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Stock Of The Day - MIRVAC (Expensive)

Mirvac Group (ASX: MGR) has recently reported that it is acquiring the CIMIC Group’s (CIMIC) site in St Leonard's, NSW. The site has around 472 and 486 Pacific Highway at St Leonard's, NSW. The company bought this site for an amount of $121 million. Both the present towers might remain leased by CIMIC until late 2016 .The site, bought by Mirvac got rezoned recently for varied uses, with a Development Application of around 500 apartments along with over 7,500 square meters of commercial space. The site is positioned over five kilometers from the Sydney CBD and is near to St Leonard's train station.


The company developed Era site at Chatswood around the current acquired site, and boosts of getting over 94% of the bookings in 295 apartments in just few hours of opening to the market. Meanwhile, Susan Lloyd-Hurwitz, Mirvac’s chief executive said that the group would focus on residential business in future to leverage the strong demand for housing in the country. However, the company made a slight deviation from its focus on apartments, as the group believes that this project (which Mirvac acquired) might profit from the NSW Government's planned Sydney Metro expansion, as St Leonard's and Artarmon might get a new railway station to improve the public transport services.

Mirvac raised a capital of over $405 million from its sale of offices and retail malls on the eastern seaboard to public as well as private investors. Management intends to use these funds to develop the St Leonard's site. Mirvac also intends to use these funds to buy Australian Technology Park in Redfern, Sydney.

Mirvac is striving to maintain its Development EBIT expectation of 82% in 2015, benefitting mainly from approximately 1,500 lot settlements in residential business. Therefore to achieve this target, the group intends to divest around $200 million to $400 million of assets during the fiscal year. Overall the company is seeking to settle around 2,200 residential lots during the fiscal year of 2015, with over 1,533 lots settled as of April 2015. Despite building and maintaining a huge portfolio, Mirvac is striving to maintain a strong balance sheet to maintain a gearing within the range of 20% to 30% by the end of the financial year. 


Major Apartment Release schedule FY15 (Source: Company Reports)

With regards to the office segment, the group’s portfolio is well positioned having an 82% overweight exposure at Sydney and Melbourne markets and long term lease expires in Brisbane, Perth and Canberra. 



Office Lease Expiry Profile (Source: Company Reports)

Moreover, the group’s office portfolio has also been performing well and the office occupancy levels has marginally increased to 95.5% as of March 2015. The company continues to focus on leasing vacant space as well as managing near term expiries. Meanwhile, the company has a pipeline of over $1.3 billion worth of office developments.  


Committed office development pipeline (Source: Company Reports)

As per the retail segment, the group remains focused on urban markets, supported by a major (over 67%) weighting for Sydney. The company’s retail portfolio saw an occupancy of 99.1% during the third quarter of 2015. The firm got new leases and renewals of over 8,000 square meters during the third quarter of 2015. Mirvac’s Broadway shopping center in Sydney won number one as shopping center for the third year in a row, awarded by Big guns awards 2015, signifying the company’s retail competence. 




Retail assets (Source: Company Reports)

The company’s industrial assets occupancy remained at 99.6% as of third quarter of 2015, while the portfolio has a long WALE of 7.8 years, indicating low risk to the portfolio. The firm’s industrial portfolio rose to around 393,400 square meters, driven by the settlement of four Sydney assets bought from Altis in January 2015. The company has major (over 90%) industrial assets in Sydney. The company’s core Sydney’s industrial project of $121 million at Eastern Creek received approval for master plan concept and is on track. 



Industrial Lease Expiry Profile (Source: Company Reports)

In spite of having a potential to deliver over 10,000 sites over the next four years and maintaining a high quality portfolio across all the regions, the slowing rental demand for office and residential segments might continue to pose a challenge to overall Mirvac group’s growth.


Mirvac Daily Chart (Source - Thomson Reuters)

The group’s stock posted a year to date return of over 6.2% and delivered 5.3% over the last six months. However, the stock has been facing pressure over the last few months delivering a negative returns of 5.3% in the last three months and over 4.8% in the last four weeks. Despite this fall, we continue to believe that the stock is slightly expensive at its current price and might review the stock at a future date.