Office & Industrial highlights

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

95%
Prime or A-grade office assets

OFFICE

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:

  • maintained high occupancy of 97.6 per cent 1, with a long WALE of 6.5 years 2;
  • completed 72 deals over approximately 65,000 square metres 3, with highlights including:
    • 101 Miller Street, North Sydney NSW: signed approximately 17,400 square metres during the financial year. This includes the Commonwealth of Australia, who renewed its lease and took additional space for a combined area of 10,270 square metres for a 10-year term;
    • Riverside Quay, Southbank VIC: executed approximately 2,300 square metres of lease deals in FY17, with the building now 100 per cent leased;4 and
    • 37 Pitt Street and 51 Pitt Street, Sydney NSW: executed 15 deals over a combined area of 6,500 square metres across the two buildings;
      • total office asset revaluations provided an uplift of $388m 5 (8.3 per cent) over the previous book value for the 12 months to 30 June 2017, supported by an overweight to prime assets in Sydney and Melbourne:
      • entered into an agreement with an investment vehicle sponsored by Morgan Stanley Real Estate Investing to sell a 50 per cent interest in 664 Collins Street, Melbourne for a total consideration of $138m;
      • in July 2017, entered into an agreement with Suntec Reit to sell a 50 per cent interest in Olderfleet, 477 Collins Street, Melbourne for a total consideration of $414m;
      • maintained positive leasing spreads of 5 per cent; and
      • incentives reduced to 18.9 per cent in the 12 months to 30 June 2017 (June 2016: 24 per cent).

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:

2 Riverside Quay

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.

664 Collins Street

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.

477 Collins Street

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.

Australian Technology Park (ATP)

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.

MARKET OUTLOOK 7

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.

RISKS

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

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:

  • achieved 95.3 per cent occupancy8, with a long WALE of 7.0 years9;
  • achieved like-for-like growth of 2 per cent;
  • completed over 19,500 square metres of leasing activity; and
  • acquired 36 Gow Street, Padstow, in NSW in January 2017 for $30.2m, a high-quality facility located in close proximity to the M5 motor way; and
  • Calibre, Eastern Creek NSW: following the successful completion and leasing of Building 1 in the first half of FY17, construction of the second building, a 21,000 square metre high-quality flexible facility, commenced in June 2017, with practical completion anticipated for FY18. Strong tenant interest has been received for the next facility and balance of the estate.

MARKET OUTLOOK9

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.

RISKS

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