This article is from the Australian Property Journal archive
MIRVAC CEO Susan Lloyd-Hurwitz has given a frank assessment of the group's business. Following a microscopic review, she said the group has learnt its lesson of overpaying for acquisitions of residential development sites and creating too much higher end product for shallow markets.
After her appointment, Lloyd-Hurwitz ordered a ‘top down and bottom up’ analysis of the business, and she has also concluded that the group does not have a competitive advantage in the retail property market because of years of under investment in the portfolio.
On the flipside, Mirvac’s FY13 Q3 Operational Update and Strategic Review report concluded that the group has an advantage over its peers in the office property market and a “niche” advantage in the industrial property sector.
Lloyd-Hurwitz highlighted that over the 1, 3 and 5 years period, Mirvac’s office investments delivered returns of 10.7%, 11.6% and 6.8% — versus the IPD benchmark of 9.2%, 9.0% and 4.3% over those periods.
She said the drivers behind that advantage was Mirvac’s portfolio — the youngest out of its AREIT peers and redevelopments such as 101-103 Miller St, Bay Centre and Riverside Quay, which have delivered stellar returns.
Despite the advantage, she acknowledged there are constraints to the office performance with the portfolio underweight to prime grade CBD locations and 5% or approx $170 million is classified as non-aligned.
Mirvac does not have any major immediate leasing expiry risk, with 1.4% of lease expiring in FY13, 7.2% in Fy14 and 6.2% in FY15. The majority, 65% is beyond FY18.
Meanwhile Lloyd-Hurwitz indicated that Mirvac is looking for capital partners to sell a stake in the $800 million Westpac office tower at 275 Kent St Sydney, 699 Bourke St and 664 Collins St, both in Melbourne’s CBD. Mirvac recently signed AGL to 699 Bourke St for 15,000.
And advanced discussions are underway with a capital partner for 200 George St Sydney, which recently secured Ernst & Young as anchor tenant to 75% of the space.
In the industrial portfolio, Mirvac has also has the edge in the 1, 3 and 5 years period with 9.7%, 8.9% and 4.0% respectively vs the IPD benchmark of 8.2%, 8.3% and 3.2% over the periods.
Lloyd-Hurwitz said 35% or approx $150 million of the portfolio is classified for sale as Mirvac seeks to buy more core assets in infill ring locations across Sydney’s south-west and west, and Melbourne’s north, west, and south east regions. Mirvac will also look at select Brisbane and Perth opportunities.
In the retail sector, she said Mirvac does not currently have a competitive advantage, underperforming its peers over the 3 and 5 years, with 9.2% and 4.9% respectively compared to 9.8% and 6.8%. Over the 1 year period, Mirvac outperformed with 9.2% vs 8.6%.
She said Mirvac’s retail performance has been hampered by years of under investment, the withdrawal of bulky goods portfolio and 20% or approx $330 million of the portfolio is non-aligned and earmarked to be sold.
She highlighted that Mirvac will rectify this situation by unlocking value via $800 million retail development pipeline over the next six years and it will seek out sub regional and neighbourhood shopping centres in Sydney, Melbourne, Brisbane and Perth.
Lloyd-Hurwitz has also set her sights on CBD assets which are either standalone or as part of mixed use property.
Mirvac’s residential business notched up $971.9 million in exchanged pre-sales contracts in the Q3, achieving strong sales at Harold Park, NSW (74.5% of Precinct 1 and 2 pre-sold) and Yarra’s Edge, Array, VIC (56.1% pre-sold).
However without going into specifics, Lloyd-Hurwitz said Mirvac has overpaid for acquisitions and created “too much higher end product in shallow markets”.
She was also critical of previous decisions to “proceeding to build for reasons unrelated to market fundamentals”.
“It is clear that to deliver returns to securityholders, we needed greater focus across the group in certain areas. This focus relates specifically to decisions as to where and how we will deploy capital, and just as important, when we will not deploy capital,”
Looking ahead, she added Mirvac will be focusing on apartment developments in the inner ring and metro activity centre and developing masterplanned communities in the infill ring and urban edge. The group will focus on cash repatriation from impaired projects combined with re-setting price points which has seeing increase sales rates at Tennyson Reach, QLD; Ephraim Island, QLD; The Peninsula, WA; Waterfront, QLD.
Lloyd-Hurtwitz said the Australian Residential Partnership is progressing with a select group of capital partners.
Meanwhile Lloyd-Hurwitz kept the flame alive for the Australand bid. There were earlier reports that Mirvac had dropped out of the bid. But yesterday she said “Mirvac, on an ongoing basis, regularly evaluates M&A opportunities including acquisitions of asset portfolios. All growth opportunities will be consistent with our strategy and are value enhancing to our securityholders,”
Lloyd-Hurwitz reaffirmed the FY13 operating EPS guidance range of 10.7 to 10.8 cents per stapled security and the target of 10% return on invested capital for the development division in FY14.
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