A look at two Property Stocks – MGR and LLC

  • Nov 01, 2019 AEDT
  • Team Kalkine
A look at two Property Stocks – MGR and LLC

The real estate sector has witnessed marginal decline in FY19 due to oversupply across the residential segment. The sector showed lower growth due to increase of ageing population across the country. We will be discussing two property stocks which have delivered stellar returns in the recent past. Let’s have a look on the operating performance and as well as the guidance of these two companies.

Mirvac Group (ASX: MGR)

Mirvac Group is engaged in real estate leasing and development. It also engages in third-party fund management and property management. Recently, the company informed change in director’s interest wherein one of the company’s directors named Peter Stanley Nash, who possessed 7,831 Rights to acquire Stapled Securities disposed the same at an average price consideration of $3.14 per stapled security.

Q1FY20 Operational Update for period ending 30 September 2019: MGR reported its Q1FY20 performance highlights wherein the company reported the followings:

  • During the first quarter of FY20 MGR maintained a high occupancy rate of 98.4% as compared to 98.2% in the previous quarter.
  • As per the management commentary, the business released more than 240 lots during the quarter which includes steady sales of company’s masterplanned communities. MGR reported FY20 releases which include - For Woodlea in Victoria, the company reported that it was 64 % pre-sold whereas Smith’s Lane in Victoria was reported at 51 per cent pre-sold. The company reported Crest in New South Wales at 32% presold followed by Olivine in Victoria at 27 % pre-sold. The company has managed to secure 86% of FY20 EBIT.
  • During Q1FY20 the company entered into an agreement to acquire a plot in Milperra, New South Wales having an estimated area of 18-hectares. The above plot will aid the company to develop approximately 350 homes.
  • MGR launched its Affordability Experiment in Perth, WA, which will include a family live in an energy-efficient terrace home for one year. The business is going to track the family’s utility consumption and lifestyle impacts during the trial period. The company proposes to deliver a net zero energy home which will lead to affordable everyday living to the retail clients.
  • The company, during the quarter settled 613 residential lots and is likely to register over 2,500 settlements for FY20 while the defaults are likely to be less than 2%.
  • During Q1FY20, the company recorded 2.6% comparable moving annual turnover sales growth and 2% comparable specialty sales growth.
  • The quarter was marked by comparable specialty sales productivity of more than $10,000 per square meter given the specialty occupancy costs at 15.6%.
  • MGR, during the quarter executed 99 leasing deals across around 14,000 square metres, while the company reported positive leasing spreads during the quarter.

Outlook: As per the management guidance, MGR is estimating its operating FY20EPS guidance of within 17.6 to 17.8 cents per share. The business is expecting 3-4% growth in earnings for FY20. The Management highlighted that the distribution is likely to be at 12.2 cents per share, representing a 5% growth in dividend per share.

Stock Update: The stock of MGR was trading at $3.23 (at AEST 12:53 PM), up 0.623% as on 1 November 2019. The market capitalisation of the stock stood at $12.63 billion along with the dividend yield of 3.61% on an annualised basis. The stock is available at a price to earnings (P/E) multiples of 11.63x. The stock has generated 47.93% returns during the last one year.

Lendlease Group (ASX: LLC)

Lendlease Group is engaged in development, leasing, construction and investments of property assets across Australia, Asia, Europe and USA. On 29 October 2019, LLC informed that the company has appointed Baroness Margaret Ford OBE to the management committee for the post of independent non-executive director with effective from 1 March 2020.

FY19 Financial Highlights (Source: Company’s Reports)

FY19 Financial Highlights for year ending 30 June 2019: LLC reported its FY19 full-year results wherein the company reported Profit after Tax of $467 million, a decline 41% on y-o-y basis. The company reported earnings per stapled security of 82.4 cents, a decline of 39% from FY18. The company’s non-core business reported after tax loss at $337 million against a loss of $167 million during previous financial year. Profit after Tax from its core segment stood at $804 million.

The company has developmental pipeline approaching $100 billion with a strong outlook. Funds Under Management (FUM) of showed a growth of 17% on y-o-y basis to $35.2 billion. LLC’s strategic initiatives includes three major urbanisation projects in Milan, Chicago and Sydney and preferred on two projects in London and Birmingham which was valued at c.$17.2 billion.

During the year, the company reported new asset class for Investments platform following US$1 billion for data center partnerships across Asia Pacific. During the year, the business reported Development EBITDA at $793 million, Construction EBITDA at $211 million and Investment EBITDA at $489 million. Overall EBITDA margin came in at 2.2% aided by higher Australian investment income, strong operating earnings followed by lower revaluations. LLC reported services costs during the year at $140 million.

Segment updates:

Americas: During, FY19, this segment reported $27.7 billion of development pipeline, $6.2 billion of construction backlog, $0.7 billion of funds under management (FUM).

Europe: The company reported development pipeline of $34.1 billion, construction backlog of $1.7 billion and reported funds under management of $1.5 billion. During the year, LLC reported investment amounted to $0.1 billion.

Asia: The business posted development pipelines of $5 billion followed by a construction backlog of $0.8 billion. Funds under management came in at $8.2 billion during the financial year 2019. The segment reported investment at $0.7 billion during the year.

Australia: Development pipeline from this segment came in at $29.3 billion followed by Construction backlog of $6.9 billion and FUM at $24.8 billion. Total investment from this segment came in at $2.5 billion.

Outlook: As per the management guidance, the business is developing a pipeline of $100 billion in coming years. As per the company’s upcoming strategy, the group will focus on leveraging its competitive advantages through the integrated model along with urbanization and investment platforms.

Stock Update: The stock of LLC was trading at $18.91 (at AEST 12:57 PM), up 1.177% as on 1 November 2019. The market capitalisation of the stock stood at $10.55 billion along with a dividend yield of 2.25% on an annualised basis. The stock has delivered returns of 28.45% and 38.55% during the last three-month sand six-months, respectively.


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