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Edited Transcript of MGR.AX earnings conference call or presentation 8-Aug-19 12:30am GMT

Full Year 2019 Mirvac Group Earnings Call

Sydney, New South Wales Nov 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Mirvac Group earnings conference call or presentation Thursday, August 8, 2019 at 12:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Brett Draffen

Mirvac Group - CIO

* Campbell Hanan

Mirvac Group - Head of Office & Industrial

* Shane M. Gannon

Mirvac Group - CFO

* Stuart Penklis

Mirvac Group - Head of Residential

* Susan Lloyd-Hurwitz

Mirvac Group - CEO, MD & Executive Director

* Susan MacDonald

Mirvac Group - Head of Retail

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Conference Call Participants

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* Darren Leung

Macquarie Research - Analyst

* Grant McCasker

UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate

* Richard Barry Jones

JP Morgan Chase & Co, Research Division - VP

* Simon Chan

Morgan Stanley, Research Division - VP & Equity Analyst

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Presentation

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [1]

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Good morning, and welcome to our 2019 Full Year Results Webcast and Teleconference. With me today are Shane Gannon, Brett Draffen, Campbell Hanan, Susan MacDonald and Stuart Penklis.

At Mirvac, our purpose and our passion is to reimagine urban life. This is a great challenge and comes with enormous responsibility. Against the backdrop of sustained global political instability and the further erosion of trust in Australia's institutions, it's more important than ever that companies like Mirvac act fairly, responsibly and ethically. Our purpose inspires us to make a positive and lasting contribution and to be a force for good. But that doesn't mean we always get it right. It means being serious about doing the right thing. It means that when we make a mistake, we want to know about it, understand what happened, learn from it and plan a better future.

One of our values is to be genuine and do the right thing. And we measure whether our people know how to call things out that aren't right and whether they feel safe to do so. A particular urgency currently is the need to raise building standards in Australia. It is unacceptable that families who bought apartments in good faith with the reasonable expectations that those apartments would be built to an appropriate standard can suddenly find themselves without a home to live in, with years of legal hassle ahead of them and enormous cost to rectify buildings that should have been properly constructed in the first place.

This breach of faith is more than a transaction gone wrong because these homes represent the life savings and the dreams of Australians who've invested their futures in those homes. People should be able to know that their homes are built safely. And in the event that something does go wrong, that they will have support and recourse.

At Mirvac, we sought to set the standard in quality for almost 50 years, going above and beyond regulatory requirements and paying attention to every detail. We support the recommendations of the Shergold Weir report and the 6 key priority areas set out by the Building Ministers Forum. We welcome the appointment of David Chandler as New South Wales Building Commissioner, and we will continue to work with all levels of government and the Property Council to drive change across our industry.

In a year that was marked by uncertainty and a challenging operating market, our reputation for quality and our unwavering commitment to our urban asset creation strategy have stood us in good stead. And I'm very pleased to say that FY '19 was another year in which we delivered on our promises. Building on our consistent track record of growth, we once again delivered at the top of guidance with 5% DPS growth, 4% EPS growth, 8% NTA growth and 10.1% group return on invested capital. We have an extremely resilient business and will continue to deliver strong, visible and secure cash flows, sustainable distribution growth and attractive return on invested capital above our weighted average cost of capital.

This time last year, we spoke to you about the inflections we were seeing in the investment cycle and the residential cycle, how we've been preparing the business to continue to thrive under those conditions. We have done all the hard work needed over the last 6 years to reposition the portfolio. We executed a multiyear asset divestment program, created a high number of quality new assets and harnessed third-party capital. And there's much more to come from our active commercial pipeline, now 90% pre-let. And by 2023, fully 80% of our office and industrial portfolio will have been created or repositioned by Mirvac.

Mirvac has very strong momentum. And in May, we created a balance sheet headroom through a successful equity raise to support the delivery of a next-generation of value-accretive urban projects. This additional headroom is allowing us to take advantage of opportunities in the current market conditions, and we are starting to selectively restock the residential portfolio.

The residential business is very well positioned for FY '20. Already, we have 79% of residential EBIT secured. And for the first time that I can recall, we'll have a first half residential earnings SKU with an approximate 65-35 split.

Twelve months ago, we said that the growth engine of the business was shifting to our high-quality passive investment portfolio, and this continued to play out in FY '19, driven by our urban asset creation strategy. With the completion of several new assets, passive invested capital has increased 14% to $11.5 billion and now represents 87% of total capital. We remain on track to deliver an average of 5% per annum in passive earnings over FY '19 to FY '21.

As we also said 12 months ago, we will deliver $1 billion of active EBIT between FY '19 and '21. However, those earnings will be more variable in timing and more weighted to master-planned communities and commercial development than in previous years.

We've made significant progress in FY '19 in our urban asset creation endeavors. Firstly, we're on track to deliver our active commercial development pipeline, including the next-generation of leading workplaces, all on time and within feasibility. Secondly, we're advancing plans for our secured future pipeline in line with our expectations, with our teams making really good progress on 55 Pitt Street in Sydney, 383 La Trobe Street in Melbourne, our significant logistics land holdings in Sydney and our mixed-use opportunity at Harbourside. Progress on our secured residential pipeline has been very pleasing throughout the year with significant effort being devoted to listening to communities.

Thirdly, we've already secured 3 of the unnamed opportunities we flagged in May, including a logistics development site at Auburn in Sydney, a capital-efficient MPC joint venture with Boral at Wantirna South in Melbourne and our first build-to-rent project in Melbourne, as part of the Queen Victoria Market’s redevelopment. And the remaining 4 opportunities are all progressing well.

We continue to see an impressive array of new business opportunities across the group. And as always, we remain highly selective, taking care to only pursue true Mirvac opportunities.

At Mirvac, we prioritize safety above all else. During the year, we started to measure the critical incident frequency rate. We strengthened our incident review boards and achieved a record low LTIFR score of 1.02. Underpinning everything that we do is our strong and distinctive culture. Sustained staff engagement is the single biggest predictor of business performance, and for the second year in a row, our staff engagement sits at 90%. That's 3 percentage points above the global high-performing norm and 10 percentage points above the Australian norm.

