U.S. Markets closed

Edited Transcript of MGR.AX earnings conference call or presentation 5-Feb-20 11:30pm GMT

Half Year 2020 Mirvac Group Earnings Call

Sydney, New South Wales Feb 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Mirvac Group earnings conference call or presentation Wednesday, February 5, 2020 at 11:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* 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

================================================================================

Conference Call Participants

================================================================================

* Darren Leung

Macquarie Research - Analyst

* David Lloyd

Citigroup Inc, Research Division - Director & Analyst

* James Druce

CLSA Limited, Research Division - Research Analyst

* Lauren A. Berry

Morgan Stanley, Research Division - Equity Analyst

* Richard Barry Jones

JP Morgan Chase & Co, Research Division - VP

* Sholto Maconochie

Jefferies LLC, Research Division - Equity Analyst

* Tom Bodor;UBS Investment Bank, Research Division

================================================================================

Presentation

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Good morning and welcome to our 2020 Half Year Results Webcast and Teleconference. With me today are Shane Gannon, Brett Draffen, Campbell Hanan, Susan MacDonald and Stuart Penklis.

Today, we are pleased to reaffirm our guidance for this financial year. More importantly, I'd like to take the opportunity to talk about the significant investments we have made in future projects over the last 12 months that will shape Mirvac for a decade to come. We've done this while holding true to our values, building on our capabilities as an urban asset creator and making strong commitments to support our desire to be a force for good.

So firstly to the first half results. Our urban asset-creation strategy continues to deliver defensive cash flows and sustainable distribution growth, and the first half of FY '20 was another period during which we have delivered on our promises. Operating profit for the period of $352 million represents 21% growth on the prior corresponding period. First half distribution of $0.061 per stapled security is 15% higher than the prior corresponding period. NTA is up 6%, and gearing remains at the low end of our range at 20.8%.

As we've highlighted in numerous presentations now, our shift towards a greater proportion of high-quality, passive earnings continues to gather momentum, as commercial developments come online and we secure future opportunities that will ensure the ongoing creation of new, high-quality income fueling distribution growth. In contrast, and by its very nature, we expect active EBIT to have greater year-on-year variability, given the time lines of development completions. Our active EBIT in FY '20 is benefiting from the completion of several high-value office and residential apartment developments. These developments generated $200 million of active EBIT in the first half, and we expect a similar amount in the second half. As we've previously said, we continue to expect to deliver approximately $1 billion of active EBIT over FY '19 to '21, comprising both residential earnings and commercial development profit.

We are extremely well positioned with our strong balance sheet, and we're building on our track record of securing and delivering award-winning urban assets. Since FY '14, we've successfully delivered 12 new office and industrial assets totaling $2.7 billion in value, and we're now well progressed on delivering our $3.1 billion pipeline under construction, including South Eveleigh Building 2, 477 Collins Street, Locomotive Workshops and 80 Ann Street. In our retail portfolio over the last 5 years, we've invested approximately $400 million over 10 assets, enhancing returns, importantly, with minimal additional GLA.

But it's the future that I want to highlight this morning. In addition to our 4 projects under construction, we now have another 9 secured office and industrial projects in Sydney and Melbourne with a total expected value of $8.5 billion. This pipeline will set up the business for continued growth in recurring income, future development profit and NTA uplift stretching out past FY '28. Once this development program is complete, assets under management could total over $30 billion. This also means that we're benefiting from growing recurring earnings flowing from our third-party capital management. We've now harnessed $9.1 billion of third-party capital, up from $2.8 billion in FY '15, and we continue to enjoy productive relationships with some of the world's largest and most experienced real estate investors.

Our strategy to continue to create modern assets rather than acquire stabilized assets on market will mean that by FY '22, fully 86% of our office and industrial portfolio will have been developed or repositioned by Mirvac.

But it's not just in our office business that we're securing our future. I'd like to turn now to more detail about the acquisitions we've completed since last year's equity raise in May. Since that time, we've secured 8 new projects across the business on capital-efficient terms with a total expected end value of approximately $5 billion. Earnings from these new projects will start to emerge from FY '22.

