Mirvac leads move into 'club funds'
Within weeks, a number of new "club funds" are expected to be established for cashed-up investors looking for higher-yielding assets, particularly in the wholesale/unlisted sector.
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."