But more importantly, our staff engagement survey gives us visibility in what we need to do better to continue to make Mirvac an excellent place to work. Diversity and inclusion are cornerstones of our culture. We're proud to have a 0 like-for-like gender pay gap for the third year in a row, and we have been awarded the WGEA Employer of Choice citation for the fifth consecutive year, achievements that can only be attained by constant vigilance and action. We believe that how we work is as important as what we do and that impact and output are far more important than hours spent.

Flexibility is at the heart of how we work differently, and I'm pleased to say that 75% of all employees at Mirvac have some form of flexibility in their working arrangements. Entrepreneurs working in our innovation program Hatch created 3 start-ups during the year, including a retail mall coworking business an urban agri business, growing and selling microgreens, and a construction tech venture in partnership with an artificial intelligence startup. We funded this construction tech company through Mirvac ventures, which also invested in Allume, a business providing a groundbreaking solar and battery concept for apartments, and we continue to fund Mirvac Energy.

As you know, sustainability in all its forms is one of our great passions. I can't possibly do justice to our progress in FY '19 towards our goals under This Changes Everything, so I'm just going to briefly mention 3 and leave this very detailed slide for you to read at your leisure.

We released Planet Positive, which is our plan to reach net positive carbon by 2030. From 2030 and each year thereafter, the carbon we won't emit is equivalent to planting 1.4 million trees and taking 22,000 cars off the road. We exceeded our target for community investment by 800% and 3 years early. And we released our first Social Return on Investment Report and the first report under the Task Force for Climate-Related Financial Disclosures.

Thank you, and I'll now hand to Shane, to walk through the financial results.

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Shane M. Gannon, Mirvac Group - CFO [2]

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Thanks, Sue, and good morning, everyone. Mirvac's financial results released today demonstrate our ongoing focus to ensure sustainable earnings and distribution growth and a strong balance sheet. The balance sheet positions us to provide long-term stability and equally allows us financial headroom to support development and growth opportunities. These results also demonstrate the strength and capability of the Mirvac team. Mirvac's financial performance over the last 7 years, as illustrated on this slide, displays our strong financial trajectory and reflects the strategic decisions we have taken over this period to maximize value to our security holders.

Our operating profit after tax of $631 million is 4% higher than the prior year and in line with the guidance provided as part of the recent capital raising. Today's result is also the fourth consecutive year of a statutory profit over $1 billion. As I have mentioned at the half year, despite the changing landscape within some markets in which we operate, the diversity of Mirvac's business is one of our key strengths. Our Office & Industrial business has delivered a 26% increase in EBIT in the year, an outstanding result following the 19% increase delivered in FY '18. The growth in Office & Industrial EBIT continues to reflect the repositioning activities we have taken in recent years and demonstrates, again, the significant value of Mirvac's asset-creation capabilities, with net operating income growth of 12% and significant development earnings of $125 million.

Our retail business continues to perform well and in line with our expectations. The higher EBIT contribution in the year is largely driven by the Kawana Shoppingworld development profit. Net operating income was partially impacted by the disposal of a half interest in Kawana Shoppingworld in December 2017, but offset by contributions from South Village during the year. Importantly, the retail like-for-like net operating income growth remained solid at 2.6%. Earnings in Mirvac's residential business were also in line with our expectations. And whilst slower than FY '18, are outstanding given the challenging market conditions that currently exist in the residential market.

Given the residential earnings were largely skewed to the second half of FY '19, our residential team met this challenge and delivered without compromising quality of our customers.

At a corporate level, we have seen a slight $2 million negative movement primarily due to a reduction in earnings from our JV investment in the Travelodge hotel portfolio. The outstanding 8% growth in adjusted funds from operations, or AFFO, reflects a strong operating earnings growth, together with low maintenance CapEx and tenant incentives across our modern investment portfolio. Our capital position remains robust, and our capital management strategy continues to focus on diversifying our capital sources, increasing our long-term debt and limited debt expiries in any 1 year. The strength in our capital position is demonstrated by our A3 Moody's credit rating and our A- Fitch credit rating. The recent capital raising has seen our balance sheet gearing reducing to around 20%, which is at the lower end of that 20% to 30% target band, and as I mentioned earlier, provides the financial flexibility to take advantage of both secured and future opportunities.

Our weighted average debt maturity profile has been extended to 8.5 years, following a $665 million U.S. private placement issuance completed during the year. We continue to maintain strong liquidity with around $1.4 billion of cash in undrawn debt facilities which provides the capacity to fund our committed development pipeline and pursue new opportunities, but importantly, continue to operate well within our stated financial policies.

During the year, we acquired 58 million Mirvac securities as part of our buyback program at an average price of $2.24 per security, which when compared to our current NTA of $2.50, reflects a discount of around 12%.

Finally, operating cash flows remained strong. Importantly, our distributions continue to be adequately covered by our operating cash flows and our payout ratio of 68% at an operating level or 77% at an AFFO level, remained low compared to historical sector averages. We have created a solid platform to generate future security holder value, supported by continued certainty to our distributions. We are very proud of the results being delivered today, and we are equally proud of the Mirvac people that have delivered these results.

And on that note, I'll hand over to Brett, who will provide an update on the group's allocation of capital.

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Brett Draffen, Mirvac Group - CIO [3]

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Thanks, Shane, and good morning, everyone. FY '19 has witnessed another strong year with disciplined allocation of our capital against our strategy, a strategy that recognizes the underlying strength of Mirvac's integrated delivery model to create value in urban locations that are well placed to benefit from strong population growth, diverse employment markets and increased spending on infrastructure. A key element of this approach is our focus on the 2 deepest markets of Sydney and Melbourne, whilst remaining agile to tactical opportunities in Brisbane and Perth. Today, 80% of our capital was allocated to Sydney and Melbourne, an approach we believe will continue to deliver strong results given the undeniable forces playing out in these markets.

Our investment portfolio has grown to $11.5 billion with a continued overweight to office, a growing industrial exposure, whilst remaining committed to our highly focused retail strategy. Within our development activities, our active capital base remains stable at $1.7 billion, reflecting the continued delivery of our pipeline, together with a disciplined stance on restocking. In addition to our own balance sheet, we continue to utilize our asset creation skills to invest with an aligned group of capital partners, and it is pleasing to see the strong momentum in our external assets under management, which has increased to $8.7 billion.

