Big write-downs lead to 69% profit slump for Mirvac

Property group Mirvac’s first half profit has dropped 69% with massive write-downs on its development projects.

Mirvac made a net profit of $55.2 million in the six months to December 31, down from $176.6 million in the previous corresponding period.

“The outlook for capital city residential markets remains mixed by location. However, underlying factors underpinning the residential property market continued to improve through 2012,” chief executive Susan Lloyd-Hurwitz advised.

“Lower borrowing rates, rising household incomes and weak property prices contributed to an advance in housing affordability, while population growth also picked up sharply.

“Whilst there has not been a material uplift in demand to date and purchasers maintain a cautious position, the stronger fundamentals should result in a further improvement in the residential property market, with the trend towards medium-density living continuing, particularly in the south eastern states.

“A low rental vacancy rate and strong rental growth are evident of strong underlying demand in NSW.

“Population growth picking up, affordability improving and state measures directed towards boosting the demand for new dwellings, suggests a further uplift in the residential housing market is likely to be forthcoming,” she said.

In Victoria, Mirvac noted the strength of the Australian dollar had continued to exert pressure on the Victorian manufacturing sector and, as a consequence, output and employment.

“Even though medium-density approvals have been growing strongly, the Victorian property market is likely to underperform the other main states, particularly in some segments characterised by oversupply,” she said.

In the Queensland property market, while it had been adversely impacted by a number of one-off factors, Mirvac noted growing signs the influences which underpin the market are becoming increasingly more tangible.

“This points to a medium-term improvement in the property market, although state government spending and employment measures will continue to dilute the recovery in the short term,” she said.

The sharp uplift in population growth had meant the WA property market has experienced an improvement in dwelling volumes and firmer pricing in low to mid price points.

“Short-term prospects for the property market are expected to remain favourable as the increased demand in absorbed,” she said.

Longer term prospects in WA will remain dependant on the extent and duration of the resources cycle, Lloyd-Hurwitz added.

With its investment property occupancy remaining high at 98.2%, there was a 1.1% increase in its total investment property revaluations.

The group completed 193 leasing deals over 85,632 square metres of net lettable area, representing 6.4% of the investment portfolio.

It also has progressed on with its commercial developments including Treasury Building in Perth WA where works commenced on the 30,000 square metre office tower, that will house the WA government, which has pre-committed to a 25-year lease across the whole tower.

The company last week announced it would write down the value of developments in Queensland and Western Australia by $273 million.

Lloyd-Hurwitz said Mirvac’s underlying performance was in line with expectations, and the company was on track to deliver its previously forecast full year operating earnings of about 10.7 cents per security.

Mirvac told investors the volatility created by the European debt crisis and US budgetary issues dominated international capital markets for the six months to 31 December 2012, resulting in funding costs remaining elevated.

“There will be limited impact of these events on the group’s borrowing costs for the next six to 12 months, allowing time for conditions to stabilise before any refinancing is required.

“The group remains focused on managing its capital position prudently by monitoring and accessing diversified sources of capital, including both domestic and international markets,” the report said.

This article first appeared on Property Observer.