The Mirvac Group (ASX: MGR) share price could be trading cheaply right now, in my opinion.
Shares in the Aussie real estate investment trust (REIT) are down 32.3% in 2020, compared to an 11.2% loss for the S&P/ASX 200 Index (ASX: XJO).
So, let's take a closer look at what's driving the real estate share lower and why it could potentially be in the buy zone this year.
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Why the Mirvac share price is a potential buy
Almost all the Aussie REITs have been hammered lower this year, but Mirvac is looking like a decent relative value buy.
With a price-to-earnings (P/E) ratio of 8.4, the Mirvac share price is looking cheap compared to its sector peers. Rivals Scentre Group (ASX: SCG) and Stockland Corporation Ltd (ASX: SGP) trade at P/E ratios of 9.7 and 15.0, respectively.
There's also the question of its market capitalisation versus its book value. Mirvac's website claims the group manages $18 billion of real estate assets. However, the company's market capitalisation is just $8.5 billion. That could mean the Aussie REIT is a strong buy given its extensive asset base in 2020.
To be fair, those asset values are probably heading lower thanks to the coronavirus pandemic and subsequent restrictions. However, that would have to be a significant (more than 50%) haircut to get back to $8.5 billion.
What is driving the Mirvac share price lower this year?
Unlike some REITs that have a specific niche, Mirvac is quite a diverse real estate investment group.
The group has built an impressive portfolio comprising its residential, office and industrial, retail and built to rent segments. According to Mirvac's 1H20 Fact Sheet from 6 February 2020, its office ($7.1 billion) and retail ($3.5 billion) segments dominate the portfolio.
The group's residential pipeline is strong, with 27,551 lots amounting to $13.9 billion worth of projects.
Clearly, office and retail real estate is not in high demand right now. Many Aussies are working from home and/or restricted from shopping, let alone in large numbers.
The Mirvac share price has been hammered in 2020 as investors have been spooked into selling. Mirvac did report a strong 99.1% occupancy in its February half-year results. While that's likely to have materially changed thanks to the pandemic, I think it shows that Mirvac is a high-quality real estate manager.
There are certainly big headwinds facing both office and retail real estate right now. Lower foot traffic (retail) and more remote working (office) looks likely to slash demand from tenants in the coming years. However, Mirvac did report a 5.9-year weighted average lease expiry (WALE) in February. The long-term nature of those leases could mean the REIT's earnings withstand the short-term impacts from the pandemic.
Are there other ASX REITs to buy?
While the Mirvac share price has fallen lower this year, there is still a lot of uncertainty ahead. It's true that Mirvac and its peers like Scentre and Stockland are heavily invested in office and retail real estate. Most investors aren't bullish on the sector right now but I do think it's worth a look given the recent sell-off.
For another ASX REIT in a more in-demand sector, I'd check out National Storage REIT (ASX: NSR) in 2020.
