Mirvac develops little interest
Recommendation
But before we look at pricing, let's examine the operations. The company was formed in 1999 through the merger of Mirvac, Capital Property Trust and Mirvac Property Trust. No surprise, then, that property trusts are the dominant part of the group.
This is another stapled security where you're not just buying a boring old property trust.
Development action
As with Stockland you get a piece of development action too, although the property trust assets mean Mirvac's distributions are partly tax advantaged (see issue 93's Investor's College).
Management has a target of achieving 65% of profits from ordinary property trust activities, what it calls the property investment division.
A further 25% is targeted to come from the property development division and the remaining 10% from hotel operations. It's a split that's more entrepreneurial than Stockland's and, combined with a higher debt level, makes Mirvac a riskier play.
In the latest half year Mirvac's property development division contributed $52.5m, or 49% of pre-tax profit while development operations accounted for less than 25%.
The group's largest single asset is the unmistakable Optus Centre in North Sydney, with a valuation of $381m at 30 June 2001. The next biggest property is again in Sydney - Westpac Plaza adjoining Wynyard station. It was last valued on 30 June 2000 and is on Mirvac's books at $150.2m.
So the property portfolio is heavily skewed towards NSW (around 65% by our calculations) with Victoria accounting for almost 15%, ACT just over 10% and Queensland about 7%.
While most of the assets are in the investment division, development activities drove Mirvac's 19% rise in interim profit to $90.4m.
Here, the company focuses on residential development - it's developing the huge 19.1ha site next to the casino in Perth - although it does have some expertise in commercial and retail projects too.
Lucrative
The group's property operations are quite lucrative and Mirvac has a strong order book. But recent conditions are about as good as it gets for developers and that makes us a little cautious about the future prospects for this division.
In hotels, Mirvac's third division, there's a good spread of owned and managed assets, including the Marriott in Sydney, the Hotel Como in Melbourne and the Calypso Plaza Suites Coolangatta.
All up, this is a sound business but the emphasis on property development concerns us, especially for subscribers looking for income.
If and when interest rates start to rise, this division could be Mirvac's Achilles heel.
Our advice to those who own it is to SELL and SWITCH to Stockland where there's less reliance on property development.