This deployment of capital continues to deliver results well above the cost of capital and a strong group performance this year of 10.1%. Office and Industrial has again produced a particularly strong result with excellent operational outcomes, strong revaluations and a growing contribution from development earnings. The result we delivered in Retail, although slightly down in FY '18, was also pleasing, given some temporary underperformance from centers impacted by or held for development and of course, a challenging retail environment. As forecast, the Residential business has seen ROIC down on last year's levels due to product mix, but also the ramp-up of capital that will lead to record apartment completions in FY '20, and pleasingly, a first half earnings skew. Importantly, we continue to target a 3-year rolling average ROIC greater than 9%, which is well above the group's weighted average cost of capital.

The graph on this slide really does demonstrate the scale of asset creation delivered since 2015, with total assets under management now growing to $22 billion, all at a time when we were also a proactive seller of nonaligned assets outside of our strategy. We've been able to grow the passive invested capital at an 11% CAGR to $11.5 billion, largely through our asset creation capability while keeping active capital stable. Our committed development pipeline with its known completions through to FY '22, will support this continued growth into the medium-term and drive distributions. Likewise, capital partnering has driven external assets under management at a 33% CAGR to $8.7 billion, with the corresponding growth in our asset level and investment management fees. Finally, passive asset allocation was 87% in FY '19, and we expect to remain within our target band of 85% to 90% at this point in the cycle. Further allocations of active development capital will continue to be dependent on the nature of the opportunity, our view on the property cycle and meeting return hurdles.

Increasing capital deployment to passive earnings and maintaining headroom for future development opportunities does not limit our ability to deliver a strong development pipeline. FY '20, we'll see increased earnings from development activities, together with the continued growth in NOI from Office and Industrial businesses as we see 477 Collins Street and South Eveleigh building 2 reach practical completion.

Retail will see full year contributions from targeted development expansions and redevelopment. We also continue to look at our asset composition within our passive portfolios with some potential for asset sales, albeit not material. Residential earnings in FY '20 are well secured with a strong first half skew, given the timing of apartment completions at St Leonards Square in Sydney and Eastbourne down in Melbourne. This continues in FY '21 and beyond with 9 property completions, together with good line of sight to earnings recognition on development projects. There is also the potential for a partial sell-down of the locomotive workshops in South Eveleigh in FY '21, consistent with our capital partnering strategies.

It's also worth highlighting the $1.2 billion Sydney industrial development pipeline, which will provide a growing exposure to the industrial sector and future capital partnering opportunities for the group.

Retail will continue to focus on incremental targeted spends whilst we continue to progress our planning in relation to the mixed-use development of the hubs of Harbourside in Sydney. And the residential business continues to have a strong pipeline of both MPC and apartment opportunities. Build-to-rent will also start to make a contribution in the coming years, and I'll touch on this in the next slide.

We continue to advance our build-to-rent strategy with secured projects now in both Sydney and Melbourne, excellent progress on the establishment of our operational platform which will be branded under the name Liv and a range of new business opportunities. We are strong believers that BTR will deliver a vastly improved customer experience and respond to affordability constraints and demographic and lifestyle change. Equally, we believe that BTR can deliver compelling risk-adjusted returns, consistent with our capital allocation targets, and an area that clearly leverages Mirvac's development skills and strong brand.

BTR requires scale to offer the quality of amenity and service at the property level. Our target is to grow the portfolio to approximately 5,000 apartments over the medium-term through a combination of balance sheet and aligned third-party capital. Although scale is important, we have a strict investment criteria for new projects that typically requires a minimum of 200 apartments, proximity to public transport, strong submarket demographics, walkable retail amenity and links to education and employment generators.

Our confidence means that we're willing to be an early leader in this sector, and we see significant opportunity to grow our portfolio over time. Likewise, we'll continue to work with the federal and state governments plus industry bodies to encourage greater investment in the sector and deliver a quality BTR asset class, like we see in other jurisdictions.

I'll now hand over to Campbell to detail the results for Office and Industrial.

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Campbell Hanan, Mirvac Group - Head of Office & Industrial [4]

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Thank you, Brett, and good morning. Our strategy to transition our portfolio toward new buildings, allowing tighter densities for our occupants and access to the smartest building technologies, continues to accelerate following the completion of our 8th office development, Axle at South Eveleigh. This strategy has also led to strong financial results for FY '19. As Shane mentioned, O&I divisional EBIT was up 26% to $518 million led by a 12% increase in NOI, a 92% increase in development EBIT and a 28% increase in asset management EBIT.

The portfolio continues to enjoy strong operating metrics. NOI was up 12% to $338 million led by a 5.7% increase in like-for-like income growth following improved occupancy and strong tenant retention. Occupancy improved to 98.2%, whilst the WALE remains high at 6.4 years. We completed approximately 96,000 square meters of leasing deals in the existing Office portfolio at positive leasing spreads of 16.6% and average incentives of just 15.6%. This result reflects the increasing exposure to our preferred Office markets of Sydney and Melbourne, which now stands at 85% of portfolio value. 63% of the Office portfolio was valued externally during the year. Average cap rates have tightened to 5.43%, delivering net gains of $392 million, up more than 6% for the year. And pleasingly, operational CapEx was only $19 million or 28 basis points of our office valuations, reflecting the young and modern nature of the portfolio.

The Development business continues to perform with significant EBIT contributions from South Eveleigh and 477 Collins Street in Melbourne. CBA have fully occupied building one, Axle, at South Eveleigh, with this asset now fully income producing. 477 Collins Street continues to enjoy leasing success with the development now 94% pre-committed some 10 months prior to practical completion. Our ability to create legacy Office assets has seen significant demand for joint ownership opportunities, and we are now being rewarded for this capability with a fast-growing funds management business. Our third-party capital management has grown to $7.3 billion, and we're targeting to reach $20 billion in total assets under management in the next 4 years. Our focus for FY '20 for the existing Office portfolio will be to continue to renew near-term lease expiries and to capture the underrenting in the portfolio which currently stands at approximately 4% in both Sydney and Melbourne.

