This article is from the Australian Property Journal archive
For most property companies the development business is not what it used to be. And with investors wanting diversified returns, the development business just does not cut it anymore. Just ask Mirvac, which has undergone a deep-seated change since retirement of founder Bob Hamilton just 12 months ago… and it’s a transformation that is finally paying off.
Yesterday, Mirvac posted an AIFRS adjusted net profit of $441.1 million for the year ending June 30, 2006 – an increase of 80.4% over the $244.4 million in 2005. The group’s operating profit after tax, which excludes AIFRS, was $274.4 million for the FY2006 – an increase of 40.9% when compared to the previous corresponding period.
Mirvac’s managing director Greg Paramor said the 2006 profit result should not be underestimated, occurring against a backdrop of challenging markets, and during 12 months of significant directional change within the group.
He added that Mirvac’s four business divisions have worked side by side helping deliver long-term growth in distribution and capital value to security holders.
“Our business model over the last twelve months has been investment and transactional based, and will continue to be so, as we use our expertise to leverage the integrated real estate platform of our four divisions, build on collaborative opportunities and increase recurrent earnings.
“The addition of funds management has cemented the integrated platform and will contribute to generating new earnings streams for our other business units,” Paramor said.
In the 12 months to June 30, 2006, the group reported a revenue increase of 37.4% from $1.3 billion in 2005 to $1.8 billion in 2006.
Mirvac’s investment division contributed $339.8 million to the 2006 result, up 59.1% increase on the previous corresponding period. The result included $180.2 million in revaluation gains.
Mirvac’s chief executive of investment Nicholas Collishaw said the result was in line with the group’s repositioning strategy.
“The trust concentrated on the sale of non-core assets and the future acquisition of larger assets with either development potential, or structured deals that minimise transaction costs and enhance investment returns,” he added.
During the year, leasing deals totalled 124,967 sqm of commercial (62,666 sqm) / industrial (18,657 sqm) space representing 13% of the portfolio and retail deals of 43,644 sqm have been negotiated to new occupiers or existing tenants.
Mirvac continued its history of low vacancy across the porfolio and weighted average lease expiry is in good shape; commercial (3.9 years), retail (6.1 years) and industrial (5.2 years).
The development division contributed $91.7 million, a 98.5% increase from the previous corresponding period.
At the end of June, the value of Mirvac’s exchanged contracts was $730 million. Mirvac currently has a strong residential land bank of 20,715 lots.
Mirvac’s chief executive of WA Developments Adrian Fini said the division produced a solid result with Western Australia and Queensland being the strongest performing markets.
“The NSW and Victorian residential market are likely to remain subdued through to the end of 2006, however signs of the next upturn in construction activity are evident. Rental markets are relatively tight, and dwelling approvals are well below underlying demand.
“Mirvac believes the market will experience sustained recovery in 2007 and the Group is well placed through its extensive land bank across Australia to participate in that recovery,” Fini said.
The funds management division contributed $15.1 million for the year. As at June 30, funds under management totalled $7.8 billion, an increase of 212% over $2.5 billion in 2005.
Mirvac’s joint chief executive of funds management Adrian Harrington said in the past year, Mirvac’s integrated real estate platform launched two unlisted development funds based around existing Mirvac residential land sub-divisions in Mandurah, WA.
“Our ability to enhance recurring income streams across the group is an important part of Mirvac’s integrated real estate platform. The funds management division facilitates Mirvac recycling capital and increasing its returns by achieving a greater ROE through the profitable turnover of the Group’s inventory.
“The division continued to focus on growing scaleable funds, closing two smaller funds and selling its 50% interest in the non-core property securities business,” he added.
Lastly, the hotel and resort division contributed $6.5 million with all of the group’s hotel operations producing increased profits. Mirvac noted that trading results were particularly buoyant in both Sydney and Melbourne metropolitan hotels.
The division benefited from an average occupancy of 74% and an average room rate of $184.
During the period, the division acquired a 50% interest in the Cairns International Hotel. The current portfolio totals 27 hotels and resorts across Australia and New Zealand which will contribute to recurrent earnings for the Group.
As at June 30, 2006, Mirvac has in excess of $22 billion of assets under control across the investment, development, hotel and funds management spectrum. This includes direct investments in more than 60 properties covering the retail, commercial, industrial and hotel sectors with a total portfolio value of $3.5 billion.
The group also has property and infrastructure funds under management of $7.8 billion, a managed hotel portfolio of over 3,124 rooms across 27 properties in Australia & New Zealand, and a non-residential development pipeline of $1.7 billion, both for internal retention and external sale.
In the year ahead, Mirvac has provided EPS and DPS guidance of 31.9 cents for the FY07 year.
Paramor said delivery of earnings is anticipated to be in line with Mirvac’s stated strategy of Investments 60% – 65%; Development 25% – 30%; Funds Management 5% – 10% and Hotels 5%.
Meanwhile, Mirvac has announced a full year distribution of 31.00 cents per stapled security, supported by earnings per security for the period of 52.18 cents (AIFRS) or 31.64 cents (operating earnings) per stapled security.
By Nelson Yap
