment portfolio and their in-house asset creation capability which remains a key competitive advantage for the Group. These forces combined to generate a 26% increase in operating profit to $290m, with office & industrial sector contributing three quarters of the growth. Mirvac remain confident in their ability to deliver operating earnings growth of between 3 and 4 per cent and distribution growth of 5 per cent in FY19. Key highlights across the Group: operating profit after tax increased by 26 per cent to $290 million, representing 7.8 cents per stapled security; half-year distribution of $193 million, representing 5.3 cents per stapled security; a high occupancy of 98.6 per cent and a weighted average lease expiry of 5.8 years ; 83 per cent of expected residential earnings (before interest and tax) secured for FY19; achieved 1,067 residential lot settlements, with defaults remaining below 2 per cent and on track to meet the Group’s target of more than 2,500 residential lot settlements in FY19; and residential pre-sales of $2 billion with an existing pipeline that supports over 12,000 lot releases over the next four years. Office portfolio highlights: delivered operating earnings before interest and tax of $265 million, up 40.2 per cent on the prior corresponding period; occupancy of 97.2 per cent , with a long WALE of 6.6 years ; like-for-like net operating income growth of 5.4 per cent; over 66,000 square metres of leasing activity completed ; strong valuations provided an uplift of $286 million (or 4.7 per cent) over the previous book value for the six months to 31 December 2018, reflecting a capitalisation rate of 5.46 per cent; and progressed the Group’s $3 billion office development pipeline which is 84.3 per cent precommitted and includes 477 Collins Street, Australian Technology Park, South Eveleigh, Sydney and 80 Ann Street, Brisbane. Industrial portfolio highlights: occupancy at 100 per cent , with a long WALE of 7.6 years ; over 50,600 square metres of leasing activity achieved; acquired stage one of a future 244-hectare industrial estate at Badgerys Creek in Western Sydney, NSW for a total consideration of $71 million, under a put-and-call option arrangement; and sold a 50 per cent interest in Calibre at Eastern Creek, NSW to the Mirvac Industrial Logistics Partnership (MILP) for approximately $125 million. Practical completion was achieved on Buildings 2 and 5 during the half year and the development is now 100 per cent complete and leased. Retail portfolio highlights: high occupancy maintained at 99.3 per cent ; executed approximately 28,800 square metres of leasing activity, with positive leasing spreads of 2.7 per cent; valuation uplift of $69 million reflecting a capitalisation rate of 5.4 per cent; solid 2.6 per cent like-for-like income growth; comparable moving annual turnover sales growth of 2.5 per cent and comparable specialty sales growth of 2.9 per cent including apparel growth of 5.0 per cent; strong specialty sales productivity of over $10,000 per square metre; specialty occupancy costs of 15.4 per cent; South Village Shopping Centre launched, anchored by Coles and ALDI with a mixed retail offer; Kawana Shoppingworld dining and cinema expansion and the Rhodes Waterside development, which introduced ALDI and strengthened the fresh food and homewares offer, both complete ahead of schedule and 100 per cent leased; and commenced the 4,500 square metre $43 million re-development of Toombul, introducing an entertainment and dining precinct due for completion in mid FY20 Residential highlights: settled 1,067 residential lots, and over 110 settled in January 2019. The Group is on track to meet its target of more than 2,500 residential lot settlements in FY19. Defaults remained below 2 per cent, in line with historical averages; secured future income with $2 billion of residential pre-sales , with 83 per cent of expected residential earnings before interest and tax secured for FY19; released over 720 lots across new and existing projects, and secured exchanges on over 900 lots; and remain on track to release approximately 950 lots in the second half of the financial year, supporting future sales momentum. MGR Trading Chart vs ASX200 AREITs Blue – MGR Purple – ASXASX200 AREITs Source: Investing.com #Mirvac