Turning to the Industrial business. The portfolio remains 100% weighted to our preferred industrial market of Sydney and continues to enjoy high occupancy at 99.7% and an increased WALE of 7.7 years. The completion of Calibre during the period delivered a development EBIT of $40 million and approximately $30 million of valuation gains, demonstrating the attractive returns we are achieving from our development capability.

The Industrial portfolio also achieved strong results. NOI was up 13% led by almost 8% increase in like-for-like income growth and the income contribution from Calibre. We completed approximately 92,000 square meters of leasing deals in the portfolio at positive leasing spreads of 1.3% and average incentives of just 9.4%. The renewals have reduced the proportion of the portfolio expiring in the next 4 years down to 30%, with only 3% in FY '20. This successful leasing has established our Industrial portfolio as a long WALE, high occupancy and low CapEx portfolio which will deliver strong and secure cash flows over the coming years.

46% of the Industrial portfolio was externally valued during the year. Average cap rates have tightened to 5.72%, delivering net gains of $50 million, up 6% for the year.

Two development sites were acquired during the year, 56 hectares at Kemps Creek, in the Outer West of Sydney, which is anticipated to deliver in excess of 190,000 square meters of industrial space, and our recent acquisition of 14 hectares of zoned industrial land in Auburn. This is a rare infill opportunity with the scale and location to meet the growing last distribution -- last-mile distribution needs, and it's anticipated to deliver in excess of 70,000 square meters of small industrial units. These development acquisitions alongside our Badgerys Creek site will allow us to meet our strategic goal of growing our exposure to industrial, but doing so at attractive returns whilst creating high-quality assets.

Our asset creation capability is becoming an increasingly important differentiator for our business. Whilst it delivers NOI, longer WALE, development EBIT, valuation gain and modern CapEx-light assets, the real differentiator will be the legacy we create: Beautiful architecture, smart technologies suitable for dense occupation yet designed for the needs of tomorrow's workforce. As you can see on the left of this slide, over the last 6 years, the business has delivered 8 Office and 5 Industrial developments, which combined, have delivered 34% total returns, $345 million of development EBIT, $215 million of NOI and ongoing property and asset management fees. This theme will continue for the foreseeable future.

In the next 4 years, 4 more Office assets will be completed with the second CBA building at South Eveleigh, 477 Collins Street in Melbourne, the Heritage Locomotive Workshop at South Eveleigh and Suncorp's headquarters in Brisbane. These developments remain on time and within feasibility and post completion of Calibre and the development EBIT already recognized, are forecasted to deliver a further $90 million in recurring income, $130 million in development profits and $200 million in NTA gains. Pleasingly, these assets continue to attract new tenants, with 90% of the development pipeline by income now secured.

Our development focus for FY '20 will now center on our pipeline beyond FY '21, which includes the Auburn and Kemps Creek industrial developments already mentioned, and our 55 Pitt Street site in Sydney CBD. Recent agreements with neighbors to 55 Pitt Street has increased the scale of this asset from 30,000 square meters to in excess of 43,000 square meters, and we're now able to commence the planning process for this opportunity.

I'll now hand over to Susan MacDonald for the retail update.

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Susan MacDonald, Mirvac Group - Head of Retail [5]

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Good morning, everyone, and thanks, Campbell. I'm pleased to say our retail portfolio delivered another solid result, finishing the year with consistently positive operating metrics, albeit with some softening, particularly with Retail sales. As seen from data released last week, retail sales volumes have hit their lowest pace -- their slowest pace since 1991, with the annual growth rate of Retail volumes of just over 0.2%. The declining wealth effect appears to be the major driver in these lower volumes to both New South Wales and Victoria, despite these 2 states accounting for the majority of new jobs in having sub 5% employment rates.

On a positive, this has not deterred retailers transacting on opportunities in the right markets. We've had the largest leasing count measured by number of transactions in the 8-plus years that I've been at Mirvac. Our leasing team completed 396 deals in the Retail segment, including development projects and another 36 deals within the Office segment across both projects and repositioned assets such as South Eveleigh and 275 Kent Street in Sydney. This takes a total Retail deal count to 432 transactions. The strength of this leasing activity has resulted in occupancy remaining at 99.2%. Whilst there has been weakness in a couple of categories primarily fresh food, overall spreads remain positive.

Notwithstanding the solid leasing performance, no market is completely immune from the cyclical challenges, and we believe pressure on rents incentives will continue into the short term.

The portfolio achieved like-for-like income growth of 2.6%, translating into positive overall investment performance contributing to the portfolio's net valuation uplift for the full year. The bifurcation of retail property returns continued in FY '19, with total relative returns for Eastern Seabird Metropolitan retail assets outperforming the Australian average. This trend continue -- we see this trend continuing into the future as more economically stable markets will continue to be sought after reinforcing our position that not all retail is created equal. Growing investment premiums are being realized for stronger catchment, stable cash flows and future growth prospects characterized by the Mirvac retail portfolio.

Much has been written about the structural changes the retail industry is undergoing, courtesy of the new digitally-enabled universe, driving price transparency, convenience, a worldwide community sharing real-time reviews and access to global brands and goods, to name but a few. We are focused on the next wave of structural challenges with the generational changeover about to occur in Australia that has not been seen for more -- for over 30 years. The baby boomers, of which I am one, and GenX are transitioning out as the dominant purchasing groups. In the next 5 years, GenY, GenZ and Alpha are forecast to overtake boomers and GenX in the total Australian population. These new generations have only ever known the ease of the Internet for most or all of their lives.

These dominant groups are motivated by different drivers influencing the trend away from spending on discretionary goods and products to an increasing spend on food and wellbeing, education and recreation. These new growing categories are all users of well-located physical real estate that underpin their customer proposition. This is a -- this is driving a gradual transformation of retail and a reshaping of what categories will continue to prosper versus those categories which will lag or cease.

Mirvac's portfolio is strongly exposed to markets that are highly indexed to the emerging dominant generations, and we have been working on reshaping our product and environments over several years to ensure ongoing engagement and relevance. We understand that necessity will be replaced by choice. We continue to invest in repurposing our centers, not by adding significant GLA, but through working -- through reworking old retail, creating a more relevant offer environment to accommodate the new emerging generational preferences.

