Will Mirvac (ASX:MGR) be a bellwether for the property sector for the current financial year with its warning of lower earnings for 2024-25?
Judging by the 12% slide in the property group’s securities on Thursday, the market thinks so, especially as the sinking feeling about the timing of a rate cut by the Reserve Bank is pinned to 2025 rather than the end of this year.
The securities edged back cautiously into the green early Friday, but there is a lot of uneasiness about their value after the weak result and forecast for lower earnings this year.
There's a fear Mirvac’s warning could be the first of many from the property sector in the next month.
The sharp drop in the price of its securities followed news in the 2023-24 results that the company’s (statutory) net loss attributable to stapled securityholders widened 388% (or $640 million) to $805 million in the year ended June 30, from $165 million a year ago.
And Mirvac has forecast lower earnings and distributions in the 2025 financial year as higher building costs weaken margins on its residential businesses.
Revenue was $3.04 billion, up 54% from $1.97 billion in the same period last year, as it was bolstered by a series of asset sales over the year, especially in CBD office buildings and some retailing outlets.
Mirvac reported that its operating profit after tax of $552 million was only down 5% from 2022-23, while operating earnings before interest and tax (EBIT) of $860 million was up 12% from 2023’s $767 million.
But that was before asset impairments as capitalisation rates continued to move against the company (and developers generally) with the Reserve Bank keeping the cash rate at 4.35%.
The group’s full-year distribution of $414 million was equal to a DPS (distribution per share) of 10.5 cents per security, while the operating earnings per security was 14 cents per security, down 5%.
What investors didn’t like was the very weak outlook, which CEO Campbell Hanan acknowledged, saying in Thursday’s statement: “Earnings are expected to be lower next year, reflecting the impact of a lower contribution from our development business and higher net interest costs related to development activities. This includes lower margins at selected Queensland and New South Wales apartment projects, however we expect the next phase of apartment projects to return to our normal target range.”
In fact, he appeared to write off 2024-25 when he spoke about the group doing better in 2026, saying in Thursday’s release: “There is significant value to play for and multiple drivers of earnings growth in FY26 and beyond.”
And looking at the estimates for 2024-25’s earnings and distributions, you can see why the coming year will be one Mirvac will wish to forget.
Mirvac said that subject to no material change to the operating environment and the group doing what it said it would do operationally, it is looking for operating earnings per security of between 12.0 and 12.3 cents in 2024-25 (14 cents in the year to June) and a distribution of 9 cents per security (10.5 cents in the year to June).
On that basis, the group is looking at a drop in operating earnings of more than 28% (at the bottom of the range), while the 2025 distribution of 9 cents will be down 14% and the lowest level for more than three years.
