Mix shift lowers earnings guidance
RESULTS
Need To Know
- FY23 result in-line with April’s lowered guidance for both earnings and distribution.
- FY24 earnings guidance lowered 3% on resi mix shift from home to apartments. DPU 10.5cps in-line with consensus
- Office market conditions remain soft, industrial strong and residential sales have improved from 3Q trough.
Investment Implications
FY23 EPS 14.7cps in line with consensus and April’s guidance of “at least 14.7cps”.
Preannounced distribution of 10.5cps, was in line with consensus.
Asset values. Cap rates across the portfolio +29bps, resulting in NTA declining 5% to $2.64. Cap rate decline was relatively even across office, retail and industrial.
Balance sheet: gearing up 25.9% (target range 20-30%) vs 21.3% pcp, debt costs 60% hedged for FY24, with debt costs 5.4% Jun 23 vs 3.9% pcp.
Residential: Strong margin performance 26% vs medium-term guidance of 18-22%. Settlements 2,298 vs 2,200 April downgraded guidance (prior was 2,500). Pre-sales $1.8bn flat on 3Q. Forward leads in line with the 10-year average. Default rates remain historically low 0.1% Apartment sales have improved – a function of product release, higher interest rates, and Covid-19 impacts fading.
Guidance: FY24 earnings guidance 14.0-14.3cps vs 14.6cps consensus, which implies a 3-4% downgrade. Mix shift with the residential business – more apartments less houses the primary cause – results in lower margins. DPU guidance of 10.5cps line with consensus
Implications: we see the actual result being in line with expectations, so the focus is on the ability to deliver guidance for FY24E. New CEO Campbell Hanan (Mar 2023), needs to execute on new development releases in commercial and new apartment releases which are expected to ramp up over 2024. We see the Hold rating as being appropriate, until we can see more evidence of earnings improvement.
Stock Overview
Share Price
Company Overview
MGR is an Australian real estate company involved in investment, development, and property management. It manages assets in the office, industrial, retail, and residential sectors.
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