The year 2023-24 is turning out to be quite challenging for property developer and investor Mirvac (ASX:MGR), as the company faced a loss for the period ending on June 30. The impact of rising interest rates, decreased consumer spending, and a general economic slowdown has hit property companies hard.
Mirvac isn't the only one facing difficulties. Dexus (ASX:DXS), a major property investor and fund manager, is also looking at a similar outlook with predictions of lower returns for its investors.
Dexus experienced a significant downturn in its financial results for 2023. The company reported a loss of $752 million, largely attributed to property devaluations and other losses, after having posted a $1.6 billion profit in 2022, primarily boosted by property revaluations.
On the other hand, Mirvac announced on Wednesday through the ASX that its earnings are expected to decline even further in 2024. This comes after revealing a net loss of $145 million for the 2023-24 period, following a statutory loss of $165 million triggered by $528 million in property devaluation losses.
This year-over-year loss is quite dramatic, as it marks a $1 billion turnaround from the $906 million reported for 2021-22, which was largely influenced by property revaluations.
Mirvac disclosed that its EBIT (Earnings Before Interest and Taxes) fell by 1% to $767 million, just slightly below the forecasted $774 million.
Looking forward, the company anticipates that its operating earnings per security will decrease to a range between 14 cents and 14.3 cents in 2024. This follows a 3% dip to 14.7 cents per security for the period ending June 30, down from the 15.1 cents recorded in 2021-22.
Unsurprisingly, Mirvac's relatively new CEO, Campbell Hanan, referred to the current economic circumstances as a "challenging economic backdrop."
Hanan stated, "We also slightly exceeded our revised residential lot settlement guidance and maintained positive sales momentum, especially in our apartment projects as they near completion in the medium term."
Despite the financial challenges, Mirvac managed to increase its full-year distribution by 3% to 10.5 cents per security, a figure that matches the forecast for 2023-24.
In response to the ongoing difficulties, the company is making strategic shifts in its business operations. It aims to reduce its exposure to office properties due to the prevailing work-from-home trend. Instead, Mirvac plans to increase its involvement in the industrial and residential sectors over the short-to-medium term, while still maintaining a moderate level of office exposure.
"Our strategy involves divesting non-core assets to optimize capital allocation across our portfolio, while concentrating on unlocking substantial value from our development pipeline over the coming years," the CEO announced on Wednesday.