As we restock the residential business, we secured 3 new masterplanned community projects. We were able to take advantage of more subdued market conditions to secure these future projects, continuing the restocking of the pipeline that we reinvigorated 18 months ago as the market passed its peak. Importantly, these new projects are in corridors in which we have significant experience.

Secondly, we further added to our Sydney industrial portfolio with the development in Auburn to capitalize on last-mile demand. But it's the following 4 projects that will give an indication of where we see Mirvac's future. As Sydney and Melbourne expand into cities of 8 million people, mixed-use urban regeneration, particularly around new transport infrastructure, will continue to grow in importance. We already have a very significant footprint south of the Sydney CBD, including mixed-use developments at South Eveleigh and Green Square; completed residential developments at Marrick & Co, Harold Park and The Finery; and retail assets at Harbourside, Broadway and East Village. In December, we were very pleased to extend this footprint by being awarded the Waterloo Metro Quarter development in partnership with John Holland. By the time the new station is expected to open in FY '24, we expect to have delivered an $800 million mixed-use precinct, encompassing residential, student housing, commercial and retail uses. We are delighted to be able to work with the government to be able to shape not just a metro station but, indeed, contribute to an entire community.

We also secured a second significant mixed-use opportunity in Melbourne. Flinders West represents a development opportunity with an expected end value over $900 million, encompassing commercial, retail and build-to-rent uses. Mixed-use provides Mirvac with the opportunity to both exercise our integrated development capability and to leverage our deep asset experience. We believe those 2 aspects can set us apart into the future. The final 2 new projects are part of our build-to-rent portfolio, and we're now starting to get good visibility of the passive income that will flow from our build-to-rent assets.

The Australian apartment rental market has an estimated value of over $580 billion. And yet, there is no major institutional ownership. More and more Australians are renting for longer as part of their housing journey, and the growth in the rental population significantly outstrips general population growth in all major cities. We've now secured more than 1,600 apartments across 4 assets, and revenue will start to flow later this year with the launch of LIV Indigo at Sydney Olympic Park, where we look forward to welcoming our very first customers in September. Subsequent build-to-rent completions are forecast to occur from FY '22 to FY '25, and we're working very hard on setting up our operating platform branded LIV by Mirvac. We're continuing to secure these BTR opportunities on a projected greater than 4.5% yield on cost and an unlevered IRR greater than 7.5%, with the result that just this initial BTR portfolio could deliver more than $50 million of passive income per annum by FY '25.

How we work at Mirvac is more important than what we do. Our sustainability strategy, this changes everything, aims to generate value for all stakeholders. We try to learn continuously and improve the way we do business as we strive towards the bold goals we have set for ourselves. We're focusing on generating human, social and natural capital for our key stakeholders. And when we do this, it also helps us to deliver a strong, resilient financial performance as well.

During the period, we were very proud to be ranked #2 in the world for gender equity by Equileap and to have topped BOSS Magazine's Most Innovative Companies List in the Property, Transport and Construction category. And we also became the first Australian property group to join RE100, a global group of businesses committed to 100% renewable energy.

From our social and community perspective, we're focused on taking our community engagement to the next level. The business case to use energy, water and waste wisely is crystal clear. As our buildings become more efficient, the value of those assets increases and operating costs come down. We're also accelerating our efforts to provide energy-efficient apartments and homes with different approaches being trialed at various projects in partnership with ARENA and CEFC.

Australia's natural environment and many communities are suffering through a devastating bushfire season. Several Mirvac staff have used our unlimited volunteering leave to help fight fires across the country. We made a corporate donation of $0.5 million, and we will match any donations made by staff. With global average temperatures continuing to rise, climate-related challenges such as this are expected to increase in both their frequency and their intensity. Our focus continues to be on working proactively to reduce our impact on the planet.

