Mirvac to focus on build-to-rent as pandemic hits the profit line

Mirvac chief executive Susan Lloyd-Hurwitz said despite the pandemic, the group delivered solid results for the half year including an operating profit of $276 million, an increase of 10 per cent from second half of the 2020 year to June 30.

As a result, Mirvac has initiated guidance for the full 2021 year, with operating earnings per share guidance of between 13.1¢ to 13.5¢ per stapled security and distribution guidance of 9.6¢ to 9.8¢ for the year ending June 2021.

“The pandemic continued to disrupt our operating markets during 1H21 and the world remains in crisis. Mirvac’s ability to maintain productivity and respond quickly to our customers’ changing needs has underpinned our recovery and safeguarded our business from the worst of the pandemic,” Ms Lloyd-Hurwitz said.

In the coming year it will be the growth of the build-to-rent sector that will be the focus. The sector, where developers of the buildings retain ownership and act as the landlord to renters, is in its infancy in Australia.

“The emergence of the build-to-rent sector is gathering pace in Australia. LIV Indigo, Mirvac’s first build-to-rent property, is now 48 per cent leased and we are gaining valuable insights that will inform the rollout of our growing pipeline,” she said.

“The team further extended the build-to-rent development portfolio during the first half of 2021 financial year with the addition of LIV Newstead in Brisbane, taking the future portfolio to about 2200 units across five sites with an estimated total end value of $1.6 billion.”

The NSW government has also recognised the BTR sector by introducing changes to the planning and tax regimes.

These include specific planning rules that ‘define’ build-to-rent as purpose built housing with more than 50 dwellings that is unable to be subdivided for at least 15 years.

There will also be a specific planning pathway for large scale build-to-rent projects, valued at over $100 million, where they will be dealt with as State Significant Developments.

The NSW government will offer greater flexibility in some planning rules to ensure the special design and amenity features of overseas build-to-rent developments can be delivered such as a greater proportion of shared or communal spaces.

There will also be changes to land tax so it does not act as a disincentive to the growth of the build-to-rent sector.

The Property Council has welcomed the changes, saying they will help to implement a fit for purpose planning and tax regime to get build-to-rent housing off the ground and deliver long term benefits to the people of NSW.

“Build-to-rent delivers much needed housing supply, is good for renters, keeps jobs in construction and is also great for our economy,” NSW executive director Jane Fitzgerald said .

“Build-to-rent can offer longer term rental tenure while also providing professional lease and facility management; all of these can improve the rental experience greatly as overseas experience has shown.

Ms Fitzgerald said the changes would provide a shot in the arm for build-to-rent in NSW by providing a planning and tax framework designed specifically with the new sector in mind.

“The planning changes not only acknowledge that build-to-rent is a different housing ‘product’ to build-to-sell but also provide clear guidance to investors, developers and consent authorities,” she said.

“The tax changes will improve certainty for investors and remove disincentives that would have held the sector back.”

Richard Jones from JP Morgan said operationally the result looks solid, the balance sheet is well positioned, and valuations have so far held in.

“We expect some negative valuation pressure in retail and potentially office plus development earnings, residential and commercial, are rebasing in 2021 from a high level. Mirvac provided full year guidance of 13.1¢ to 13.5¢ per stapled security and distribution guidance of 9.6¢ to 9.8¢, this is below our 14.4¢ and 10.8¢ forecasts” he said.

In early trade, Mirvac shares are 1 per cent lower at $2.34.

More to come