Company Reports

Mirvac trades as a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are relatively stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but volatile. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some passive real estate investment trusts, because of the development business within the Mirvac corporation.

No-moat Mirvac posted first-half fiscal 2024 operating earnings per security of AUD 6.4 cents and a distribution of AUD 4.5 cps. Management reaffirmed full-year guidance for OEPS of AUD 14.0-AUD 14.3 cents per security and distributions totaling AUD 10.5 cps. Our forecasts remain in line with guidance with OEPS of AUD 14.2 cps and DPS of AUD 10.5 cps. We reaffirm our fair value estimate of AUD 3.10, and Mirvac securities screen as significantly undervalued.

The federal government’s migration review was released on Dec. 11 and it suggests high population growth remains the status quo. The review tinkers with various visa rules, but contains no major reduction in migrant numbers, suggesting high migration will persist, relative to precoronavirus levels and versus other developed countries.

Mirvac trades as a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are relatively stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but more cyclical. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some passive real estate investment trusts, because of the development business within the Mirvac corporation.

We maintain our AUD 3.10 fair value estimate for no-moat Mirvac Group, as we update our earnings forecasts following fiscal 2023 results. Mirvac securities screen as substantially undervalued despite improving since October 2022. We assume fiscal 2024 operating earnings of AUD 14.1 cents per security, in line with management guidance of AUD 14.0-AUD 14.3 cps, below our prior AUD 15.5 cps estimate. We assume distributions equal guidance of AUD 10.5 cps, below our prior AUD 10.7 cps estimate.

Mirvac trades as a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are relatively stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but more cyclical. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some passive real estate investment trusts, because of the development business within the Mirvac corporation.

With no-moat Mirvac Group’s fiscal 2023 result, we don’t expect to materially change our AUD 3.10 fair value estimate. We’ll update our forecasts shortly after incorporating the group’s updated reporting structure.

As we’d anticipated, Mirvac’s fiscal 2021 settlement volume is benefitting from the Australian government’s decision to extend its generous Homebuilder scheme, which has delivered an unprecedented level of fiscal support to the residential construction sector. The government extended the scheme by three months to the end of March and increased the time frame to commence construction after the contract date from 6 months to 18 months. We maintain our estimate of 2,260 residential settlements in the fiscal year, which is consistent with Mirvac’s recent comment that it expects to comfortably exceed its existing guidance of 2,200 residential lot settlements.

Mirvac securities take the form of a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of the group’s earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are usually stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but is also more cyclical. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some pure passive real estate investment trusts, though, because of the development business within the Mirvac corporation.

We see risks to Australian office demand as widely overestimated, despite our expectation that work-from-home will endure post-pandemic. Several REITs remain modestly undervalued, particularly those focused on prime grade offices, with long leases, and solid balance sheets. We raise our fair value estimates for three particularly high-quality office-heavy REITs: Dexus, GPT, and Mirvac.

No-moat Mirvac Group provided no guidance at its annual results in August 2020, due to the uncertainties arising from the coronavirus. By the time of its half-year results on Feb 12. the situation stabilised enough to provide guidance on some key metrics, with management signalling it anticipates distributions of 9.6 cents to 9.8 cents per security, or cps; earnings of 13.1 cps to 13.5 cps; and residential settlements of at least 2,200 lots.

Mirvac securities take the form of a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of the group’s earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are usually stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but is also more cyclical. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some pure passive real estate investment trusts, though, because of the development business within the Mirvac corporation.

Mirvac securities take the form of a stapled security, comprising one share in the corporation and one unit in Mirvac Property Trust. About 80% of the group’s earnings come from a passive commercial property portfolio housed within Mirvac Property Trust. Earnings from the rent-collecting business are usually stable and predictable, while most of the remainder comes from a residential development business that can be lucrative but is also more cyclical. Mirvac’s REIT status results in low company tax because trusts pass income and tax liabilities through to the end investor. Mirvac pays slightly more tax than some pure passive real estate investment trusts, though, because of the development business within the Mirvac corporation.