Significantly, in December, we reached an agreement that will see the majority of our office and retail assets in Victoria, New South Wales and ACT supplied with 100% renewable energy. And as a result, our carbon emissions have reduced by 60%, a major step in our journey to becoming net positive carbon.

We have made significant progress in this period setting Mirvac up for the future, and I hope you can see why we are optimistic about that future.

And with that in mind, I'll now hand over to Shane Gannon.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Sue, and good morning to everyone. Mirvac's financial results released today demonstrate the strength and quality of the Mirvac platform, which continues to deliver sustainable earnings and distribution growth for its securityholders, which would not be possible without a clear strategy aligned to our purpose to reimagine urban life.

From a broader perspective, which Sue has just touched on, we are extremely proud of the financial record that has been achieved and is well illustrated again in the half year results presented today. Equally, we are now excited by the opportunities that are being secured to execute our next phase of growth. This is demonstrated by the reference to $8.5 billion commercial development pipeline secured by 4 committed and 9 future projects across Sydney and Melbourne, setting up the business for continued growth in recurring income, development profit and NTA uplift.

Addressing Mirvac's half year financial results. Our operating profit after tax is 21% higher compared to the prior corresponding period, once again demonstrating the value of Mirvac's diversified model. The quality of our office and industrial assets and their development pipeline provides an attractive income profile today and for significant growth in the future. Office and industrial EBIT is 5% lower in the first half due to lower development profits being recognized half-on-half. However, the portfolio has delivered strong property net operating income growth driven by the completion of Buildings 1 and 3 at South Eveleigh, together with 5.6% like-for-like net operating income growth within the office portfolio. The future growth of the office and industrial portfolio will increase -- continue to increase as a percentage of our passive capital and income and, in turn, will provide the strong operating cash flow.

The retail business continues to perform well in a challenging trading environment with like-for-like net operating income growth of 2%, combined with income from the opening of South Village. However, retail EBIT is slightly lower in the first half due to recognition of development profits at Kawana in the prior corresponding period. EBIT from the residential business has increased materially in the first half, reflecting an overall increase in lot settlements and a greater skew to apartment settlements. The strength of the Mirvac brand in a sector that has recently been impacted by issues of trust provides a key point of difference for Mirvac and should not be underestimated.

The corporate area, which includes income from our investment in Travelodge Hotels, together with unallocated corporate overheads, has remained flat. Management and administration costs across the business will grow in FY '20, as we continue to invest in technology which will support our growing property portfolio, plus the ongoing investment in start-up costs to establish our build-to-rent business, reflecting our confidence in this area and the new income it will generate. And finally, adjusted funds from operations is up 37% in the half driven by operating profit growth and large tenant incentives across the investment portfolio. This is an outstanding result and highlights the strong cash generation of the Mirvac business.

Mirvac's capital position at the first half can be best described as impressive. The strength of our balance sheet continues to provide long-term stability and allows financial headroom to support development and growth opportunities within our office and industrial and build-to-rent businesses. Our capital management strategy continues to focus on diversifying our capital sources, increasing our long-term debt and limiting debt expiries in any one year. The strength of our capital position is demonstrated by our A3 Moody's credit rating and our A- Fitch credit rating. We continue to maintain strong liquidity with over $900 million of cash and undrawn debt facilities, providing capacity to fund our committed development pipeline and pursue new opportunities. Importantly, we continue to operate well within our stated financial credit objectives.

And finally, this slide provides greater transparency on the future profile of the business. Some notable highlights include a number of recent development completions, including the office buildings 1 and 3 at South Eveleigh; the industrial site, Calibre. And our new retail center, South Village, will provide additional net operating income in FY '20 and beyond.

Further, net operating income growth will be generated in the near term through our office developments, including 477 Collins Street, the Locomotive Workshops at South Eveleigh and 80 Ann Street in Brisbane. We secured $1.2 billion industrial development pipeline strategically aligned to new Western Sydney International Airport and Aerotropolis. We have now invested in 4 build-to-rent projects across Sydney and Melbourne, equivalent to approximately 1,600 lots once developed, and will generate a new form of recurring income as they are delivered.

