Mirvac Group (MJB.SG) Earnings Call Transcript & Summary

Well, good morning, ladies and gentlemen. I hope, you enjoyed that video as much as we do. That's how Mirvac does its business, and the people who make the organization great and a lot of the management team who are here today have represented in the video. So welcome to the Annual General Meeting of both Mirvac Limited and the General Meeting of the Mirvac Property Trust, which I refer to today as “the Meetings”. My name is Rob Sindel, and I am the Chair of Mirvac. In the unlikely event of an emergency, an alarm will sound. If this should happen, please follow the directions of our very capable employees. Alex up the back there will assist us all out. May I also ask everyone in the room, please switch their mobile phones to silent mode. I have been informed we have a quorum and therefore declare the Meetings open. I would like to welcome those of you who have joined us here in our Sydney office today, and those also joining us online. In the spirit of reconciliation, I would like to acknowledge the Traditional Custodians of the land from which we are presenting to you today. I would like to pay my respects to their Elders past and present, and to all Aboriginal and Torres Strait Islander people. Here with me in Sydney this morning, to my immediate left, is our Managing Director and CEO, Campbell Hanan; and Non-Executive Directors, Jane Hewitt, Damien Frawley and Peter Nash. To my right are Mirvac's Company Secretary, Michelle Favelle and Non-Executive Directors, James Cain, Rosemary Hartnett and Christine Bartlett. Members of our Executive Leadership Team are also here today and will be available after the Meetings to speak to securityholders. Voula Papageorgiou, our lead external audit partner from PwC, is also available to answer any specific questions on the audit. As required, Voula steps down as our lead audit partner this year. I would like to thank Voula and the PwC team under her leadership that have contributed to Mirvac success over the past five years. Before we move to the formal matters, which relate to the resolutions outlined in the Notice of Meetings, both Campbell and I will address the Meetings. Today, we will provide you with an update on Mirvac's financial performance, progress in executing our strategy, and also the outlook for the business. In my perspective, I'm pleased to say the financial year 2025 was a really solid year of execution by the team. Under Campbell's leadership, the team made good progress to set the business up for growth into FY '26 and beyond. We executed a number of capital partnering initiatives, grew our living sector exposure, progressed our development pipeline, and refined our high-quality investment portfolio. Our FY '25 results were in line with our earnings guidance, which included an operating profit of $474 million, or $0.12 per stapled security, and a distribution of $0.09 per stapled security. Our statutory profit of $68 million was driven by improved asset valuations across the industrial and living sectors, offset by lower office asset valuations and write-downs at select development projects. Through an active and disciplined approach to capital management, we ensured the balance sheet remained in excellent shape. In FY '25, the team refinanced $1.8 billion of debt, issued a $400 million green bond, completed $340 million of asset sales, and raised over $1.3 billion through capital partnering initiatives. Gearing was maintained within our target range of 20% to 30% at 27.6%, and our strong credit ratings were also retained. In addition to this, we have $1.2 billion of liquidity in undrawn debt facilities and maintain significant headroom against our debt covenants. Our focus on robust capital management ensures we have the flexibility to take advantage of opportunities as they arise. We have a clear long-term capital allocation targets to drive cash flow resilience, stronger growth, and maintain the right level of income diversity with our mix of assets. Key to this is growing our living and industrial exposure -- sector exposure, where we see long-term tailwinds and attractive returns. It has been pleasing for the Board and investors to see the progress that Campbell and the team have made in this area. In FY '25, this included the completion of two warehouses at Aspect Industrial Estate in Western Sydney, which lifted our industrial allocation to 17%. We also completed three more build-to-rent assets across Melbourne and Brisbane, while our Land Lease portfolio grew to around 5,000 occupied lots, up from around 4,600 in the prior year. Combined, our Living sector exposure represents 7% of our total capital allocation, and we have an ambition to grow this to 25% over the longer term. At the same time, we are sharpening our office exposure, focusing on Premium-grade assets in core CBD locations. This is where we see the best outlook for rent and valuation growth. In FY '25, we sold two office assets, 10-20 Bond Street in Sydney’s CBD and 75 George Street in Parramatta, reducing our office exposure to 54%, with a long-term target of 40%, as we grow the living and industrial sectors. In response to proxy -- sorry, in response to feedback from proxy advisors and investors, we continued to evolve our disclosures on our short-term and long-term incentive plans – specifically around how they align to our key strategic priorities. We retained our long-term incentive hurdles, which aligns Executives to performance through an equal weighting of Relative Return on Equity and Relative Total Shareholder Return. We also made some changes to our long-term performance and deferred short-term incentive plans. The number of rights allocated under each plan will now be determined on a face value basis, rather than on a discounted face value basis. Key Management Personnel will be entitled to distributions only on rights that vest and are declared during the performance period. The Board intends to award these distributions as Mirvac securities following the end of the performance period. And it's also been very pleasing to see that these changes have been well supported by investors, including Alan at the ASA. We will continue to focus on aligning pay outcomes with performance, which is a foundational principle of our remuneration framework. The Board remains committed to ensuring Mirvac’s operations, and the way we work reflects a high standard of corporate governance. We want to foster a culture that values ethical behaviour, integrity and respect. As always, we continue to work with government and the community to drive positive social and environmental outcomes. There are three achievements over the past 12 months that highlight our progress in these areas. Firstly, our New South Wales Construction team achieved a 5 Gold Star iCirt rating for the third year in a row. This is great recognition of our commitment to safety and compliance, and demonstrates our long-standing focus on building quality. We also reaffirmed our 2030 decarbonization targets and outlined the actions we will take to get there. These include electrifying both new and existing assets, using low-carbon materials, installing solar at our residential and industrial projects, and investing in high-quality, nature-based offsets. And finally, we released our first-ever social performance report to showcase the work we are doing to deliver social value. Mirvac has a strong brand and a clear strategy that is delivering on its objectives and is well-placed for the future. I would like to congratulate Campbell, the executive leadership team, and the rest of the team at Mirvac for the work they have done to reset the business and to position Mirvac for success. It is also great to see the progress the team already made in the first quarter of this financial year, which Campbell will talk to you shortly. In the year ahead, the Board will continue to focus on the execution of Mirvac's strategy and progress against its capital allocation targets. We will also continue to draw on the lessons we have learned over the past few years, particularly around how we can better leverage our integrated construction model and improve the speed and certainty of delivery. This includes to design optimization initiatives, modern methods of construction, and offsite prefabrication of building elements. And finally, we will continue to ensure we have the right skills and experience on our Board, as we steer Mirvac through its next phase of growth. Last year, we welcomed Rosemary Hartnett to the Board, who is up for election today. Rosemary brings a wealth of property and funds management experience to the Board, and we will hear from Rosemary shortly. I would like to thank my Board colleagues for their support and contribution over the past 12 months, and I would like to thank our valued security holders for your continued support of Mirvac. I will now hand over to Campbell to address the Meetings.