While small in capital spend, we believe the redevelopments will be impactful, contributing to the whole of asset performance. Prior to commencing, leasing has been significantly derisked with projects forecast to achieve a yield on cost above the asset cap rate.

We believe that by continuing to invest in connecting urban communities by creating targeted recreational infrastructure and physically engaging new retail environments, this will continue to underpin our continued portfolio performance in the future, along with our fabulous retail team that continued to deliver year-on-year.

Thank you.

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Stuart Penklis, Mirvac Group - Head of Residential [6]

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Thank you Susan, and good morning to you all. Despite significant headwinds in residential markets nationally, I'm very pleased to report Mirvac's brand and reputation for quality and design excellence has supported us again to deliver strong results. We settled 2,611 lots for the year across a number of significant MPC and apartment projects, including Woodlea, Googong, Hope Street, The Finery at Waterloo and Claremont in WA.

This result was above our guidance of 2,500 lots, and combined with the default rate below 2%, showcases the resilience of Mirvac product through the cycles, particularly with domestic buyers who purchased over 90% of lots sold during the year.

Gross margins were 27% above our through-cycle target, and EBIT margins were strong at 23%. We achieved over 1,770 sales during the year, despite a decline in releases year-on-year in response to slowing market conditions, supported by capital-efficient structures. With 79% of our FY '20 EBIT secured, we have strong visibility of future earnings.

Mirvac's reputation for quality continues to attract customers who want to purchase a home or investment property from a developer with a proven track record, they can trust. Now more than ever, purchasers understand and appreciate the Mirvac difference. Our customers trust us because of our quality and reputation. There are a lot of times where we could cut corners and maybe no one would notice, but we don't cut corners. We do the right thing even when no one is looking. We test and we retest, we listen and we learn, we innovate on our product, we care about sales and beyond. And importantly, all of Mirvac's capability is housed under the one roof which delivers quality in every detail.

During 2019, we invested over $11 million in the communities we are building and continued our work on innovative projects to deliver more sustainable products for our customers. This year, our commitment to design excellence and place-making for the benefit of our customers was recognized by several prestigious bodies, including the Australian Institute of Architects, the Greater Sydney Commission and the Urban Development Institute of Australia.

Over its 47 years, Mirvac's Residential has evolved and perfected its key success factors. It's these factors which deliver consistently high levels of repeat buyers who trust the Mirvac brand. While these success factors can be attributed across many projects, they express themselves differently project to project.

At our Eastbourne project in Melbourne, our design excellence is on display across all product types, with residents benefiting from premium amenity and targeted community building strategies. A key factor in the successful early delivery of the Eastbourne project was Mirvac's integrated model, which saw Mirvac development, design, construction, sales and settlement deliver the project alongside our partner, Freemasons Victoria.

At Olivine, a large master plan community north of Melbourne, we are in the early stages of delivering more than 4,000 lots with our partner Boral. While this development is in its infancy, our future residents all benefit from Mirvac's upfront investment in amenity. This early amenity at Olivine includes a school, which opened at the beginning of the year, a feature Park and a community hub, which will be completed before the first residents move in. Despite competition in this corridor, Olivine continues to see strong demand, particularly from owner occupiers. It's the thousands of little things that we do that all come together to make Mirvac projects so special.

With market conditions changing, as expected, we continue to see new opportunities for restocking, and this will remain a key focus in the near term. Our demonstrated track record of restocking in the right places at the right times, through property cycles, will again pay dividends for Mirvac.

This year, we took advantage of decreasing competition in the market, adding over 3,000 lots to our MPC pipeline, including a second new development project with our partner, Boral. Further, we are well advanced in due diligence on 2 Sydney middle ring MPC sites and expect to utilize our strong balance sheet positioned for increasing opportunities in both MPC and apartment projects.

We have maintained 28,000 lots in our pipeline with over half of these lots having projected gross margins above our through-cycle targets. More than half of our pipeline is in capital-efficient structures and 3/4 in Sydney and Melbourne, primarily in master plan communities, which represent over 80% of this pipeline.

Looking forward, we expect to see subdued market conditions through 2020, with recovery in 2021, with sales volumes recovering first followed by price growth. We are at or near the bottom of the cycle, and although some broader economic conditions have improved, greater consumer confidence is required before we see substantial market improvement. At this point in the cycle, our focus is trading through unsold inventory and being shovel-ready to respond quickly to improving market conditions. The capital-efficient structures in which many of our projects are held provides us with the flexibility without significantly impacting on project returns. Subject to market conditions, we anticipate releasing new projects at Green Square, Smith's Lane, Altona North, Moorebank and significant stages at Olivine and Woodlea.

In FY '20, we again expect to deliver over 2,500 settlements with gross margins maintained above our through-cycle targets. Despite the same number of settlements, Residential's FY '20 contribution will be significantly higher due to the record number of apartment settlements this year.

Through FY '20 and beyond, we will continue to see a shift towards MPC and medium-density product, resulting in a rebalancing of the EBIT lot settlement profile. While there are headwinds, we remain confident now is the time for us to focus on restocking and leveraging our reputation and track record for quality. This will set Mirvac up to benefit from opportunities and capitalize on the future market recovery.

Thank you, and I'll now hand back to Sue.

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [7]

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Thank you, Stuart. So one of the things that I hope you heard very clearly in Stuart's presentation was that of quality. Quality has been a cornerstone of the Residential business for almost 50 years. And I hope that today, you're also seeing that same quality across our entire integrated Mirvac business, in the uniqueness of our urban retail portfolio, in the design, development and delivery of our office and industrial assets and in the strength and growth of our passive income stream that's supporting our growing distributions. And of course, all of this is driven by the quality of our people, who I want to thank, once again, for their outstanding work, work that they do every day for our customers and our security holders.

So finally, to FY '20 guidance, we expect to deliver EPS of $0.176 to $0.178 per stapled security, representing 3% to 4% growth on FY '19 and EPS of $0.122 per stapled security, representing 5% growth.

Thank you very much, and we will now open up the line for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question today comes from the line of Darren Leung from Macquarie.

