Several new "club funds" are expected to be established in the next few weeks and will be available for cashed-up investors looking for high-yield assets, particularly in the wholesale/unlisted sector.
On Thursday, Mirvac will start the ball rolling at its quarterly/strategic investor update. A $500 million-plus new fund is expected to be formed, which is likely to be seeded by at least a half-share of the Westpac headquarters at 275 Kent Street, Sydney. Other possible assets could include a 50 per cent stake in the 669 Bourke Street development in Melbourne.
James Besson of UBS said if Mirvac placed as much as $1.29 billion of assets into a new fund - which included a full share of Bourke Street; 50 per cent of the Old Treasury Building, Perth, and 275 Kent Street; and 100 per cent of 190-200 George Street, Sydney - it would be about 2 per cent dilutive (subject to deployment) to Mirvac's earnings but would reduce its capital spending requirements.
"We currently assume Mirvac funds 50 per cent of the developments with the spend remaining at $433.5 million," Mr Besson said. "We estimate that capital expenditure requirements could reduce by $250 million to $180 million post the establishment of the wholesale fund and frees up about an additional $450 million of capital for redeployment from the sale of 275 Kent and land relating to 190-200 George Street."
Mr Besson said he expected an update on whether Mirvac was looking to buy some of GE Capital's assets.
Analysts at Bank of America Merrill Lynch said Mirvac had been one of the stronger performing real estate investment trusts, having year-to-date share price returns of 17 per cent, and outperforming the broader ASX 200 and the A-REIT index by about 4 per cent, and its rival, Stockland, by about 6 per cent.
"While we think this outperformance has been justified by the earnings growth momentum and better visibility of 'locked in' residential earnings in 2014 financial year, we now see limited upside to our $1.75 valuation," the analysts said.
"With the dividend yield of 5 per cent being in line with the sector average and some uncertainty prior to the full outline of the strategic direction on Thursday, May 9, we downgraded the stock to a neutral. We would want to see clearer visibility of the return on invested capital for the development business in the 2016 financial year and beyond, further accretive office projects secured, or a significant initiative in the proposed funds management platform which was accretive to our valuation before we would become more positive on this stock."