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Mirvac share price on watch as profit slumps 45%

Real Estate Investment Trust

The Mirvac Group (ASX: MGR) share price is one to watch this morning after the real estate investment trust (REIT) reported a 45% drop in net profit after tax (NPAT).

What could move the Mirvac share price?

For the year ended 30 June 2020 (FY20), Mirvac reported a 17% slump in revenue to $2,312 million. 

Operating earnings before interest and tax (EBIT) fell 6% to $796 million as the coronavirus pandemic impacted the result.

That included an $86 million net impact on earnings in the form of provisions and project write-offs. The Aussie REIT reported a further $32 million from delays in development and settlements.

NPAT fell 45% to $558 million, down from $1,019 million the year prior thanks to the pandemic and valuation changes.

That saw basic and diluted earnings per share (EPS) fall to 14.2 cents – down from 27.6 cents in FY19. The group’s full-year distributions fell 19% to $357 million or 9.1 cents per security.

The Mirvac share price will be one to watch as investors process the latest full-year result.

Net tangible asset (NTA) backing per security edged 1.6% higher to $2.54 per share during the year.

On the capital management side, Mirvac reduced its average borrowing costs to 4.0%, down from 4.8% in FY19.

Mirvac’s 22.8% gearing ratio fell within its target range while liquidity increased to over $1.4 billion in cash and undrawn bank facilities.

Segment performance

Mirvac has four main business units: Office, Industrial, Retail and Residential. The Mirvac share price could be volatile in early trade given the mixed performances across the portfolios.

Occupancy rates remained high in the Office portfolio at 98.3% with a weighted average lease expiry (WALE) of 6.4 years.

Net operating income (NOI) totalled $348 million with like-for-like growth of 3.8%. Total office asset revaluations provided a 4.0% ($282 million) uplift with assets under management (AUM) increasing to $17 billion.

The Industrial portfolio reported a 99.4% occupancy rate with a WALE of 7.4 years. The group’s $1.2 billion future development pipeline in Sydney continued to progress with 43,000 square metres of leasing activity in FY20.

Retail occupancy was 98.3% with 92% of gross lettable area (GLA) open and trading as at 30 June. However, moving annual turnover (MAT) fell 4.1% with NOI falling 19% or $33 million due to COVID-19 support.

Mirvac’s Residential operating EBIT climbed 12% to $225 million with 2,563 residential lots settled, including a record number of apartments.

FY21 outlook

The Mirvac share price could be on the move in early trade but management was unable to provide guidance given the current uncertainty.

The REIT will target a distribution payout ratio of 65-75% of operating earnings in line with its policy of up to 80% payout.

Prior to the market open, the Mirvac share price was down 35.7% for the year compared to a 7.8% decline in the S&P/ASX 200 Index (ASX: XJO).

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Motley Fool contributor Ken Hall 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.

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