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Darren Leung, Macquarie Research - Analyst [2]

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Can we just focus quickly on the FY '20 EPS guidance? Obviously, you would think that the 3% to 4% range, from memory, it was 2% growth of the equity raising in May, and there's 1% back from Tucker Box so that put you at 3%. Can you give a bit of color as to where the actual 1 is coming from?

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [3]

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I'll start on that and maybe Shane or Brett could add. I think this is a strong and pleasing result as we work towards FY '20. There's a range because despite the very pleasant fact that we have a first half skew for the first time in living memory, and we still have some significant contribution coming in the second half from Tullamore, which is a reasonably high margin project. So that's a reason why we've got a range there.

And Shane or Brett, you want to add any more to that?

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Shane M. Gannon, Mirvac Group - CFO [4]

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Not much more. The -- as you're aware, we had the share purchase plan that had an impact on the earnings per security. And then just a finalization of our forecast represented the uptick in terms of that 17.3.

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Darren Leung, Macquarie Research - Analyst [5]

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Isn't that something you would have known in May in terms of the range for Tullamore?

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [6]

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Yes, we did. So you remember in May, we put out greater than 3%. So the 3% to 4% is just defining what greater than 3% means. We certainly did know about Tullamore at that point. I think what Shane's saying is that as we worked through the finalization of the year-end processes, we were comfortable that we could deliver 3% to 4%.

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Brett Draffen, Mirvac Group - CIO [7]

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And Tullamore is more around the sort of reference to the guidance that we provided for next year.

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Darren Leung, Macquarie Research - Analyst [8]

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Understood. And just on the residential split, so 65-35 first half/second half by profit. And by number, is this more like 50-50? Or is it even inverse, the other way around? Just in terms of lot settlements.

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Shane M. Gannon, Mirvac Group - CFO [9]

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Look, we can come back to you in Q&A later in terms of the exact lots split between the year but obviously, remember, the first half is very much St Leonards coming through and Eastbourne coming through, which are high margin projects, which start to settle in sort of October. On the front of it, St Leonards. And on the Eastbourne, obviously we had settlements come into June and the next wave of settlements start in August.

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Darren Leung, Macquarie Research - Analyst [10]

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Great. And just on those 2 projects, can we get a bit more color around Eastbourne? So looking to compendium, this 64 settled for Eastbourne, I thought the first building was already done, and there's 100 apartments in that building?

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Shane M. Gannon, Mirvac Group - CFO [11]

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So we called settlements on the northern building which is about 70-odd apartments in that building, so that started to settle in the last week of the financial year. And obviously, settlements went extremely well. But the main contributor to obviously with the bulk of the product is in the southern building. And those settlements start to come through in August, backend of August.

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Darren Leung, Macquarie Research - Analyst [12]

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Understood. And just on the comment on settlement. When I look on domain settlement, that says about 50 apartments listed for sale, and given the indication as to what the buyer mix is here and the reason for resells?

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Shane M. Gannon, Mirvac Group - CFO [13]

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Look, I think that it's typical of any project, we'll start to see some buyers looking to take the opportunity to take some profit. But obviously, we have strict controls around -- contractual controls in terms of people being able to trade prior to settlement occurring, but we remain very confident in terms of the quality of the product, the quality of the buyers and the settlement process over the course of the next few months.

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Darren Leung, Macquarie Research - Analyst [14]

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And perhaps a final one for me, just on the broader sort of apartment market. So Marrickville – so Marrick & Co. entering, it’s obviously still get to go in terms of sales. I mean there's plenty of noise in the media just around cutting building integrity, stuff like that. You obviously mentioned it before, but I mean how -- is there any downside risk in terms of being able to get this product away?

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Shane M. Gannon, Mirvac Group - CFO [15]

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No, look, we're very comfortable with our product. Our reputation, I think, is now valued more than ever in the market, and we've started settling Marrickville and it's settling very well. There is certainly a flight to quality, and we're seeing that in terms of the numbers of people coming into our display centers. I think people -- to your point, people have got a much better appreciation of buying from a reputable developer with a track record, maybe that wasn't the case over the last few years, but that has certainly changed in the last 6 months, and it's certainly playing to Mirvac's advantage.

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Operator [16]

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Your next question comes from the line of Simon Chan from Morgan Stanley.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [17]

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I've got a few questions. First one is on Retail. Lease expiry n FY '20 by income is 21%, and that just kind of looks a little bit high. Can you give me some insights into what's that number?

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Susan MacDonald, Mirvac Group - Head of Retail [18]

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Effectively, we already have heads on 2.4% of that, so that will flow through as the leases come off and they -- that pushes out into that year. We also have 3.5% of -- on holdovers and that's a typical figure that we've run each year and you'll see each full year, it normally rolls on into the following year. And the other 2% difference is made up with some casually leased vacancies or effectively or having 6 to 12 months terms on those vacancies and as well as some sundry income, but we're pretty comfortable with that. It's, again, a trend that we've seen over the last few years, but there's nothing in that, that really concerns us.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [19]

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Just whilst we’re on trend, are you starting to see a few more capped occupancy cost deals creeping in on the back of your record year of leasing?

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Susan MacDonald, Mirvac Group - Head of Retail [20]

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Not for us. We've actually seen a 30% decline in capped occupancy costs that have rolled off and been converted into leases. So less than 1% of our gross rent is actually made up of capped occupancy costs.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [21]

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Terrific. Going to Resi then, I just wanted to flesh out Stuart's comment in the slide, just a little bit more when he said you expect subdued conditions through 2020 with sales volumes recovering ahead of price growth, so are you implying that you're expecting more contracts exchanged in the year coming up then price -- pricing across the market to do nothing until 2021? Is that what you're...

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Stuart Penklis, Mirvac Group - Head of Residential [22]

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Look, what we -- from a Mirvac perspective, I think what we're saying is we saw a bit of an uptick in terms of activity post election, which was quite healthy, but what we're really saying is that, on the ground, we still require an improvement in consumer confidence. And we think that, that will start to play or come about over the course of the next 12 months. What our focus really is to make sure we are ready, shovel-ready on projects, particularly in the apartment space that we can really capitalize on demand. And we think demand will come back pretty strongly as we get into 2021, particularly off the back of -- obviously, still very strong employment growth -- sorry, very strong population growth in New South Wales and Victoria with pretty significant drop off in commencements. So we think that we will be well positioned to pick up that volume and then start to see price growth come through towards the back end of 2021.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [23]

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I know in your -- you named several projects that you're going to be releasing this year, how many releases are we can be expecting. So I think in '19, you released about 1,300 resi lots, should we expect a similar number in '20?

