Mirvac Investor Tour October 2018
Mirvac recently invited key investors to hear their views on the commercial markets and to take a tour of Australian Technology Park, at South Eveleigh. Mirvac's presentation document revealed much about the strategy behind their activity.
Mirvac's capital allocation strategy is summarised in their mantra "create to core" which is focused on modernising their portfolio for long term recurrent income. This strategy also reflects a standard Core & Opportunistic approach with an allocation to both passive and active property exposures.
For the past 4 years, Mirvac have allocated about $1.6Bn to Active Capital with investments in a Commercial and Industrial development pipeline. This allocation represents about 14% of total capital and sits within Mirvac's preferred range of 10-15%. An Active Capital allocation allows Mirvac to take measured risks with development projects that will deliver improved earnings from development profits. In 2019-2021, Active Capital is forecast to generate a further $1.0Bn in EBIT alone.
Passive Capital, which comprise 86% of the business is invested in assets with stable long term income streams. Over the past 3 years, income from passive investments has grown by just 1% pa however as future Active Capital projects are completed, the growth in income from passive investments is forecast to 5% pa from 2019-2021.
Adding to the Capital Allocation approach is a preference to source long term capital partnerships. Mirvac have already developed partnerships with Keppel, AMP Capital, Blackstone, ISPT and Morgan Stanley. Managing third party capital assists Mirvac in maximising the ROIC by securing future development profits with agreed takeout positions, allowing profit to be recognised over time (rather than on completion of each project), and generates higher fee revenues from a larger capital pool.
Mirvac currently have approximately $4.4Bn of projects in the pipeline, of which $3bn have firm leasing commitments.
Complimenting the Capital Strategy has been an Investment Strategy which focus on the transformation of the existing portfolio . Since 2013, Mirvac have divested $1.7Bn of non core assets to generate a portfolio more heavily weighted to core assets in Sydney 3 CBD's and to the Melbourne CBD and completely away from suburban office assets which previously comprised 18% of the book.
Mirvac investment strategy is based on ;
acquiring or developing assets in high value areas to capture the growth in knowledge economy jobs which in NSW are forecast to grow by over 1 million people over the next 20 years.
Investing in the deepest markets with underweight market volatility.
Mirvac are very conscious of the changing requirements of end users and their Capital and Investment Strategy reflect their desire to meet these changing needs.
Demographic, technological and environmental factors that are causing older buildings to become obsolete are providing the opportunity for Mirvac to position new buildings which meet the need to attract rental premiums.
Elements such as flexible workspaces, intelligent plug and play infrastructure, integrated communications networks and lifestyle spaces are common ingredients to Mirvac's new projects.