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Mirvac Profits down from Residential Markets

Mirvac Group announced this week its full-year results for the financial year ended 30 June 2019 (FY19). Whilst Mirvac have been impacted heavily from a poor residential sector they have performed exceptionally well, trading well in excess of the ASX AREIT index due to the diversity, quality and value creation capability of its investment portfolio.

The Group achieved a statutory profit of over $1 billion for the fourth consecutive year and successfully delivered at the top end of guidance, with an EPS of 17.1 cents per stapled security (cpss), up 4% on FY18, and DPS of 11.6 cpss, up 5% on FY18.

Despite this, Statutory profits were down 6% due to lower valuation gains and a 33% drop in revenue from its residential business, whilst its retail busines faired well (up 4%) and its office and industrial business was exceptionally strong (up 26%).

In a similar strategy to Gooman, Mirvac are focused on driving profits through allocation of capital to the ongoing urbanisation of gateway cities, with particular emphasis on Sydney and Melbourne, where 80% of the capital is invested.

Mirvac’s CEO & Managing Director, Susan Lloyd-Hurwitz, said, “The strength and resilience of our business were evident throughout the year, underpinned by our award-winning urban asset creation capability, our high-quality investment portfolio and our diversified model. Our robust capital position and the acceleration of passive earnings growth means we are well placed to continue to generate strong returns for our securityholders, while making a positive contribution to our urban landscape.”

Key highlights across the Group:

  • operating profit increased by 4 per cent to $631 million (FY18: $608 million) , representing 17.1 cpss, at the top end of guidance, driven particularly by a strong performance in the Group’s Office & Industrial business;

  • full-year distributions increased 5 per cent to $440 million, representing 11.6 cpss

  • completed approximately 250,000 square metres of leasing across the investment portfolio, with high occupancy maintained at 99.0% and a WALE of 5.7 years;

  • achieved a Group Return on Invested Capital (ROIC) of 10.1%;

  • realised strong net property revaluation uplifts across the Investment portfolio of $516 million (4.9%), supported by the portfolio’s 82% weighting to Sydney and Melbourne;

  • settled 2,611 residential lots, with $1.7 billion in residential pre-sales secured;

  • further extended the build-to-rent (BTR) development pipeline, with a second purpose built BTR project confirmed close to Queen Victoria Market in Melbourne;

  • completed a fully underwritten $750 million institutional placement and a $46 million Security Purchase Plan to support the delivery of the next generation of value accretive office, industrial, residential and mixed-use projects;

  • maintained an employee engagement score of 90%, 3 percentage points above the global high performing norm ; and

  • released Planet Positive: setting out the steps we will take to become net positive carbon by 2030, including developing buildings powered by 100% renewable energy.

Financial and capital management highlights:

  • net tangible assets (NTA) per stapled security increased to $2.50 (30 June 2018: $2.31);

  • delivered operating cashflow of $518 million (June 2018: $663 million);

  • reduced gearing to 20.5%, within the Group’s target range of 20 to 30% ;

  • increased liquidity to $1.4 billion in cash and committed undrawn bank facilities;

  • increased weighted average debt maturity to 8.5 years from 6.8 years (June 2018);

  • maintained stable average borrowing costs at 4.8% per annum (June 2018: 4.8%), including margins and line fees;

  • issued $665 million US Private Placement notes with tenors of 11,13, 15 and 20 years; and

  • received an A- rating with a stable outlook from Fitch Ratings during the first half year and maintained the A3 rating from Moody’s Investor Service (equivalent to A-).

Office portfolio highlights:

  • increased occupancy to 98.2 per cent with a WALE of 6.4 years;

  • achieved net operating income of $338 million and a like-for-like net operating income growth of 5.7%;

  • completed 82 leasing deals over approximately 96,400 square metres, with positive leasing spreads of 16.6%;

  • total office asset revaluations provided an uplift of $392 million (or 6.3%) over the previous book value, supported by an overweight to prime assets in Sydney and Melbourne;

  • assets under management increased to $15 billion , leading to a significant increase in asset management fees to $19 million;

  • reached practical completion on Buildings 1 and 3 at the reimagined South Eveleigh precinct, Sydney in March 2019;

  • acquired 383 La Trobe Street, Melbourne, with potential to create a 40,000 square metres, A-grade office tower; and

  • maintained a 5.0 star NABERS Energy rating average across the office portfolio

Industrial portfolio highlights:

  • maintained high occupancy of 99.7 per cent, with a WALE of 7.7 years

  • achieved over 91,700 square metres of leasing activity

  • increased our future industrial development pipeline in Sydney to $1.2 billion by securing the following sites:

  • Stage 1 of a future 244-hectare industrial estate at Badgerys Creek in Western Sydney19, NSW, located just 800 metres from the new Western Sydney International Airport, for a total consideration of $71 million, under a put-and-call optio