The road to growth has been a tortuous one for property group Mirvac (MGR).
Management upheaval, a shareholder revolt last year that has seen the chairman capitulate this week and announce his retirement along with a complete overhaul of its property portfolio in recent years should have left the company with a foundation for future prosperity.
But the outlook contained in this morning’s earnings results – which slightly beat expectations and should be well received – certainly isn’t brimming with confidence when it comes to Australian Real Estate Investment Trusts.
As a defensive sector, AREITs have been in hot demand for the past 18 months. But serious concerns about the state of the underlying market that have been rippling through investment circles for months were confirmed in Mirvac's results presentation.
The office market, in particular, is suffering from a drop in white collar jobs with national vacancy rates approaching 11%, rent growth retreating and incentives growing with no sign of improvement in the immediate future (see David Gilmour's AREITs find favour – but what about those vacancies rates?).
Retail, meanwhile, continues to be constrained as discretionary spending remains subdued. When it comes to industrial, the strong currency that has cruelled the fortunes of Australian manufacturing and diminished activity in the non-resources states has been offset only by a shortage of investment in new developments.
The residential outlook, with increased affordability, a tight rental market and the recent price improvement, particularly in NSW, was one of the few bright spots.
Mirvac maintains that its portfolio is relatively immune from the pressures facing the sector, particularly in its office and retail assets, with long leasing arrangements and strong occupancy.
And with a dividend of 5.3%, investors are likely to stick with the company. Statutory earnings were down 66.4% at $139.9 million but on an operating basis, earnings per share lifted from last year and came in at slightly above expectations at 10.9c with a full year dividend of 8.7c.
Mirvac compared to the S&P/ASX 200 Real Estate Index over the past year (Source: Bloomberg)