Mirvac : MPT FY17 Annual Report (pdf | 1.94 MB)

MIRVAC PROPERTY TRUST 2017 ANNUAL REPORT

MIRVAC PROPERTY TRUST AND ITS CONTROLLED ENTITIES Annual Report For the year ended 30 June 2017

The consolidated entity comprises Mirvac Property Trust (ARSN 086 780 645) and its controlled entities.

Index

Page

Directors' report	2
Auditor's independence declaration	7
Consolidated financial statements	8
Consolidated statement of comprehensive income	10
Consolidated statement of financial position	11
Consolidated statement of changes in equity	12
Consolidated statement of cash flows	13
Notes to the consolidated financial statements	14
Directors' declaration	37
Independent auditor's report to the unitholders of Mirvac Property Trust	38

The Directors of Mirvac Funds Limited (ABN 70 002 561 640, AFSL 233121), the Responsible Entity of Mirvac Property Trust (MPT or Trust) present their report, together with the consolidated report of MPT and its controlled entities (consolidated entity) for the year ended 30 June 2017.

MPT and its controlled entities together with Mirvac Limited and its controlled entities form the stapled entity, Mirvac Group (Mirvac or Group).

Responsible Entity

The Responsible Entity of the Trust is Mirvac Funds Limited, an entity incorporated in New South Wales. The immediate parent entity of the Responsible Entity is Mirvac Woolloomooloo Pty Limited (ABN 44 001 162 205), incorporated in New South Wales, and its ultimate parent entity is Mirvac Limited (ABN 92 003 280 699), incorporated in New South Wales.

Directors

The following persons were Directors of Mirvac Funds Limited during the whole of the year and up to the date of this report, unless otherwise stated:

• John Mulcahy

• Susan Lloyd-Hurwitz

• Christine Bartlett

• Peter Hawkins

• James M. Millar AM

• Samantha Mostyn

• John Peters

• Elana Rubin.

  Principal activities

  The principal continuing activities of the consolidated entity consist of property investment for the purpose of deriving rental income and investments in unlisted funds. There has been no significant change in the principal activities of the consolidated entity during the year.

  REVIEW OF OPERATIONS AND ACTIVITIES Financial Year 2017 (FY17) FINANCIAL AND CAPITAL MANAGEMENT HIGHLIGHTS

  Key financial highlights for the year ended 30 June 2017:

  • profit attributable to the stapled unitholders of MPT of $935.4m, driven by substantial revaluation gains on investment properties;

  • operating cash inflow of $378.3m;

  • distributions of $385.5m, representing 10.4 cents per stapled unit; and

  • net tangible assets per stapled unit of $2.32, up from $1.74 (June 2016).

    Key capital management highlights for the year ended 30 June 2017:

    The consolidated entity's capital structure is monitored at the Group level. Key capital management highlights relating to the Group for the year ended 30 June 2017 include:

  • substantial available liquidity of $749.4.0m in cash and committed undrawn bank facilities held, with $200.0m of debt due for repayment in December 2017;

  • weighted average debt maturity increased significantly from 4.5 years (June 2016) to 6.2 years, following over $1bn of debt issuance over the past six months, including:

  • > $536.8m (US$400m) of US Private Placement notes for terms of 11, 12 and 15 years;

  • > $250.0m of medium term notes (MTN) for a term of seven years under the Group's MTN program;

  • > $118.2m (JPY 10bn) of Euro medium term notes (EMTN) for a term of 15 years, the first issuance under the Group's EMTN program; and

  • > $200.0m of bank debt extended from 30 September 2017 to 30 September 2021; and

  • average borrowing costs reduced to 4.8 per cent per annum as at 30 June 2017 (June 2016: 5.0 per cent), including margins and line fees, following the issuance of new debt and the repayment of maturing debt.

    FINANCIAL, CAPITAL MANAGEMENT AND OPERATIONAL HIGHLIGHTS (continued)

    Key operational highlights for the year ended 30 June 2017:

  • investment property revaluations provided an uplift of $500.3m for the 12 months to 30 June 2017;

  • 101 Miller Street, North Sydney NSW: signed approximately 17,400 square metres, with new tenanting including Chubb Insurance, White Clarke and Bedford Education. The State Government also renewed its lease and took additional space for a combined area of 10,270 square metres for a 10-year term;

  • 2 Riverside Quay, Southbank VIC: now 100 per cent leased with approximately 2,300 square metres of deals signed in FY17;

  • 37 Pitt Street and 51 Pitt Street, Sydney NSW: active leasing continued during the financial year, with 14 deals executed over a combined area of 6,500 square metres across the two buildings;

  • Calibre, Eastern Creek NSW: following the successful completion and leasing of Warehouse 1 in the first half of FY17, construction of the second warehouse, a 21,000 square metre high-quality flexible facility, commenced in June 2017, with practical completion anticipated for FY18. Strong tenant interest has been received for the next facility and balance of the estate;

  • Broadway Sydney NSW: ranked No.1 in Shopping Centre News' Big Guns Awards for moving annual turnover per square metre (MAT/m2) for the fifth consecutive year; and

  • East Village, Zetland NSW: ranked No. 1 in Shopping Centre News' Little Guns Awards for total sales productivity in its first year of entry. The acquisition of a 50 per cent interest in the centre was completed in July 2016.

Market outlook1:

Office

Sydney and Melbourne office markets are in the midst of a strong rental upswing, with tightening vacancy placing upward pressure on rents. There has been further evidence of a modest recovery in tenant demand in Brisbane, while the sharp occupancy contractions experienced in Perth have abated over the past six months. The Trust will continue to focus on the key urban markets of Sydney and Melbourne, as well as creating innovative, collaborative and flexible workplaces that generate value, while improving the quality of the portfolio.

Industrial

Leasing activity in the Sydney and Melbourne markets has been tracking at above average levels with take-up concentrated to new development stock. Both markets have benefited from healthy retail sales and elevated housing investment, while in Sydney, ongoing solid economic growth and a pick-up in state-funded infrastructure investment will be supportive of demand in 2017. The Trust's strategic overweight to the strong performing Sydney market ensures that the industrial portfolio will continue to provide secure stable income.

Retail

While the broader retail environment faces some challenges, shopping centres with strong catchment fundamentals continue to be well supported. The Trust's retail portfolio is located in the service-based economies of Sydney, South East Queensland and Melbourne, which continue to record stronger employment and population growth, and higher levels of housing equity than regional areas. In addition, well-performing centres continue to attract quality tenants who in turn offer great customer experiences. The Trust's focus on high-quality assets in urban catchments with strong fundamentals is expected to support a continued outperformance in the retail sector.

Risks:

Tenant demand for office space remains challenging in Brisbane and Perth; however, the Trust's overweight position to Sydney and Melbourne means it is well placed against this backdrop. Retail sales continue to grow overall, however, certain retailer category performance has softened and leasing demand remains variable. To mitigate these risks, the Trust is focused on continually refreshing its retail assets (via refurbishment, redevelopment or tenant remixing) to adapt to changing market dynamics.

Interests in the Trust

2017	2016
No. units	No. units
m	m
Total ordinary stapled units issued	3,703.3	3,699.1
Stapled units issued under long term incentive (LTI) plan and employee incentive scheme (EIS)	2.3	2.6
Total stapled units issued	3,705.6	3,701.7

Refer to note E2 to the consolidated financial statements for a reconciliation of the interests in the consolidated entity issued during the financial year.

1. These future looking statements should be read in conjunction with future releases to the Australian Securities Exchange (ASX).