You couldn’t tell we were in the midst of a property slump by looking at the Mirvac Group (ASX: MRG) share price.
The MGR share price jumped 2.4% to a more than one-year high of $2.52 in morning trade after management posted a 26% increase in after-tax operating profit to $290 million and a 6% improvement in net tangible asset (NTA) to $2.44 per security.
The property group also increased its interim dividend to 5.3 cents per share from 5 cents a share.
Other property stocks exposed to the residential market also gained ground in sympathy with the Stockland Corporation Ltd (ASX: SGP) share price inching up 0.3% to $3.86 and Lendlease Group (ASX: LLC) adding 1.5% to $12.74 at the time of writing when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is 0.9% higher.
Good result despite rising risks
While the residential slowdown is putting pressure on the business, management reassured investors by stating that 83% of the division’s earnings before interest and tax (EBIT) for FY19 has already been locked in and that default rates remain at historical lows of 2%.
That stands in contrast to anecdotal evidence that defaults are rising as several buyers who’ve put deposits down for housing lots are unable to secure bank financing (click here to read more about this).
However, robust growth in its office and industrial property business have contributed strongly to the company’s good results.
Strength in diversification
The EBIT from its office portfolio surged over 40% to $265 million as strong demand for office space in Melbourne and Sydney bolstered the business and prompted a 4.7% uplift in the valuation of its office property assets.
“The industrial sector in Sydney is benefiting from the significant growth of e-commerce, with strong levels of occupier demand relative to supply resulting in low levels of vacancy and upward pressure on rental rates,” said Mirvac’s chief executive Susan Lloyd-Hurwitz.
“The 100% weighting of our Industrial portfolio to Sydney means it is well-placed to take advantage of the high demand from both retail and wholesale tenants, as well as the capitalisation rate compression we are seeing in the sector.”
This is undoubted a credible result given the headwinds in the sector, but I would be reluctant to buy the stock as I think sales of housing lots and apartments will get worse before it gets better.
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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.