We place our fair value estimates for no-moat Mirvac and narrow-moat Stockland under review, pending transition to a new analyst, and a review of our forecasts. The coronavirus creates a high degree of uncertainty for these two firms, in particular for residential sales volumes and margins, as well as for the group’s commercial property portfolios.

As part of its third quarter update Mirvac Group reiterated guidance for fiscal 2019 earnings per security, or EPS, of AUD 16.9 to 17.1 cents, up 3% to 4%. This solid growth is underpinned by standout performance of the office portfolio where headline rents (excluding payments for tenant incentives) for newly negotiated leases increased 14.3% on prior rents. Strong outcomes from lease renewals looks set to continue for a further two years, at which point new supply will enter the Sydney market, relieving an acute undersupply. For 2022, we forecast falls of about 10% in Sydney office effective rents (net of tenant incentives), and large falls of about 20% in Melbourne effective rents. The declines in Melbourne are expected to be significantly larger reflecting the large number of new offices scheduled to be delivered in Melbourne’s CBD and city fringe locations.

Mirvac Group’s reported first-half fiscal 2019 operational earnings of AUD 290 million or AUD 7.85 cents per security were up 27% on the previous corresponding period, or pcp, nearly entirely attributable to an AUD 87 million lift in pretax development earnings. Guided growth in fiscal 2019 earnings per share tightened slightly to 3%-4% growth from 2%-4% previously. The major business activities of office ownership and development are performing better than expected. Office rents have continued their upward trajectory, supported by acute supply shortage in both Sydney and Melbourne.

Mirvac Group’s operational update for first-quarter fiscal 2019 highlighted moderation in retail sales for the year to June 2018 is continuing, but not at a rate that causes alarm. Retail sales are growing at 3% as compared with 4% a year ago. This level of growth is still above that of most listed peers, the difference accounted for in Mirvac’s focus on the economically strong Sydney market.

Mirvac Group's fiscal 2018 operating profit of AUD 15.6 cents per security, or cps, was up 8% on the prior year and at the top end of the guidance range of AUD 15.3 and 15.6 cps. Earnings going forward will be reported on a funds from operations, or FFO, basis. Guidance is for fiscal 2019 FFO growth of 2% to 4%, implying FFO of AUD 16.7 to 17.1 cps and distributions of AUD 11.6 cps, up 5% on fiscal 2018. We forecast FFO of AUD 16.7 cps, at the bottom of the guidance range. Following upgraded rental growth expectations for the Sydney and Melbourne office assets, our fair value estimate increases to AUD 2.20 from AUD 2.15, with no-moat-rated Mirvac slightly overvalued, currently trading at AUD 2.35.

Mirvac Group has painted a picture of business-as-usual at its operational update for third-quarter fiscal 2018, reaffirming guidance for earnings of AUD 15.3 to 15.6 cents per security, or cps, and distributions of AUD 11 cps. Our earnings outlook is unchanged for no-moat-rated Mirvac, with the firm screening as fairly valued at current levels. While rents, particularly for office, look set to trend higher over the coming few years, the share price upside will be tempered by raised market expectations for long-term interest rates, which will weigh on asset values.

Mirvac Group’s first-half fiscal 2018 operating earnings were AUD 5.8 cents per security, with second-half earnings forecast to be up materially to AUD 9.7 CPS, given 80%-90% of the 3,400 expected annual residential settlements are slated to occur in the second half. Our fiscal 2018 distribution and earnings forecast of AUD 15.5 CPS remains consistent with the reiterated earnings guidance of AUD 15.3-AUD 15.6 CPS and distributions of AUD 11 CPS. Our fair value estimate is unchanged at AUD 2.15 for no-moat-rated Mirvac, with the stock broadly fairly valued at current levels.