Here’s What Mirvac’s Results Tells Us about the Property Market
The share price of diversified property developer Mirvac Group Ltd [ASX:MGR] is down 1.06% today, trading at $2.34 per share on the back of its half-year results.
Despite a steep drop in reported earnings for the first half of the current financial year, the developer’s share price appears rather resilient.
Suggesting a possible uptick in confidence within the property market.
Although their interim results also hint at a worrisome trend for Australia’s city centres.
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Mirvac announced today a 22% drop in operating profit to $276 million during H12021 compared to the previous corresponding period.
A steep decline given the developer only recorded at slight dip of 3% in total revenue.
Residential pre-sales crashed 45% to $946 million, compared to the 2020 first half.
Of the 1076 lots it settled in the first half; two thirds were on its housing estates.
Marking the company’s shifted focus on house and land sales and away from a weakened apartment market.
The pandemic also disrupted of Mirvac’s buyers’ plans, with defaults of lot sales hitting 3.5% due to market factors exacerbated by COVID-19 impact.
Although it is not all bad news, with JPMorgan analysts describing the first-half earnings as ‘good result’.
First half profits are up 10% on the second half of 2020, suggesting a recovery in underway.
Earnings were also up 8% compared to 2H20.
And operating cash flow made a strong rebound from 2H20, up 346% to $450 million.
Aussie Property Expert’s Bold Prediction for 2026. Discover More.
Despite the improvements, Mirvac gave operating EPS guidance for the full year of between 13.1 to 13.5 cents per share and dividend guidance of 9.6 to 9.8 cents per share.
An outlook that JPMorgan analysts said, ‘looks a bit soft.’
What about the broader property market?
MGR have sent mixed messages about how they feel about inner-city projects.
The company will focus more on house and land sales and less on apartments over the medium term after a year in which it settled a record 1,130 apartments.
With the pandemic clearing out much of Australia’s cities, the high-rise boom could be coming to an end.
CEO Susan Lloyd-Hurwitz last year said the company has decided on not to restock on apartment projects.
‘…about 60% of our [residential] earnings will come from master-planned communities for the next three to four years. They have been performing exceptionally strongly, particularly in Melbourne.’
Though today she stated the MGR will still invest in inner-city projects.
‘Mirvac has long believed in the power and importance of cities, and while cities will evolve as a result of the pandemic, they remain more important than ever. Our proven asset creation capability and our $28bn total development pipeline1 will enable Mirvac to continue to deliver city shaping, mixed-use precincts that cater to our customers’ changing lifestyles.’
If you’re unsure as to whether you agree with Mirvac’s outlook, learn why Australian real estate expert, Catherine Cashmore, thinks we could see the biggest property boom of our lifetimes — over the next five years. Click here to learn more.
For The Daily Reckoning Australia