Strong residential buoys Mirvac
Mirvac directors believe this calendar year will represent a trough in the present office market cycle, while demand for residential developments will remain high as low interest rates entice first home buyers.
In its September quarter investor update, the diversified trust reaffirmed the 2014 financial year operating earnings per security guidance range of 11.7¢ to 12¢ a security and a distribution range of 8.8¢ to 9¢ a security.
Mirvac chief executive and managing director Susan Lloyd-Hurwitz said the group had made progress on several key objectives during the quarter and continued to execute its strategy to deliver stable income and focused growth.
She said the group’s office development was on track through the demolition of 200 George Street, Sydney and a start to construction of 699 Bourke Street, Melbourne. The new assets augur well for attracting new leasing deals.
The environment for retailers remains challenging but the rise in residential house prices and low interest rates have improved consumer sentiment. ‘‘I am pleased to announce that we remain on track to deliver our target of a 10 per cent return on invested capital for the development division in 2014,” Ms Lloyd-Hurwitz said.
“While we are finally starting to see housing volumes and pricing improve, albeit off a low base, we believe that in order to best take advantage of the residential markets it’s all about having the right product, price point and location.’’
Ms Lloyd-Hurwitz told analysts the group was ‘‘finally’’ starting to see the traditional relationship between interest rates and housing activities hold true. ‘‘We expect this improvement to continue into 2014, driven primarily by NSW and Victoria, where Mirvac’s portfolio is well positioned,’’ she said.
‘‘We are actively looking for both opportunities in the residential space and the commercial space for development opportunities and indeed also in the industrial sector.’’
Mirvac chief executive of development and group strategy Brett Draffen said the rise in residential was driven by strong sales demand, with ‘‘some ability to move prices on a like-for-like basis in the master-planned communities. Our first time buyer percentage, particularly in the master planned communities ... is in a bandwidth of high 20s per cent through to 30 per cent.’’
Brokers said the residential contracts on hand increased by about $150 million to $1.1 billion. ‘‘Whilst residential market momentum is clearly helping, there are two main problems facing Mirvac in 2015 financial year – being there will be a profit in 2014 from the Era apartments in Chatswood of $90 million [but not in 2015], which is a big hole to fill, and the Mirvac property trust remains overweight in office and Mirvac noted the market remains challenging,’’ Ben Rundle of Moelis & Co said.