Mirvac Group has reported a full-year loss of $805 million as it grapples with a fall in the value of its office portfolio. The company also stated that its annual earnings will be lower due to tough market conditions.
Despite its numbers, the group stated that its integrated model of developing, building and funds management would prepare it for the next phase of the property cycle, having secured support for significant projects such as the 55 Pitt Street office skyscraper in Sydney.
Mirvac is targeting operating earnings of 12 to 12.3 cents per security for this financial year, with a distribution of 9 cents per security, down from last year’s 14 cents and 10.5 cents, respectively.
CEO Campbell Hanan said the reduced earnings would reflect a lower contribution from the company’s development business and higher net interest costs related to ongoing projects.
“This includes lower margins at selected Queensland and New South Wales apartment projects, however, we expect the next phase of apartment projects to return to our normal target range,” Hanan said.
He also noted market conditions were likely to remain “challenging”.
“We have operated through numerous property cycles over the past 52 years and our success lies in our ability to navigate through the challenges and adapt to market conditions,” he said.
Putting Mirvac under the microscope, eToro market analyst Josh Gilbert said, "In what continues to be a difficult period for real estate firms, Mirvac came up short on its FY24 earnings today while forecasting weaker earnings for FY25. The company’s dividend also fell short.
"This outlook and its distribution will be very disappointing for shareholders, and shares will remain under pressure in the short term.
“Higher net interest costs are hurting the business, jumping by 61% from last year, with the RBA keeping rates at the highest level we’ve seen for a decade. These cost pressures look set to continue into FY25, with rate cuts not likely to occur until Q1 2025.
“Property developers in general are facing a challenging period marked by higher interest rates, which are contributing to increased debt costs.
"Record-high real estate prices have helped weather the storm but this growth is slowing. Residential settlements were strong in FY24 but its guidance clearly suggests they expect this to slow into FY25.”
Mirvac profit dips but could it be an opportunity?
Mirvac's operating profit dipped by 5% to A$552 million, aligning with guidance, despite a headline loss driven by A$1.1 billion write-downs, mainly on older office stock. Under the leadership of Hanan, the company has expanded into the 'living sectors' of build-to-rent and land lease.
The company has divested A$1 billion in assets, including buildings in Melbourne and Sydney, while emphasising securing capital partners for its projects.
Notably, Japan’s Mitsui Fudosan acquired a 67% interest in the A$2 billion Pitt Street project. Additionally, Mirvac sold the Aspect North and South Industrial precincts into the Mirvac Industrial Venture, supported by the Australian Retirement Trust.
Hanan stated that the company remained focused on enhancing the cash flow resilience of its investment portfolio, maintaining balance sheet strength, growing third-party capital relationships and leveraging its development capability to deliver quality, modern assets for long-term retention.
He said the residential gross margin was below the long-term target of 18 to 22%, hit by higher costs.
Shares dropped 9% on the back of the weak guidance.
“Despite these headwinds, Mirvac's diversified portfolio, which includes commercial and industrial properties, could provide some stability. The company’s ongoing projects and strategic acquisitions might offer long-term growth potential, even if the residential market slows in the short term,” Gilbert said.
“The positive is that any further weakness in shares could give investors an attractive entry. Shares are down more than 15% in the last six months and its valuation has also fallen significantly, pricing in the challenging period. However, markets are forward-looking, rate cuts will eventuate and offer a better environment for Mirvac to thrive."