Mirvac leads move into 'club funds'
On Thursday, Mirvac will start the ball rolling at its quarterly investor update. It is expected that this will see the formation of a $500 million-plus fund that 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.
According to James Besson at UBS, 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 Mirvac's capital spending requirements.
"We currently assume Mirvac funds 50 per cent of the developments with the spend remaining at $433.5 million. We estimate that capital expenditure requirements could reduce by $250 million to $180 million after 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 reports that Mirvac was looking to buy some GE Capital assets, such as 210 George Street, which are being sold as the global fund focuses on property lending.
Analysts at Bank of America Merrill Lynch said Mirvac had been one of the stronger performing real estate investment trusts with a year-to-date return of 17 per cent in share price. It had also outperformed the ASX 200 A-REIT Index by about 4 percentage points and its rival, Stockland, by about 6 points.
"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."
Frequently Asked Questions about this Article…
Mirvac is expected to launch a $500 million-plus wholesale or "club" fund, announced at its quarterly investor update (noted in the article as May 9). The fund would be aimed at cash-rich investors seeking higher-yielding, wholesale or unlisted property assets and is likely to be seeded with portions of Mirvac’s existing commercial property holdings.
Reports in the article say the fund could be seeded with at least a half share of the Westpac headquarters at 275 Kent Street, Sydney, and potentially a 50% stake in the 669 Bourke Street development in Melbourne. In a larger $1.29 billion scenario analysts mentioned, assets could also include the Old Treasury Building (Perth) and 190–200 George Street (Sydney).
UBS analyst James Besson estimated that placing up to about $1.29 billion of assets into a new fund could be roughly 2% dilutive to Mirvac’s earnings (subject to deployment). However, the move would also reduce Mirvac’s immediate capital spending needs and free up cash for redeployment.
Yes. UBS analysts in the article suggested Mirvac could fund 50% of developments and keep spend at around $433.5 million. They estimated capital expenditure requirements could fall by about $250 million to roughly $180 million and that the sale of assets like 275 Kent and land related to 190–200 George Street could free up about $450 million of capital.
The article notes analysts expected an update on reports that Mirvac was looking at buying some GE Capital assets, such as 210 George Street, as GE shifts focus away from property lending. This was described as something Mirvac might pursue alongside the wholesale fund strategy.
Bank of America Merrill Lynch analysts said Mirvac had been one of the stronger-performing A-REITs year-to-date, with a share price return of about 17%. That performance reportedly outpaced the ASX 200 A-REIT Index by roughly 4 percentage points and rival Stockland by about 6 points.
Despite recent outperformance, Bank of America Merrill Lynch analysts said they saw limited upside to their $1.75 valuation for Mirvac. They also noted Mirvac's dividend yield of about 5% was in line with the sector average, and they downgraded the stock to neutral ahead of full strategic details being released.
Investors should watch for the full strategic outline Mirvac provides (referenced in the article at the May 9 update), details on which assets are placed into the fund, any confirmed acquisitions (for example from GE Capital), and the impact on Mirvac’s capital expenditure, earnings dilution and dividend outlook. These factors will influence whether the initiative strengthens Mirvac’s growth profile or limits near-term valuation upside.
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