Mirvac profit falls but it keeps lid on defaults

Developer Mirvac’s profit is down but home sales have held up and defaults kept in check in property’s downturn.

Mirvac says the property market has been “challenging”. Picture: Richard Walker

Mirvac Group said its annual net profit fell by 6 per cent, but residential sales held up and defaults were contained amid tough conditions for Australian property developers.

The Sydney-based company, which also owns shopping malls and develops residential communities, reported a net profit of $1.02 billion for the 12 months through June, down from $1.09 billion a year earlier.

Its operating earnings per share were 17.1 cents, in line with tightened guidance provided in May and extending its record of beating the midpoint of its initial annual profit guidance each year since the 2012 fiscal year.

Mirvac said it sold 2611 residential lots during the fiscal year, slightly above recent guidance. Defaults were below 2 per cent and residential pre-sales totalled $1.7 billion at the end of June.

Mirvac’s share price has been one of the best performers on the ASX 200 even as house prices have fallen and shopping centres grapple with competition from online retailers.

The stock has risen around 50 per cent since a low in November, as investors noted Mirvac’s resilience to the downturn and began to bet on house prices and consumer spending each reaching a trough.

Interest rate cuts in June and July have boosted confidence that Australia’s housing sector is turning a corner, while the Coalition’s reelection in May removed risks that housing demand could be dented by an overhaul of negative-gearing allowances.

Australia’s prudential regulator has also lifted some restrictions on the serviceability of home loans, bolstering positive sentiment further.

“Despite a challenging market, we have seen sustained sales throughout the financial year, and we achieved our settlement target and maintained our default rate at less than 2 per cent. This is testament to the enduring quality of our products and our trusted brand,” chief executive Susan Lloyd-Hurwitz said.

Mirvac’s share price strength recently an opportunity for the company to strengthen its balance sheet via a $750 million institutional placement in late May and a $75 million security purchase plan. Mirvac said the additional capital was needed to pay down debt and support the next wave of developments, including offices and industrial units.

At the time of the capital raising, Mirvac said its pipeline of commercial developments had an estimated end value of more than $4 billion and management was also weighing transactions for properties in Sydney and Melbourne with an estimated end value of more than $2 billion.

Mirvac reaffirmed expectations for 3-4 per cent growth in annual earnings per share to between 17.6 cents a share and 17.8 cents in the 2020 fiscal year, and a 5 per cent increase in its distribution to 12.2 cents a share. That guidance assumes the company retains a stake in Tucker Box Hotel Trust after talks over its sale collapsed in June.

Dow Jones Newswires