Mirvac snaps up $584m GE portfolio
The move comes a day after Mirvac unveiled its new strategy of focusing on office markets, inner-city apartments and metropolitan mixed-use residential developments.
This is one of the largest transactions in the office sector for two years and marks the start of the next phase of growth in the real estate investment trust sector.
With the low-interest rate environment, super funds, sovereign funds and high-net-worth investors are returning to REITS searching for higher-yielding investments.
This weight of money will force more asset sales and expansion strategies among the REITS.
But it also comes at a time when rents remain flat due to a rise in supply from new developments such as Docklands in Melbourne and Sydney's Barangaroo South.
To fund the deal Mirvac will raise $400 million through a fully underwritten institutional placement at $1.69 per stapled security. A non-underwritten security purchase plan will allow eligible securityholders to acquire Mirvac stapled securities at the placement price.
The GE Capital portfolio, which has been up for sale since late last year, had been viewed by potential buyers such as Blackstone and Hong Kong's Pacific Alliance Group.
Mirvac had been touted as the buyer for the past two months, but it wanted to release its review, which it revealed on Thursday, before announcing the acquisitions.
The assets are a mix of core A-grade CBD assets and redevelopment opportunities designed to boost Mirvac's integrated model.
They include Allendale Square, Perth and 90 Collins Street, Melbourne, which increase Mirvac Property Trust's portfolio exposure to the Perth and Melbourne CBDs.
The five Sydney CBD assets are located in the "Alfred, Pitt, Dalley and George streets" precinct, restocking Mirvac's commercial development pipeline with assets that can be held for the long term.
These will complement Mirvac's existing 190-200 George Street property in Sydney, which is under construction for redevelopment and will be the new home for accounting group Ernst & Young.
The selling agent, John Cullen of CBRE, said the assets were keenly sought and well priced.
According to Mirvac chief executive Susan Lloyd-Hurwitz, the GE deal aligned with the mandates set for Mirvac's office portfolio following its review.
"It enhances Mirvac's office operational leverage across a $4.1 billion portfolio of 32 properties and the equity raising will allow Mirvac to fund the acquisition and remain in line with its revised target gearing range of 20 to 30 per cent," she said.
Analysts at Macquarie private wealth said the transaction was expected to be neutral to the 2013 financial year earnings and accretive from the 2014 financial year.
"Assuming a cost of debt of 5.7 per cent and conservatively providing for a 3 per cent vacancy factor given short-term lease expiries, we estimate the earnings accretion from 2014 to be just under 1 per cent on our forecasts," the analysts said.
"However, we note that given five of the seven assets in the portfolio are earmarked for development, potential exists for the generation of development profits in future years."
Frequently Asked Questions about this Article…
Mirvac bought seven GE Capital office assets across Sydney, Melbourne and Perth valued at $584 million. The portfolio includes core A‑grade CBD assets and redevelopment opportunities, notably Allendale Square in Perth, 90 Collins Street in Melbourne, and five Sydney CBD assets in the Alfred, Pitt, Dalley and George streets precinct.
The acquisition fits Mirvac’s new strategy to focus on the core office sector, inner‑city apartments and metropolitan mixed‑use residential developments. Mirvac’s chief executive said the deal enhances office operational leverage across its $4.1 billion office portfolio and aligns with the company’s revised targets.
Mirvac plans to raise $400 million via a fully underwritten institutional placement at $1.69 per stapled security. Eligible securityholders can participate in a non‑underwritten security purchase plan (SPP) to buy stapled securities at the same placement price.
The deal adds Allendale Square (Perth) and 90 Collins Street (Melbourne) and five Sydney CBD assets in the Alfred/Pitt/Dalley/George streets precinct. These assets restock Mirvac’s commercial development pipeline and complement its existing 190–200 George Street Sydney property under redevelopment.
For investors, the placement and SPP mean potential dilution but also the chance to buy at the placement price. Mirvac says the equity raising will fund the acquisition while keeping gearing within its 20–30% target range. Analysts expect the deal to be neutral to FY2013 earnings and accretive from FY2014 under conservative assumptions.
The $584 million transaction is one of the largest office deals in two years and signals renewed capital flow into REITs from super funds, sovereign funds and high‑net‑worth investors seeking yield. That weight of money could drive more asset sales and expansion across REITs, even as rents remain flat because of increased supply from new developments like Melbourne’s Docklands and Sydney’s Barangaroo South.
Opportunities include redevelopment upside and potential future development profits from five assets earmarked for development, plus long‑term income from core A‑grade CBD holdings. Risks noted in the article include flat rents due to rising supply, short‑term lease expiries that could create vacancy, and the need to manage debt and gearing while funding developments.
Macquarie private wealth analysts said the transaction should be neutral for 2013 earnings and accretive from the 2014 financial year. Using a cost of debt assumption of 5.7% and a conservative 3% vacancy factor for short‑term lease expiries, they estimated earnings accretion from 2014 to be just under 1% on their forecasts.
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