Thanks, Rob, and welcome to all of you who have joined here at 200 George Street in Sydney or online. I would also like to acknowledge the Gadigal people of the Eora nation and pay my respects to Elders past and present. The challenges of the past few years rising inflation, interest rates, and fast-growing construction costs are largely behind us, and, as we communicated to our security holders at our full-year results in August, we have ringfenced our COVID-impacted projects to FY '25. Now, it is all about a return to growth, and we have strong momentum across all parts of our business going into FY '26. Over the past 12 months, we have had a clear focus on executing our strategy to set the business up for the future. A key part of this is growing our exposure to living, particularly in build-to-rent and Land Lease, and we have made excellent progress in this space. In FY '25, earnings from the living sectors were up 184% to $54 million, demonstrating the clear benefit of our strategic capital allocation. Our build-to-rent portfolio of almost 2,200 apartments in Sydney, Melbourne and Brisbane is now the largest operating portfolio in Australia, and our BTR Venture has grown to $1.8 billion in value. Our stabilized portfolio was 95% leased at the end of September, and our first build-to-rent assets in Brisbane, which we call LIV Anura, is currently 54% leased, just three months after completion and well ahead of expectations. We have an ambition to grow our build-to-rent portfolio to over 5,000 apartments in the medium term, which plays an important role in adding much-needed new housing supply to our communities. Within Land Lease, we have grown our stabilized portfolio to over 5,000 operational sites, with around 3,000 sites in our secured development pipeline. This follows the acquisition of two new communities in Victoria in the financial year to date, which means we will be selling across nine more communities over the next two years. We also have a further site in active due diligence in Queensland. We are seeing positive metrics, with the average settlement price, up 12% in the first quarter with re-leasing spreads of 9% and an average rent increase of around 3%. Both of these established platforms have significant potential for scale and provide us with clear pathways for further growth. There is, of course, great alignment between the living sectors, which deliver steady and resilient returns, and our residential business, where we have over 53 years of experience in delivering vibrant communities for our customers. We are one of the only developers in Australia with the ability to deliver across the entire housing spectrum, including apartments, townhouses, detached housing and masterplanned communities in inner, middle and outer ring locations. We are seeing improved momentum in this part of the business, driven by three interest rate cuts this year, improved consumer sentiment, and improved policy settings at both the State and Federal level. We saw a strong pick up in residential sales in the first quarter of FY '26, with 619 lots exchanged, up 79% on the same time last year. We also had 432 deposits on hand, close to double what we had in the last quarter of FY '25 – and enquiries were up 26%. Our residential pre-sales balance of $1.6 billion provides a good line of sight to future earnings, and we expect this to be further boosted by the launch of a number of new masterplanned communities and apartment projects over the next 12 months, with Mirvac now selling across more fronts than ever before. This includes Everdene at Mulgoa in Sydney's west, which is already attracting strong interest from first-home buyers and upgraders, as well as the next release of our luxury Harbourside Residences in Sydney, our most premium offering to date. As Rob mentioned, we are also progressing initiatives with that leverage modern methods of construction, which have the potential to drive up to 10% in cost savings and significant improvements in build times and sustainability outcomes. We are rolling these out across a number of projects in FY '26, with the intention of implementing them more broadly thereafter. We have also made good progress in reshaping our investment portfolio, which is delivering strong metrics, positive leasing spreads, and has low capital expenditure. Our industrial portfolio focused in Sydney is performing strongly. We have maintained high occupancy of 99%, and income from this part of the business was up 12% in FY '25 following development completions at Aspect Industrial Estate in Kemps Creek, in Sydney's west. Our next industrial development project called SEED at Badgerys Creek, close to the new Western Sydney international airport, is also progressing well. The 50% sell-down of Stage 1 to Australian Retirement Trust and the anticipated sell-down of Stage 2 will help us to fund the continued expansion of our industrial portfolio and deliver new, resilient income to the Group. As we grow our exposure to both Living and Industrial, we are also sharpening our office footprint, with a focus on continuing to create and own Premium-grade assets in core CBD locations. These assets remain the most resilient in terms of both capital and tenant demand. Following $1.2 billion of asset sales over the past two years, we now have a young and modern portfolio of high-quality assets, 54% weighted to Premium-grade, with an average age of 9.6 years, and a 5.3 Star NABERS energy rating. Within our urban retail portfolio, our strategy to drive value is delivering results, with occupancy at 99%, leasing spreads up 2%, and positive sales growth. We continue to refine our retail mix and collaborate with both new and existing partners to maximize sales productivity and drive value. Over the year, we opened 43 new stores across our portfolio, including new retailers, such as Haigh's Chocolates and Adore Beauty, helping to attract more visitors to our centers. I am also pleased to say that last week, we exchanged contracts for the sale of the former Toombul site in Brisbane to Irvine Property Group, a local Brisbane developer. Security holders may remember we made the difficult decision to permanently close the center following severe flooding in March 2022. This