Mirvac’s urban strategy delivered excellent results in FY17, with operating earnings up 11 per cent and distributions up 5 per cent, at the top end of guidance provided.
The 2017 financial year was an outstanding year for Mirvac, and our ambition to reimagine urban life by creating, owning and managing high-quality assets in Australia’s largest cities has delivered strong results across the Group, positioning us well for the future.
Mirvac is an integrated, urban property group and a key contributor to Australia’s major cities.
Mirvac’s urban strategy and a strong focus on capital management delivered growth in FY17, and has ensured the Group is well placed for the year ahead.
In February this year, we launched Marrick & Co in Sydney’s inner west: a 220-apartment development on the old Marrickville Hospital site.
Mirvac has a priority focus on the health and safety of its employees, contractors and customers, and in FY17, we launched a refreshed policy and focus to strengthen our safety practices, behaviours and culture across our business, while supporting the wellbeing of our people, places and the communities in which we operate.
Developing a Reconciliation Action Plan (RAP) has been one of Mirvac’s key cultural goals over the past 12 months.
This Changes Everything is Mirvac’s sustainability strategy, comprised of four focus areas with long-term missions.
This Changes Everything FY17 at a glance
Mirvac’s Office & Industrial portfolio continues to focus on key urban markets providing secure, recurring income to the Group
Mirvac’s high-quality office portfolio is comprised of over 95 per cent Prime or A-grade office assets with an 82 per cent overweight to the strong Sydney and Melbourne markets. The Group has one of the largest office management portfolios in the country and a superior office development capability, demonstrated by projects such as 200 George Street in Sydney, NSW; 2 Riverside Quay, Southbank, VIC; and the David Malcolm Justice Centre in Perth, WA.
Meanwhile, Mirvac’s well-located industrial portfolio concentrated around key logistics nodes in both Sydney and Melbourne continues to outperform. Its 94 per cent concentration to these markers ensures it is well-placed to benefit from continued economic growth in these cities.
For the year ended 30 June 2017, Mirvac’s Office & Industrial division delivered earnings before interest and tax of $319m. The full-year result was impacted by the divestment of office assets in FY16, which was offset by development completions in the office and industrial portfolio in the financial year.
Mirvac’s high-quality office portfolio is comprised of over
Mirvac has a clear focus in its office business to create, own and manage high-quality, high-performing office assets. Highlights across the office portfolio for the year ended 30 June 2017 included:
In line with Mirvac’s mandate to create world-class office assets that generate development returns, the Group progressed its committed $2.1bn office development pipeline in FY17 which is 81 per cent leased. Highlights included:
Achieved practical completion of the office tower in December 2016, two months ahead of schedule. The 21,240 square metres of office space was 100 per cent leased to PwC and Fenders Katsalidis Architects prior to practical completion. A 5 Star NABERS Energy rating and a 5 Star Green Star Office Design rating are being targeted.
Achieved topping-off in May 2017 and remain on track for completion in FY18. The building is 62 per cent pre-leased, with over 10,050 square meters currently under heads of agreement. Once executed, this will take the building to 100 per cent leased.
Commenced construction on the 56,000 square metre building in May 2017, which is approximately 40 per cent leased to professional services firm, Deloitte, while interest for the balance of space remains strong. The Group is on track to reach practical completion in FY20.
Commenced construction on Building 1 in March 2017, which is progressing well, while civil works
for Building 2 are ongoing. Preliminary works on Building 3 and the public domain are due to commence in early FY18.
While the office portfolio’s net operating income (NOI) was impacted by over $780m of asset sales in 2016, the Group’s recent completions (such as 200 George Street, Sydney and 2 Riverside Quay, Southbank) and the committed development pipeline have the potential to deliver approximately $80m of additional NOI by FY21 6.
OFFICE GEOGRAPHIC DIVERSITY
OFFICE DIVERSITY BY GRADE
OFFICE RENT REVIEW STRUCTURE
Sydney and Melbourne office markets are in the midst of a strong rental upswing, with tightening vacancy placing upward pressure on rents. There has been further evidence of a modest recovery in tenant demand in Brisbane, while the sharp occupancy contractions experienced in Perth have abated over the past six months. Mirvac will continue to focus on the key urban markets of Sydney and Melbourne, as well as creating innovative, collaborative and flexible workplaces that generate value for the Group, while improving the quality of the portfolio.
While leasing conditions remain challenging in Brisbane and Perth, Mirvac’s overweight position to Sydney and Melbourne means it is well placed against this backdrop. The office portfolio metrics, comprising a long WALE of 6.5 years and solid occupancy of 97.6 per cent, along with
a quality tenant covenant, also demonstrate Mirvac’s ability to maintain a strong and robust portfolio through the cycles of demand.
In terms of its office developments, the Group seeks to manage uncertainty around tenant demand in a number of ways, such as substantially pre-letting development projects ahead of construction and by partially selling down office developments to capital partners in advance of completion.
INDUSTRIAL DIVERSIFICATION BY GEOGRAPHY
INDUSTRIAL RENT REVIEW STURCTURE
With a strong focus on leasing and continued asset creation, the Group’s industrial portfolio delivered strong metrics in FY17. Highlights across the industrial portfolio for the year ended
30 June 2017 included:
Strong demand from logistics firms continues to support above-average leasing demand in the Sydney and Melbourne industrial markets. A limited availability of vacant stock in the Sydney market is starting to see upward pressure on rents for existing buildings. Rental growth has been softer in Melbourne, due to higher vacancy levels. Mirvac’s strategic overweight to the strong-performing Sydney market ensures that the industrial portfolio will continue to provide a secure stable income to the Group.
Continuing investor demand for Prime grade industrial assets in key locations is resulting in compressed capitalisation rates, weighting predominantly towards the stronger markets of Sydney and Melbourne. Mirvac continues to focus on properties with long lease terms and secure cash flow profiles.
1. By area, including equity accounted investments and OOP and excluding asset held for sale.
2. By income, including equity accounted investments and OOP and excluding asset held for sale.
3. Excludes leasing of assets under development.
4. Includes over 300 square meters of office space under heads of agreement.
5. Includes investments in joint ventures.
6. Based on 100 per cent occupancy and 50 per cent ownership, other than ATP which Mirvac has a 33.3 per cent ownership in.
7. These future looking statements should be read in conjunction with future releases to the ASX.
8. By Area
9. By Income