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Stuart Penklis, Mirvac Group - Head of Residential [24]

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Correct. But just remember, we are in a fortunate position where we've got a number of projects that are held in capital-efficient structures that we can really press the button on if we see markets start to improve better than expected. But that list of new projects is probably a good starting point in terms of giving you some guidance.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [25]

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Great. And then...

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [26]

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Can I just add a comment on also in terms of that, please?

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [27]

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Yes.

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [28]

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Just to further on to what Stuart was saying, over the last few years since 2015, we have released and sold 14,000 lots. And every year, it's been balanced. So we've released and sold roughly the same amount in every year. So we have read the market correctly, when we have released where there is demand, and we've reduced releases where demand has fallen. And so that we are not in the business of creating unsold inventory. And what Stuart is talking about is making sure that we'll continue with that track record in reading the market being ready and being able to have our projects in structures that allow us to wait until the market is right and then be ready to release.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [29]

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I guess Susan, is that why you've lowered the number from -- I think previously, you talked about 12,000 lots over the next 4 years. I see today, you've gone the 10,000 lots over the next 4 years. I guess is that a reflection of your comment then?

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [30]

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I think so. It's very clear, if you look at volumes in the market, the market is the market. I mean it's our job to release into the market where demand is there with a quality product. And as we always say, the focus on domestic owner occupiers.

We have pleasingly seen an increase in first-time buyers, which is nice to see them coming back into the market. So we generally think we will be able to do 10,000 lots over the next 4 years. But if the market recovers more quickly, that is not a problem at all, we'll be ready to go.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [31]

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Great. And for Campbell, Office expiries in '20 and '21, can you -- I know you said across the whole portfolio, you think you're under-rented by about 4% to 6%, but just specifically for FY '20 and FY '21, can you give me some color as to what sort of uplift we could have there?

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Campbell Hanan, Mirvac Group - Head of Office & Industrial [32]

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Look, I probably can't give color on uplift, only because we're actively involved in discussions with most of those tenants right now. And certainly, we are -- we're having good dialogue, and we are obviously very focused on capturing the upside in rent, but probably more importantly, we're very focused on getting the security of income. And the thing that particularly as we move into less certain economic times, the value of the WALE that we sit on in the Office portfolio and the Industrial portfolio should put us in really good stead for collecting income for the next 3 to 4 -- 5 years.

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Simon Chan, Morgan Stanley, Research Division - VP & Equity Analyst [33]

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In those expiry buckets, is there any one particular building that's the bulk of those expiries? Or is it spread across the board?

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Campbell Hanan, Mirvac Group - Head of Office & Industrial [34]

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No, look, not particularly, and obviously, the portfolio is 85% weighted to Sydney and Melbourne. So the majority of those expiries sit in those 2 markets, and probably a little more weighted to Sydney than Melbourne. But broad-based, across the assets from North Sydney to Pyrmont to assets in Melbourne. So it's pretty broad-based.

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Operator [35]

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Your next question comes from the line of Richard Jones from JPMorgan.

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Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [36]

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A quick one with you Campbell, if it's okay? 477 Collins, yield on costs, you've lifted 40 points. I think you guided that, that -- there was an increase likely to come as you approach completion. Can you just split out roughly what percentage of profit has already been booked on that development?

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Campbell Hanan, Mirvac Group - Head of Office & Industrial [37]

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Yes. So look, you're right. There's been a reasonable move in yield on cost, and that's sort of a product of a couple of things. One is the de-risking of the lease profile, achieving better rents than we thought, certainly, going through to the income line, probably procuring some of the costs better than we thought, and contingencies and all of those things that you'd expect in a development feasibility. So that's certainly part of it, you will see a larger contribution from 477 Collins Street in the year that we're moving into FY '20 than FY '19.

And again, as you remember, we do it on percentage complete, the profit recognition, but we also do it with risk overlays. So we always tend to leave the majority of that risk to the back end of these projects.

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Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [38]

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So about a 1/4 is booked. Would that be about right?

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Campbell Hanan, Mirvac Group - Head of Office & Industrial [39]

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I'm not -- sort of won't get into specifics, but I'll -- you should expect a reasonable contribution from this asset in FY '20.

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Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [40]

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Okay. Just on St Leonards and Marrickville apartment settlements, can you give us a rough guide of what you think will come through in FY '20?

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Stuart Penklis, Mirvac Group - Head of Residential [41]

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So obviously, St Leonards, we are substantially sold on that project. So we are very confident that we will see the bulk of settlements obviously come through in this financial year.

Marrickville, as I've said previously, is settling extremely well. And you'll see a substantial component of that project come through in '20. Obviously, we do still have some unsold inventory there, which we've got -- we're very comfortable in terms of the settlement tail that we hold in the feasibility.

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Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [42]

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And could you give any more color just on St Leonards, just kind of how your discussions are going with purchasers in terms of settlements and whether you're expecting much challenge or delays there?

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Stuart Penklis, Mirvac Group - Head of Residential [43]

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Not at all. I think we launched that project well before the market peaked. So I think everybody has done extremely well. I think the product, the design, the quality is going to set a new benchmark in that market. And we've been pretty engaging with all our purchasers over the course of, particularly over the course of the last 6 months as we've been preparing them for settlement, and they are all very excited to settle their new homes.

And remember, the quality of the buyers on that project, a huge amount of repeat Mirvac purchasers. So we're extremely comfortable in terms of that project and the settlement profile over the course of the next few months.

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Susan MacDonald, Mirvac Group - Head of Retail [44]

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One of the recent events that we held for our purchasers that Stuart was just referencing, and we are now talking to our purchasers about the quality of the construction team, given the comments that we've been talking about before about the unsatisfactory nature of building standards in New South Wales, in particular. And we put up a great slide of the 6 most senior people on-site at St Leonards and between them, they have 130 years of Mirvac experience, let alone building experience and customers found that to be a great comfort.

