Letter from the Chairman and CEO & Managing Director

Dear Securityholders,
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.

Driven by a deep understanding of our cities and our customers, we delivered an operating profit of $534 million, up 11 per cent on FY16. This represents 14.4 cents per stapled security and is at the top end of guidance provided. Distributions for the financial year totalled $386 million, representing 10.4 cents per stapled security, which was also at the top end of our previous guidance. Our statutory profit was up 13 per cent on FY16 at $1.16 billion, driven by operating EBIT growth and a substantial uplift in property revaluations, and we delivered a return on invested capital of over 12 per cent.

Within our Office & Industrial portfolio, we delivered operating EBIT of $319 million, down 11 per cent on FY16 as a result of asset sales last financial year, although this was partially offset by the contribution from recently completed developments. A higher contribution from asset completions underpinned growth in our urban Retail business, which achieved operating EBIT of $156 million, an increase of 33 per cent on FY16 and well ahead of our growth target of 25 per cent. In our Residential business, we delivered operating EBIT of $302 million, a considerable 54 per cent increase, driven by a high volume of lot settlements and residential gross margins above our target range.

Our disciplined and conservative approach to managing our capital has ensured our financial position remains strong, with gearing at the lower end of our target range of between 20 to 30 per cent at 23.4 per cent. We have extended our average debt maturity significantly since 31 December 2015 to 6.2 years, following more than $1 billion of debt refinancing in the past 12 months. We have substantial headroom within our financial covenants, and we remain focused on maintaining a healthy balance sheet to ensure we can continue to fund our significant commercial and residential development pipeline, while meeting our stated financial objectives.


Along with our strong financial result, we delivered an exceptional performance in each sector.

The strategic repositioning of our office portfolio is well underway, as we create Australia’s youngest and lowest capex portfolio. We are steadily regrowing the income that contracted following over $780 million of asset sales in our office portfolio in FY16, and expect to add approximately $90 million of net operating income to our office and industrial portfolio between now and 2021, with contributions from 200 George Street in Sydney and 2 Riverside Quay in Melbourne now starting to come through.

Our asset creation capability at this point of the cycle is important. We have continued to improve the quality of both our office and industrial portfolios and deliver superior returns with development completions at 2 Riverside Quay in Melbourne and Calibre in Sydney during the financial year, and by 2021 we will have added 477 Collins Street and 664 Collins Street in Melbourne to our portfolio, as well as the 93,000 square metre Australian Technology Park in Sydney. This strong committed commercial development pipeline
will support high-quality income in the future.

We have a strong history of attracting quality capital partners at our assets, and in line with our capital partnering strategy, we sold a 50 per cent interest in our 664 Collins Street and 477 Collins Street office developments in June and July this year respectively. These transactions will provide us with the capacity to invest in future opportunities, while delivering strong development profits.

Attracting top-tier tenants to our assets is also a core part of what we do. In FY17, we secured professional services firm, Deloitte, for 22,000 square metres at 477 Collins Street, and logistics firm, CEVA, for approximately 19,000 square metres at our industrial asset, Calibre. Our strong leasing capability ensured we had high occupancy across both our office and industrial portfolios as at 30 June 2017, with 97.6 per cent and 95.3 per cent occupancy achieved respectively. Weighted average lease expiries were also solid at 6.5 years for office and 7.0 years for industrial.

While per capita spending continues to grow modestly in New South Wales and Victoria, the increase of online retailing and lower wage growth put pressure on a number of retailers during the financial year. Our focused urban retail strategy, however, along with a deep understanding of our customers and the markets we operate in, ensured we delivered another strong performance in our Retail business in FY17.

This included occupancy of 99.4 per cent and total sales productivity of $10,048 per square metre, in line with the targets we set ourselves. We also achieved leasing spreads of 3.2 per cent (ahead of our target of more than 2 per cent) and as mentioned, delivered 33 per cent operating EBIT growth on FY16.

Along with an urban focus, the success of the retail portfolio is driven by our unique asset creation capability, which has enabled us to improve the quality of the portfolio both organically and through selective acquisitions.

Expansions were completed at Greenwood Plaza and Broadway Sydney, and were both 100 per cent leased prior to completion. Impressively, Broadway Sydney received Shopping Centre News’ Big Guns Award for annual turnover per square metre for the fifth consecutive year, despite undergoing development works during the period.

The popular Tramsheds at Harold Park was also added to our retail portfolio, and has been trading well since completion. The unique adaption of this iconic site has been recognised with a number of awards, including the National Heritage Trust Award for Adaptive Re-Use, the Overall and People’s Choice awards in Concrete Playground’s ‘Best New Precinct’ of 2016, and the UDIA NSW Award for Excellence in Retail Development.

Further increasing our retail footprint in Sydney, Mirvac entered into an agreement with PAYCE Consolidated to acquire an interest in the proposed South Village Shopping Centre in Kirrawee during the financial year. The centre, which is located 25 kilometres south of Sydney’s CBD, provides us with excellent exposure to an affluent trade area and follows our successful joint venture with PAYCE at the strong-performing East Village in Zetland.