So in summary, we have a very solid platform to generate future sustainable earnings growth and continued certainty of distributions to securityholders.

And on that note, I will hand over to Campbell. Thank you.

--------------------------------------------------------------------------------

Campbell Hanan, Mirvac Group - Head of Office & Industrial [3]

--------------------------------------------------------------------------------

Thanks, Shane, and good morning. The O&I business has had a very active 6-month period. The business has been particularly focused on 4 key areas: firstly, to continue to deliver recurring NOI growth and strong returns on invested capital; secondly, continuing to create one of Australia's youngest office portfolios, helped with the upcoming completion of our next 2 major office developments, 477 Collins Street in Melbourne and South Eveleigh in Sydney; thirdly, the derisking of the future lease expiry profile to ensure the business is well positioned for future growth; and finally, and perhaps most importantly, making progress with the planning on the future development pipeline and securing the next-generation of office and industrial development opportunities. We're happy to report we've made great progress on all of these initiatives.

As Shane mentioned, the office portfolio continues to enjoy strong operating metrics. NOI was up 5.2% to $177 million, led by a 5.6% increase in like-for-like income growth following improved occupancy and strong tenant retention. Occupancy improved to 98.5%, whilst the WALE has increased to our all-time high of 6.9 years. We completed approximately 33,000 square meters of leasing deals in the existing office portfolio at positive leasing spreads of 15.1% and average incentives of 19.9%. This result reflects the increasing exposure to our preferred office markets of Sydney, Sydney fringe and Melbourne, with the [underwriting] in the Sydney portfolio forecast at 6.9% and 4.7% in Melbourne. 29% of the office portfolio was valued externally during the period, delivering growth of 10.1%. Average cap rates have tightened to 5.25%, delivering net gains of $208 million, up 3% for the period. And pleasingly, operational CapEx remains low, reflecting the young and modern nature of the portfolio.

The development business continues to deliver strong returns with significant EBIT contributions from South Eveleigh and 477 Collins Street this period. Commonwealth Bank have fully occupied Building 1 Axle at South Eveleigh with this asset now fully income-producing. Building 2 is also reaching practical completion with income production due to commence prior to the end of this calendar year. 477 Collins continues to enjoy leasing success with the development now almost fully leased with stage income production forecast through FY '21. Our future development assets at 80 Ann Street, Brisbane, and the Locomotive Workshop at South Eveleigh remain on time and on budget, with the sale of a 50% interest in the Locomotive Workshop planned for FY '21.

Turning to the industrial business. The portfolio remains 100% weighted to our preferred industrial market of Sydney and continues to enjoy high occupancy at 100% and attractive WALE of 7.4 years. The industrial portfolio also achieved strong results. NOI was up 5%, led by a 3% increase in like-for-like income growth and a full-period income contribution from Calibre at Eastern Creek. We completed approximately 21,000 square meters of leasing deals in the portfolio at positive leasing spreads of 2.6% and average incentives of just 4.8%. 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.

The business continues to focus on planning outcomes for our 3 development sites, being the 14 hectares at Auburn acquired last year, which is anticipated to deliver approximately 70,000 square meters of NLA designed for last-mile distribution. The development application for this site has now been lodged. The 2 other developments include the 56 hectares at Kemps Creek in the [outer west] -- and stage 1 of Badgerys Creek in the outer west of Sydney, which are anticipated to deliver 255,000 square meters and 190,000 square meters of NLA respectively. Pleasingly, both Kemps Creek and Badgerys Creek have recently been included in the initial gateway for future government rezoning. All 3 developments are anticipated to deliver development EBIT in FY '22 and beyond and will allow us to meet our strategic objectives of growing our exposure to industrial and doing so at attractive returns.

