Mirvac flags virus concern as net profit slips

Major developer Mirvac has warned the spreading coronavirus will impact the local property market.

Mirvac CEO Susan Lloyd-Hurwitz. Picture: Britta Campion

Property developer Mirvac has warned the new coronavirus will have an impact on the local residential property market but chief executive Susan Lloyd-Hurwitz says it is too early to predict the scale.

She said the combination of two natural phenomena — the spread of the coronavirus from China and the disastrous bushfire season — would hit consumer sentiment.

“I would be stunned if there was no impact on consumer confidence following both major events,” Ms Lloyd-Hurwitz said.

“But it’s way too early to quantify that or say what that will be or how long it goes for because there’s just simply unknowns at this point.”

Ms Lloyd-Hurwitz specifically called out the rising importance of global warming as Mirvac delivered a healthy first-half result.

It said it was stocking up its residential pipeline as the housing market recovers. The extended bushfire season triggered billions of dollars in property losses. Although listed real estate trusts were not immediately affected, top operators have been positioning their property portfolios for the impact of rising temperatures.

“This summer, the catastrophic bushfire season has demonstrated the impact of global warming.

Looking forward, we expect climate-related challenges to increase in both their frequency and intensity,” Ms Lloyd-Hurwitz said.

However, Mirvac noted the fire situation would have no impact on the development side of the business, with no greenfield sites within its portfolio or prospective purchase locations affected. Mirvac’s first-half statutory net profit slipped 5 per cent to $613m as a result of the company having higher net valuation gains on investment properties in the same period a year ago.

Mirvac Group closed down 11 cents at $3.33

Revenue for the six months to December 31 increased 4 per cent to $1.62bn, driven by an increase in residential settlements during the period.

Investors had hoped for a stronger performance from the housing business and the shares were sold off by 11c to close at $3.33.

The residential property market reached the bottom of the downturn in June last year.

Prices have since climbed at their fastest rate ever, up almost 10 per cent in Sydney and Melbourne in the last six months of 2019, with renewed confidence after several Reserve Bank interest rate cuts and more relaxed lending standards kept the market buoyant.

Mirvac reaffirmed its operating earnings per security guidance for fiscal 2020 of between 17.6c and 17.8c per security, showing growth of 3-4 per cent, and distribution guidance of 12.2c per security, amounting to 5 per cent growth.

Overall, it now has an office and industrial development pipeline of $8.5bn and is also forging into build-to-rent, while also restocking its residential development pipeline to positively position it for the next eight years.

Mirvac is set to release its first offering of build-to-rent to the market in September. The Sydney Olympic Park development, in the city’s west, is set to bring 5000 units to the rental market.

Ms Lloyd-Hurwitz believes Australians will embrace the new asset class.

“There will be no challenge convincing Australians this is a viable model. People are crying out for secure rental accommodation that they can call home and bring a pet,” Ms Lloyd-Hurwitz said.

“Our initial teaser campaign … exceeded our expectations in terms of lead generation. Australians won’t need much persuading.”

On the residential front the company has locked in 88 per cent of its expected residential earnings before interest and tax for this financial year.

Mirvac had 1232 residential lot settlements, with defaults remaining below 2 per cent, putting it on track to meet the group’s target of more than 2500 residential lot settlements in fiscal 2020.

It remains on track to release about 1000 lots in the second half of the financial year, in response to improving sales conditions in many markets.

Mirvac has stepped up its workbook and won the tender for the $800m mixed-use development at Waterloo Metro Quarter, Sydney, in partnership with John Holland, has proposed a $1bn redevelopment of Harbourside Shopping Centre and is close to buying the Channel 9 headquarters at Willoughby.

UBS analysts said Mirvac’s build-to-rent pipeline was a longer-term driver for the stock.