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Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [45]

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One final question just in relation to the forward trajectory on Resi earnings and perhaps the return on invested capital, clearly, there's a huge runoff of the pre-sales this year. I think there's only $500 million for beyond FY '21 and so what you're talking about, a pretty subdued environment in terms of your ability to launch new product. But I just wonder what the ROIC looks like in FY '21, you must have reasonably good visibility of that at the moment?

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Susan MacDonald, Mirvac Group - Head of Retail [46]

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If it’s on ROIC for beyond FY '20, '21, we've talked clearly about a group rolling return on invested capital above 9% and we will certainly exceed our divisional cost of -- weighted average cost of capital for our development business. And we do have a -- and we will have an increased ROIC in FY '20 compared to '19, given the high-margin projects that are settling in with record apartment settlements during the year.

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Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [47]

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Sorry, any comments on Resi?

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Susan MacDonald, Mirvac Group - Head of Retail [48]

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It's mostly Resi. That was Resi.

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Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [49]

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That was Resi, okay.

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Stuart Penklis, Mirvac Group - Head of Residential [50]

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One thing I will say from a Resi component of the business is that, over the next few years, we've obviously got some really high-margin MPC projects coming through, and we will obviously start to -- you'll start to see those built for medium-density projects like in Altona North that we're launching in the next month or two, really start to contribute into '21 and '22. And that split, all that movement away from apartments into that medium-density MPC space will start to really work through into '21, as we then obviously start to restock the apartment side of the business.

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Susan MacDonald, Mirvac Group - Head of Retail [51]

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Also to add to that with the switch as we've been very clear starting last year and reiterated this year that we will switch to having the majority of our earnings coming from the master-planned community business over the next several years. And they don't get into presales as often as apartments do because of the lot -- a lot swifter cycle between exchange and settlements. So combined the settlement of the apartments into FY '20 and the switch towards MPC, you will see presales come down, not necessarily reflecting a lower release profile, but actually just reflecting the type of lots that we are releasing.

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Operator [52]

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Your next question comes from the line of David Lloyd from Citi. Your line is open, please go ahead. Your next question comes from the line of Grant McCasker from UBS.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [53]

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I'll ask just a more commentary around sort of the buyers for residential and trends that you've seen throughout the last 12 months. Firstly, looking at the inquiry levels, converting that to sales. And then at the back end when you call for settlements, the process to actually receive the cash in the door. Can you talk through rate and trend?

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Susan MacDonald, Mirvac Group - Head of Retail [54]

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Yes, I'll start and Stuart can add on to that. We've seen a trend towards domestic owner occupiers, which is the market we always design for. A reduction obviously in foreign buyers and a reduction in investors who've moved from roughly 40% of sales to roughly 34% over the last several years. But we do see a continued focus on the domestic owner occupier, and that's continuing to fuel the releases and the settlements. And I think our default rate continuing to be under 2% is a testament to the quality of the product and the customers who are able to get financed, who are able to settle.

And I think before I hand to Stu, there's a -- sometimes a common misapprehension that if a surrounding catchment say to an apartment tower has had price fall since the release date, that those people won't settle. That is not true. And a good example is Tullamore where we had a very strong settlement process during the year, largely domestic owner occupiers. The Doncaster catchment has definitely fallen since we released so technically, those purchases would see themselves out of the money, but they settled. And they settled because they've chosen to live there. They've settled because they've chosen that community to live in, that it's their home. And it's a good example of the quality of the Mirvac purchaser settling in a constrained financing environment and where they've had price falls in the surrounding catchment, they are still settling.

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Stuart Penklis, Mirvac Group - Head of Residential [55]

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Yes, just to add some further color to that. On that particular project at Tullamore, the apartment building that Sue is referencing is the Phoenix building, and we actually called settlements in the last week of June. And we actually settled over 85, 87 apartments in the last week. And it's just a testament to the quality reputation, valuations coming through. The value is appreciating, the Mirvac difference. And subsequent over the course of the last few months, we've actually launched another apartment project adjacent to Phoenix of about 102 bespoke owner-occupier type apartments. And again, that has sold extremely well, and we're looking forward to commencing construction of that towards the end of this year.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [56]

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Okay. And then just following up on that, just -- are you able to talk about inquiry levels and sales trends that you've seen there in the last 3 months, if you’d like to, MPC and even post balance date?

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Stuart Penklis, Mirvac Group - Head of Residential [57]

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Yes, I'll talk generally, and then I can talk a little bit further on MPC. But generally, obviously what we're seeing in the display centers at the moment, very much upgraders and downsizes from an apartment perspective, and they are very much focused on projects with amenity, projects obviously that have got a huge amount of focus around design excellence.

From an MPC perspective, we've actually seen an uptick in inquiry, and we're seeing better inquiry --better quality inquiry coming through the display centers. But the one thing that I will say is that, that element of consumer confidence, we think that, that still has to improve. Obviously, we're still doing good sales, particularly on projects like Woodlea, Olivine, Waverly Park, they're all ticking over, obviously coming off the highs of 2017. But there needs to be obviously still an element of improved consumer sentiment. And I think that, that will start to come through, as I previously said, towards the back end of 2020 into '21.

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Grant McCasker, UBS Investment Bank, Research Division - Head of Australian Real Estate Research Team, Executive Director & Equities Analyst of Real Estate [58]

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Okay. Great. And then just one final question. Just on BTR, the 5,000 apartments. Are you able to give some sort of guidance in regards to split between balance sheet and third-party capital?

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Shane M. Gannon, Mirvac Group - CFO [59]

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We'd probably not give you a direct guidance on that at the moment but expect probably initially to be more Mirvac balance sheet-orientated, and I think probably, as we open up the SOPA product, and as I think people can see the quality of the product and amenity that we start to see, you'll see our capital partnering strategy start to progressively build up. So over the medium to longer term, I think of probably a balance sheet exposure of sort of around 50%.

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Operator [60]

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Okay. There are no further questions at this time. I would now like to hand the conference back to today's presenters. Please continue.

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Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [61]

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Well, thank you very much for spending time with us this morning, we really do appreciate it. And we look forward to speaking with many of you this afternoon or meeting with you one-on-one over the next several weeks. Thank you very much.