A change in the property market in Australia is seen by the categorisation of Mirvac, which has always been looked at as a source of reliable income, as beginning to be adjusted downwards from a pricing perspective by the marketplace’s perception that most of the rate shock to be experienced has already occurred. While the price chart appears to show a steady and moderate increase, this price history does not reflect what has transpired from the operational perspective. Through operational successes, strategic changes and the execution associated with these two components, institutional investors have been brought back to the direct real estate industry.
During the previous year, Mirvac moved away from being a lower-discount investment. Mirvac established a base price after hitting its 52-week low, and it has since seen a notable increase in price. When overlaying the current price of Mirvac with the price one year ago, Mirvac’s mid-teen capital gains would have been met for investors who bought Mirvac during the time of fear. Whether new investors will receive the same capital gain from Mirvac or will experience an increase above and beyond what would be expected is yet to be seen, as it will largely depend on the ability of Mirvac to continue to perform at expected, or greater, levels.
What’s happening behind closed doors? A coordinated trifecta: leading office leasing business despite the negative headlines; developing an endless supply of new apartment buildings; commercialising education and research into ongoing sources of cash flow through Build to Rent. Mirvac continues to report excellent tenant retention rates from its key Sydney and Melbourne assets, even as lower-grade properties see significant abandonment, a bifurcation that pays handsomely for the owners of more energy-efficient and better-quality assets. The timing of pre-sales received for Mirvac’s master-planned developments and apartments provides an excellent hedge against rapid fluctuations in market conditions.
In addition, the company continues to develop and promote its sustainability initiatives and has entered into partnerships with institutions to facilitate this. The company has successfully packaged large-scale developments with ESG credentials and is targeting global institutional investors to obtain additional funding and to achieve larger and more diverse customer bases for future development activities. The history of Mirvac as a best-in-class developer of places and the transparency of its public report on sustainability indicate that it does not want to be considered a landlord; it is positioning itself to be the preferred developer for long-term institutional investors with ESG interests.
Market reaction has been cautious optimism instead of exuberance. Broker recommendations primarily focus on buying and holding, with targets that reflect only a small upside and a thick distribution yield, providing an attractive return for income investors seeking to diversify away from government bonds. This slowly building acceptance of the asset explains the steady volumes in the marketplace, rather than manic volumes; institutions seem to be building positions when the assets trade down instead of speculating on breakouts.
Furthermore, Mirvac continues to build confidence through headline projects. Mirvac’s work with international partners on large office developments in Sydney indicates a much deeper strategy; foreign capital still values premium Australian assets, provided they meet the demands of modern-day sustainability and amenity standards. Such transactions do not just add scale but also provide Mirvac with validation of its ability to attract long-term partners.
The company is vulnerable. The distressed loan pricing no longer affects Mirvac’s equity. Therefore, Mirvac will suffer if any of the following happen: they increase rent with higher interest rates, experience delays in completing projects, have less demand for apartments, etc. A few months of strong stock performance will not determine the company’s valuation. Mirvac will have to successfully complete projects on schedule, recycle its debt in a disciplined way, and continue to grow its occupancy rate and revenue consistently.
Mirvac has been creating real estate for over 40 years and has extensive experience in the industry; therefore, it has evolved into a landlord, urban developer and institutional rental platform at this point in time. The next phase(s) of Mirvac’s business (i.e., new rental developments and development of environmentally friendly urban areas/cluster developments) will be crucial to the company’s success and will help to determine how Australian cities develop and finance real estate.
