Mirvac sales rates slow as focus switches to funds play

Momentum in Mirvac’s luxury apartment unit has slowed, even as it is launching new projects.

Mirvac boss Susan Lloyd-Hurwitz said the group’s diversified model delivered strong results over the last quarter, despite headwinds from the ongoing impacts of Covid-19 and wet weather. Picture: Jane Dempster/The Australian

Property developer Mirvac has flagged it faced challenges from Covid-19, extreme weather and geopolitical instability as it revealed that residential sales had slowed but said it was sticking to its earnings guidance.

Momentum in the company’s luxury apartment unit has slowed, even as it is launching new projects, and investors are now focused on its play for the management of the near $8bn AMP Capital Wholesale Office Fund.

Mirvac reaffirmed its operating earnings per security guidance of at least 15c a security for fiscal 2022, representing an increase in earnings of at least 7.1 per cent.

It is sticking to distribution guidance of 10.2c a security, representing growth of 3 per cent and it expects residential lot settlements of more than 2,500.

Mirvac has hit 2,332 residential sales this financial year, with pre-sales increasing to about $1.6bn. It has settled 1,645 residential lots so far this financial year and expects to deliver more than 2,500 lot settlements in the full year.

The commercial division is bouncing back and completed 247 leasing deals across about 75,600sq m in the period and cash collection improved to about 94 per cent, as some properties were impacted by lockdowns in Sydney and Melbourne, with issues concentrated in retail.

Mirvac chief executive Susan Lloyd-Hurwitz said the company’s diversified model delivered strong results over the last quarter despite headwinds from the ongoing impacts of Covid-19 and wet weather across the east coast.

The group had solid sales activity across its residential estates business, and made further progress across its commercial and mixed use developments, and is seeing a pick up in the recovery in operating conditions as markets re-open.

“Cash collections continue to improve, and we expect this to gather pace in the fourth quarter, buoyed by the reopening of domestic and international borders,” Ms Lloyd-Hurwitz said.

Mirvac is trying to mitigate the crunch from price jump on key building materials. “We have managed construction delays and supply chain risks, with trade costs associated with 100 per cent of development projects for fiscal 2022 and 75 per cent for fiscal 2023 are already locked in,” Ms Lloyd-Hurwitz said.

The company progressed its $29bn development pipeline, with further leasing at 80 Ann Street in Brisbane, commencement of its $277m industrial development at Switchyard, Auburn, and leasing at Aspect Kemps Creek.

Its ability to launch new office projects, including 55 Pitt Street in Sydney, are part of its pitch to investors on the local Collimate Capital platform, which has been sold to Dexus.

On the developments front, Mirvac has now issued vacant possession notices at Sydney’s Harbourside shopping centre paving the way for commencement, potentially in 2023.

Mirvac will hold a development update on Friday and analysts are looking for more information around timing of Harbourside and 55 Pitt St, construction cost escalation, and potential for profits on industrial projects.

On the residential side Mirvac released 2,321 lots this financial year, with strong sales momentum in its land estates resulting in 74 per cent of released lots sold.

The company released the highest level of apartments since 2017, with the launch of The Langlee Waverley and Montage and Overture at NINE Willoughby, both in Sydney, and Charlton House, Ascot Green, Brisbane.

The company also won development approval for Isle, the next premium apartment building at Waterfront Newstead Brisbane.

Mirvac’s head of residential, Stuart Penklis, said there was solid sales in the quarter with estates in Victoria going particularly well.

“We have seen a normalisation of apartment sales volumes over the quarter, and we remain confident on the sales outlook for these apartment developments with tight residential vacancy, compelling relative affordability and upcoming supply shortage,” he said.

Residential rental vacancy fell to less than 2.3 per cent across east coast major cities and Mirvac says it is likely to remain low with fiscal 2023/24 east coast apartment supply expected to be 45 per cent lower than 2018.

Morgan Stanley analyst Lauren Berry said that residential sales have “somewhat slowed” to 518 lots against about 900 a quarter in the first half as apartment momentum has softened.

Ms Berry expects earnings guidance will be achieved via stronger rent collections in retail, which is running at about 87 per cent against 78 per cent in the first half.

Mirvac’s shopping centre in flood ravaged Toombul in Brisbane remains offline. However, there is no impact to earnings this financial year, which is covered by insurance, and options for the next financial year and beyond are still being assessed, with a new build on the cards.

Mirvac shares closed up 1c, or 0.4 per cent at $2.39.