Mirvac downgrades earnings as bad weather hits residential operation

The developer’s house prices are recovering but projects have been delayed by bad weather, says its new chief executive.

Mirvac chief executive Campbell Hanan. Picture: Supplied

Property developer Mirvac has cut earnings guidance after being slammed by bad weather and the uncertain economic environment, which have hit residential settlements and an industrial project.

The group blamed the weather for pushing back project settlement timelines but insisted that it was benefiting from the stabilisation of house prices and it has also set up a raft of new funds management partnerships.

Mirvac said sustained adverse weather conditions had also delayed settlement expectations at its Aspect North industrial project into next financial year.

The company cut operating fiscal 2023 earnings per share guidance from at least 15.5c to at least 14.7c per share. Distribution guidance was kept at 10.5c per share representing 2.9 per cent growth.

The first update under new chief executive Campbell Hanan showed the company that faces a steep task in delivering on its housing targets even as the market shows signs of recovery.

Mr Hanan called out ongoing economic uncertainty but said the company’s asset sales were progressing with the disposal of 60 Margaret St and the Met Centre in Sydney expected to be finalised this quarter.

Mr Hanan also outlaid a vision in which the company would take on more capital partners on its projects to spark activity across build to rent, industrial property and office projects.

But the big focus was on the conditions that are hitting the residential division, where build to rent was a bright spot with strong leasing.

“Residential sales were slower during the quarter, however, an acutely under-supplied market, strong population growth, and stabilisation of established house prices and interest rates are expected to support ongoing demand in the medium term,” Mr Hanan said.

The company’s residential settlements are now expected to be around 2,200 lots, down from more than 2,500, with the remaining lots now expected to complete and settle in fiscal 2024.

Mirvac said it had 1,133 residential sales in this financial year, with pre-sales modestly increasing to about $1.8bn. Residential leads improved over the quarter to the highest level in 12 months, above its 10-year average. It also settled 1,126 residential lots, with defaults minimal at 0.2 per cent.

Mirvac has progressed its $1.3bn asset disposal program, with Sydney’s 60 Margaret St and MetCentre sale to Ashe Morgan and Japanese trading house Mitsubishi expected to be finalised and settle in this quarter at a price of about $820m. It has also entered exclusive due diligence at 367 Collins St, Melbourne, with property house Goldfields Group in the frame.

It is also establishing a new build to rent venture with two aligned long-term capital partners, with Mitsubishi again backing the venture. Financial close is also expected in this quarter with Mirvac to retain a 45 per cent stake.

A new industrial venture is also underway with a Melbourne office project winning a capital backer.

Mirvac shares were weak in morning trade before lifting by 8c to $2.41.

UBS analysts noted Mirvac had lowered fiscal 2023 earnings per share guidance by about 5 per cent, driven by lower residential settlements as a result of adverse weather.

They said most profit reduction was likely due to higher value unit settlements at the project at Willoughby on the old Channel 9 studios in Sydney shifting into next financial year. UBS called residential sales for the quarter of 288 underwhelming.

“This reflects the incoming CEO’s first update to the market and investors are likely to take some comfort from a relatively moderate revision to guidance, with missed settlements moving into early fiscal 2024,” UBS said.

The analysts said that despite a lower quality result this financial year, investors would prefer to see expectations rebased early in the new CEO’s tenure. They expect Mirvac will have strong apartment launches next financial year while smaller developers face funding challenges.

JPMorgan analysts expect that forecasts will be cut as the market wasn’t expecting the industrial development profit to be deferred and also noted early move by the new chief.

“The new CEO Campbell Hanan has re-set the bar lower in his first update – he is not the first CEO to do this. Operationally the business appears in good shape and Mirvac has made good progress on its capital planned capital initiatives,“ they said.