Property investor Mirvac Group has confirmed that the next 18 months at least are going to be miserable for its shareholders.
The company, which revealed plans to restructure distributions and a write-down in asset values last month, yesterday confirmed those moves, and said that the 2009 financial year will be tougher than 2008 has been.
It forecast a fall of around 24% in operating earnings next year, with distributions down as well. It was a statement that made clear the company, like the rest of the geared property and infrastructure sectors, has been mugged by the reality of the credit crunch.
Debt, gearing/leverage and borrowing to pay distributions are all things of the past, when credit was cheap and the banks and other lenders were easy.
Although the news had been signalled last month, the news yesterday again shook confidence in the company.
Mirvac securities fell 12%, or 30c, to $2.15 at one stage, before recovering to around $2.31, to be down 5%.
Mirvac said it expected operating earnings of $352 million, or 33.4c per security, for the year to June, 2008, in line with revised guidance given last month of between 31.4c and 34.3c per security.
But operating earnings in the 2009 financial year are now expected to plunge to between $268 million and $292 million, or a range of 23-25c per security.
And the company announced an expected distribution of 32.9c per security for the year just ended, with that set to fall to just 20c per security in 2009.
Mirvac said it had changed its distribution policy to bring it into line with its global peers and in light of current conditions in the debt markets.
According to the statement to the ASX yesterday Mirvac reiterated that it had written down the value of its assets by about $400 million, which had been flagged in June.
The company said its board had reviewed its distribution policy in light of equity pricing that undervalues its real estate and related businesses and higher debt costs.
"It underlined the importance of maintaining a strong balance sheet in a development business that can be affected by market cycles, and maintaining the capacity to grow and be prepared for acquisition opportunities.
"It said it wanted to align with its global peer group by distributing less than 100% of operating earnings as distributions."
"Current equity pricing that significantly undervalues real estate and associated businesses, availability and cost of debt, importance of maintaining a strong balance sheet in a cyclical development business, maintaining capacity to participate in future growth and acquisition opportunities, aligning with global peer group, which distribute less than 100 per cent of operating earnings.
"[The] distribution policy reflects new operating environment," Mirvac said in statement to the ASX.
It said retained earnings will be use to maintain a strong balance sheet by repaying unhedged debt and to fund its development pipeline, "resulting in less dependence on external funding".
"Mirvac has operated through many market cycles since 1972 and its continued success is attributable to its ability to adapt to changed market conditions," it said.
"Mirvac’s policy over the medium term is to secure the business to face the current market volatility and to emerge with a more focused business model which will lead to greater earnings momentum."
The company said retained earnings will be utilised to maintain a strong balance sheet, via repayment of unhedged debt; fund quality residential and non-residential pipeline."
This should result in less dependence on external funding and potential for stronger earnings growth over time
This, the company said, would also recognise Mirvac’s development division’s cyclical earnings profile in this current environment.
And the "FY09’s distribution will be based on Mirvac Property Trust’s operating earnings".
Mirvac said the forecast FY09 earnings of 23-25c per security "does not assume profit on asset sales from Internal Funds Management (Mirvac Property Trust)".
And there are reports that Mirvac CEO, Greg Paramour won’t be at the company in 2009.