We have identified over $1 billion of development opportunity in our retail portfolio where we can add value, and we will continue to focus on repositioning centres in strong catchment areas. In addition to this, we will leverage our strong leasing capability to strategically evolve an attractive retail mix for future growth, while optimising productivity through development.

Our residential business delivered another exceptional performance in FY17, with a record 3,311 lot settlements achieved. In addition to a 54 per cent growth in earnings, we delivered a return on invested capital of 18 per cent, significantly above our target of over 15 per cent. Gross development margins were also high at 25 per cent, above our through-cycle target of between 18 and 22 per cent.

Despite concerns over the potential impact changes to lending may have had on the residential sector, sales activity across our projects remained solid, albeit at more moderated levels than the sell-out weekends we had previously experienced. We continue to have a robust settlement process in place, with defaults during the period sitting below 2 per cent, and the delivery of quality product across masterplanned communities and apartments will continue to support our settlement profile. With approximately $2.7 billion of residential pre-sales secured, we continue to have excellent visibility of future earnings.

Also underpinning future growth in our Residential business is our significant forward-looking development pipeline of over 29,000 lots, which is balanced evenly between masterplanned communities and apartment projects, and provides us with both urban densification and greenfield opportunities. We have strong embedded margins across our pipeline, with more than 50 per cent of our pipeline lots expected to deliver margins of 25 per cent or more.

With housing affordability an increasing concern in some parts of Australia, we launched The Right Start initiative during the financial year to assist first-home buyers secure their own home in a competitive market. To seed the initiative, we reserved 60 apartments at our new project, Pavilions, at Sydney Olympic Park, priced below $750,000 for pre-qualified first-home buyers. Purchasers were able to exchange on a 5 per cent deposit and enter into an agreement to pay the remaining 5 per cent deposit in two annual instalments. The initiative was a huge success, with 90 per cent of the first-home buyer apartments pre-sold on launch, and we will continue to look at how we can assist first home buyers to access the market.


Investing in our people and fostering a culture that inspires our employees to achieve their best is of the utmost importance at Mirvac, and our success in doing so has underpinned the excellent results we have delivered. In FY17 we continued to deliver value through the way we work, with a focus on innovation, sustainability, technology and safety. We are passionate about implementing behaviours and practices that will make a positive impact.

We introduced a refreshed health and safety policy in FY17, for instance, that builds on our culture of safety excellence. We take safety at Mirvac seriously, and regularly review our health and safety performance to identify the areas we can improve upon. The refreshed policy has a strengthened focus on ensuring we have robust processes in place so that we can continue to provide safe places for our people, our customers and our communities.

Our innovation program, Hatch, is teaching people to bring a customer-centric approach to challenges and opportunities in the business. We’ve had some fantastic initiatives take shape, such as Shopping Nanny, which you can read about here in this report. Now in its fourth year, Hatch is fully embedded in the business and plays an integral role in a number of our projects and processes.

Our sustainability strategy, This Changes Everything, also in its fourth year, continues to deliver tangible benefits to the Group and has become ingrained in the way we conduct ourselves and our business. From our commitment to be net positive by 2030, and delivering one megawatt of solar power through Mirvac Energy, to our focus on measuring the social return on investment in our residential communities, our strategy is aligned with our interests and capabilities, and the interests of our stakeholders. You can read more about these initiatives in this report, and read a full summary of our sustainability strategy here.

Reflecting our unique place-making capability and our ambition to create workplaces of the future, we received Australia’s first Gold WELL certification for our headquarters at 200 George Street in Sydney during the financial year, and you can read more about this exciting achievement on page 16. We will continue to build on the knowledge we gained through the certification process so that we can assist our customers attain WELL certification for their own buildings or tenancies.

Our Transforming the Way We Work project continued to roll out across the business, providing our employees with the technology and resources to support them achieve work/life quality. More than 75 per cent of our employees now have a flexible work arrangement in place and it’s been great to see that it’s not just working mothers who are benefiting from this initiative, with both men and women from across the Group incorporating some form of flexibility into their work life.

The investment we have made in our people and culture saw us achieve an employee engagement score of 88 per cent in the financial year, with excellent results from across all parts of the business. This result places us above the Global High Performing Norm and significantly above the Australian National Norm, as defined by our survey provider, Willis Tower Watson. Most pleasingly, our employees said they strongly believed in our purpose, values and objectives. Our financial and operational performance continues to underline that sustained engagement from our workforce is vital in delivering for our customers, communities and stakeholders.


Mirvac is in excellent shape. We have a sustainable urban-focused business model, a strong leadership team and a robust and conservative balance sheet. Our focused and disciplined strategy has consistently delivered earnings and distribution growth over the past several years. Our strong line of sight of future cash flows, along with a solid financial platform, will allow us to generate earnings for many years to come. We remain strongly committed to an urban focus, particularly Sydney and Melbourne, which continue to be the key contributors to Australia’s economic output and population growth.

We have a unique asset creation capability that allows us to create and deliver innovative and high-quality commercial assets and residential projects for our customers, while driving long-term value for you, our securityholders.

We would like to thank the Board, our management team and our employees for their commitment to reimagining urban life.

And we would like to thank you, our securityholders, for your continued support.

Kind regards,


John Mulcahy, Chairman


Susan Lloyd-Hurwitz, CEO & Managing Director