was an incredibly challenging time for our retailers, the community, and everyone in our Mirvac Retail team. Since then, we have completed demolition of the site and have worked with Brisbane City Council on key planning issues, and a critical flood solution. We then commenced discussions with potential partners about the best way forward. Given the scale of the site and extensive remediation works required, we believe the sale of Toombul to Irvine Group allows for renewed investment, and we believe this is the best outcome for the community and for our security holders. Our integrated model and in-house design, development and construction capability is something that is uniquely Mirvac and is important to our customers and capital partners, who invest alongside us. Our committed development pipeline is expected to create around $100 million in new annualized income for our investment portfolio over the coming years, while delivering simultaneously $540 million of value through development profit and NTA uplift, and also adding a further $2.7 billion of funds under management. We are making good progress on our active development pipeline, with all projects now on track and many ahead of schedule. At our flagship mixed-use development at Harbourside in Sydney, for example, we have completed the southern podium structure, and the residential tower is at Level 20. We are also close to completing our 7 Spencer office asset in Melbourne, which we co-own with Daibiru, and we are in advanced discussions with prospective tenants that would see pre-leasing increase to around 50%. In Industrial, we have three more warehouses at Aspect Industrial Estate that are due for completion next year, and total pre-leasing across Aspect North and South is at around 86%. Within our Funds business, we have added around $13 billion of third-party capital over the past three years, including $1.6 billion in FY '25. Our Fund’s wholesale status, in-house management experience and stabilized assets that are generating resilient income, uniquely position us to pursue our next growth opportunities and attract further capital to the platform. In particular, we are seeing strong demand for the living sectors, industrial, and more recently, Premium Grade Office, where we have a demonstrated competitive advantage. Within the Mirvac Wholesale Office Fund, the top-performing fund in its index, we have raised around $413 million since April, driven by a focus on owning the best assets in the best locations. With gearing of 25% – one of the lowest in the sector, the fund is positioned to deploy capital at the right point in the cycle. I would like to address some of the questions we have received regarding our involvement in the proposed change of manager in the Australian Prime Property Fund Platform or APPF. Earlier this year, we were approached by a number of APPF investors who wished to instigate a change of management of the APPF funds. Mirvac was invited to put forward a proposal that provided investors with an alternative for APPF. In response, Mirvac engaged with investors and developed an aligned proposition that reflected leading governance, fee and liquidity frameworks, transparency and access to Mirvac's sector-specialist teams. These proposals provided an avenue for investors to be given a choice to change the responsible entity of APPF Industrial and APPF Retail to Mirvac. While the outcome was not as we had hoped, we are pleased to have had the opportunity to build relationships with a broader group of investors, and showcase our sector-leading capabilities, our high-quality assets, strong investor-led mindset and steadfast commitment to transparency and good governance. Attracting and retaining top talent is something we continue to focus on, so that we have the best people in place to execute our strategy. We have an ambition to create a workplace where our people feel engaged and inspired to deliver outperformance, and where they can grow and develop into the next generation of Australian property leaders. In line with this, we continued to roll out our Mirvac Masters program to our employees, which we launched last year in collaboration with the University of Sydney. The Masters program provides our employees with deep technical learning, and a curriculum tailored to meet the evolving demands of the industry. Gender equality has been a long-standing focus at Mirvac, and in FY '25 we saw a solid improvement in our gender equality metrics. The number of women in senior management roles increased to 47%, up 2% on FY '24, and well ahead of our 40% target. It was also great to see that 44% of parental leave was taken by male employees in FY '25 reflecting our commitment to a culture where care is supported equally. Our ongoing focus on our people delivered an employee engagement score of 81% this year, which places Mirvac in the top quartile of Australian businesses, and this is a notable achievement given the operating environment we have been working in. Although uncertainties remain in both global and domestic markets, I believe that Mirvac, with its best-in-class investment portfolio, growing funds platform, development capability, and strong living sector focus, will continue to deliver value for security holders into the future. We have a strong balance sheet, and a clear strategy in place, and we will continue to leverage our integrated creation and curation capability to provide a balance of a stable income and focused growth. This is our key competitive advantage. Importantly, we have a highly engaged and talented team of people who support our vision. We remain on track to achieve our strategic objectives in FY '26 and have reaffirmed earnings guidance of between $0.128 to $0.13 per security, which represents growth of between 6.7% to 8.3%, and distribution per security of $0.095, up 5.6% on FY '25. I would like to thank the team for their hard work, passion and commitment over the year, and for their contribution to our performance. I would also like to thank our Board for their support and guidance, and our leaders for their role in Mirvac’s success. And I would like to thank you, our securityholders, for your continued support. Thank you, and I'll now hand back to Rob.

Thanks, Campbell. So I'll now go through the procedures for voting and asking questions at today's meeting. All resolutions at the meeting will be decided by a poll, which I now declare open. The polls will remain open for all resolutions until the end of the Meetings. This gives you the opportunity to vote now or at any time throughout the Meetings. For those present in the room, when you registered today, you would have been given an attendance card. Please raise your hand now if you haven't got an attendance card. If you have a yellow card, you are a voting security holder, proxy holder or corporate representative and are entitled to vote and speak at the meeting. You can vote by placing a cross or a tick in the for, against or abstain boxes opposite each resolution. Please place your completed voting cards in the ballot box at the back of the room before the polls close. If you have a blue attendance card, then you are a nonvoting security holder, who is entitled to speak at today's meeting, but not entitled to vote. If you have a red attendance card, then you're a visitor and cannot vote or speak at today's meeting. As the Chair of the Meetings, any open proxies given to me will be voted in favor of each resolution. The number of direct votes as well as the proxy votes received prior to today's Meetings will be displayed on the screen for each resolution as it is considered. When I call for questions, if you wish to speak, please make your way to the microphone stand and state your name. Please bring your yellow or blue attendance card with you. If anyone is unable to move to the microphone, then please simply raise your hand, and a microphone will be brought to you. To be fair to everyone and to allow other security holders a reasonable opportunity to participate, I request that you please limit yourself to 2 questions or comments at each question time. Only questions that are relevant to the meeting will be addressed. If you have any questions relating to customer or personal matters, please speak to a member of the management team after the conclusion of the meeting, who will be very happy to assist you. As shown on the screen, there are 4 items of business on today's agenda. The first item of business is the receipt and consideration of the financial reports, the directors' report and the auditor's report for Mirvac Limited for the year ended 30th of June 2025. While there is no resolution for this item, security holders and proxy holders are welcome to ask questions about these reports. I will now invite any questions on these -- on this specific resolution.

Hello, Mr. Chair. I will go and ask 2 questions, and then I'll sit down. I've only got another couple anyhow. The -- by the way, I'm Alan Golden. I'm representing the Australian Shareholders Association and hold, I think, it's just under 1 million securities in proxies. As the CEO mentioned, you were trying to go and change the Lend Lease management of 2 funds so far, perhaps a third one to come. Your latest setback was in the retail fund. Now Lend Lease is selling all the assets in that fund. It seems that the investors don't actually like those -- that structure anymore. Would it have been different if you had been successful?

Would it have been...

Different if you had been successful?

Thank you for your question. It's really hard to answer that question. I think, the -- I'll let Campbell make a few comments because he's much closer to it. From our perspective, it was an investor-led process in the sense that those unitholders approached Mirvac and said, would -- as Campbell said, would you consider representing us if there was a change of manager, and we were very happy to do that. And I think that's a good process from our perspective because opportunities come and go, and you've got to take those opportunities as they arrive. In terms of the retail fund, it may or -- it had a liquidity event that was -- we've just seen in the last week or 2. We're not sure whether that would have occurred under us, but we have no way of assessing one way or the other. Is there anything you want to add?

Look, the only thing I'd say, look, it's a real privilege to be invited by investors to manage their assets. So we were thrilled to be given that opportunity. Just remembering who Mirvac is, we are a developer. We own a lot of the real estate ourselves, and we look to partners to help us fund partial ownership of some of those assets. So for us, we are in the business of trying to find good long-term secure capital partners who want to invest alongside us. So the whole experience with APPF was a really wonderful opportunity for us as a business to get closer to some very deep pools of Australian Superannuation Capital. And I'd hope at some point in the future, we will be able to demonstrate that, that is worthwhile. And to a certain extent, I think, we've seen that with the ability of Mirvac to raise $413 million in our office fund, which is certainly the first office fund in the country to raise significant equity.

Just continuing on this one for a second. With -- when your discussions with these superannuation investors, institutional investors, the fact that so many of them are -- I'm sorry, the fact that so many of them took advantage of this liquidity event to move out of it. When you're talking to them, did you feel that there was any movement away from a managed fund like that, an external managed fund like that? Or did you think that they still had interest in that and it was more effective, they wanted to change the manager?

Look, that's a hard question to answer. Probably what I would say is we have a pooled fund, which is not dissimilar to those products, which has demonstrated it can raise capital. So I think, there is a place in investment funds management for pooled opportunities. The reason of change really is one for the investors. But ultimately, the things that they hold us to account on is fees, governance, confident not speak for the investors themselves, it's personal to them. But certainly, the fact that we were invited to participate for us was a great experience to demonstrate our capability.

Okay. Just one more question at the moment on a different matter. You mentioned -- I'm sorry, the -- not you, sir, the CEO mentioned that you've just sold Toombul to Irvine. Did you get more than $500 million for it?

No, we didn't.

That means you lost money. Yes. So...

I don't know about the $500 million. That wasn't that.

Well, you bought it in 2016 for $233 million. So in that period of time, if you didn't get more than $500 million for what money costs you, it's not a good deal.

Look, I'm happy to take that, Rob. Look, on that assessment, yes. Look, we certainly didn't anticipate that we would have an event that would destroy a shopping center through flood. So that was certainly unexpected. And the consequence of that has been very real for the community. And this was a much-loved community center. Certainly, for the retailers whose businesses and livelihoods were involved in that shopping center, this is a terrible experience for them and of course, for us as well and our security holders.