The focus on restocking the development pipeline and progressing planning outcomes over the last 18 months has really prepared the O&I business' success in the future. The business now has a pipeline of approximately $8.5 billion in future value, which far exceeds our pipeline in prior years. Importantly, the pipeline under construction continues to be derisked, now 91% committed by income and remains on track to deliver in excess of $130 million in development EBIT on the portions sold and more than $200 million in valuation gains on the portions held by MPT. Looking forward, planning is progressing on the future development program, including our next Sydney CBD office asset at 55 Pitt Street, next to our head office, which is forecast to exceed 43,000 square meter in future NLA.

Our asset-creation capability has become an important differentiator for our business. We now have a strong track record, delivering 7 office assets and 5 industrial assets since 2014 with a further 4 office assets under construction. We've also built a reputation of delivering beautiful architecture, smart technologies and designs suitable for the dense occupation required by larger corporate tenants. Over time, this is forecast to see the Mirvac portfolio achieve space densities well ahead of industry benchmarks and hopefully future tenant retention ahead of industry best practice.

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

--------------------------------------------------------------------------------

Susan MacDonald, Mirvac Group - Head of Retail [4]

--------------------------------------------------------------------------------

Thanks, Campbell, and good morning. In a highly competitive retail environment, the portfolio once again delivered solid operating results underpinned by our urban exposure. Portfolio occupancy remained solid at 99% and delivered like-for-like NOI growth of 2%. Leasing remained healthy with 190 deals completed and overall positive spreads. While spreads remained positive, we expect a continued moderation over the next year, as our focus remains on delivering relevant retail and [service offers] to our discerning customers. Sales continued to grow at a respectable 2.8%, underpinned by solid and increasing traffic figures across the portfolio. And the portfolio has seen a moderate tightening of its weighted average cap rate to 5.37%. One of our key highlights in the period was the disposal of St Marys at a 36% premium to June book value, highlighting the strength in demand for metro locations.

Whilst the solid overall performance for the half is pleasing, the consumer sales environment has softened further coming into the new year with both the bushfires and coronavirus impacting consumer behaviors and sentiment. It is our strong view that the power of the urban place is in its connectivity. With over 120 million visitations across a relatively modest GLA footprint, our venues play an important part in urban living. These connected urban hubs can broaden their place within their communities with the space, the parking, the distribution capability and the proximity to so many and varied activities and uses, creating an opportunity well beyond that of a collection of shops for customers.

Mirvac's assets offer a highly valuable audience to new partners who are seeking connection to a highly progressive consumer audience, early adopters who are often at the forefront of societal and technological trends. This gives us an enormous opportunity to attract the most progressive partners, including the recently opened Archie Brothers bar and gaming parlor in Toombul, Brisbane, a first-to-Queensland concept; Cook and Costi (sic) [Cook with Costi], a fresh and cooked produce collaboration between 2 of the country's best butcher and seafood operators at Broadway; Kylie Kwong, one of Australia's renowned chefs, who will be our precinct ambassador for South Eveleigh, with a strong focus on bringing people together to create a new community that authentically acknowledges and embraces the strong history of the precinct; and our recently announced partnership with Live Nation, one of the leading entertainment providers in the world, recognizing the value of existing urban infrastructure in facilitating large-scale events and their ability to transform our assets into dynamic venues.

In a rapidly changing retail landscape, we believe the customers that are the most embracing of innovation and disruption are, in fact, the most valuable in attracting progressive partners today with this set to accelerate into the future. This plays across the generational divide in urban markets. These consumers have a prosperity in wealth and importantly a propensity to spend; the potential to grow in value; and are progressive in their attitudes as early adopters of key social, cultural and technology trends. Mirvac has 2.5x more exposure to these customers compared to the Australian average as they typically live in inner urban locations. This has led to significantly higher online sales penetration in our markets due to an early adoption of technology trends. Despite this online growth, we have seen positive sales CAGR of 3.8% since 2016. This is contrary to the traditional view that all online retail is a threat to all physical retail. We know that the advanced and progressive retailers understand the value of the interplay between online and physical, seeing the immediate benefit to online sales growth when complemented with the physical.

We continue to introduce new partners into our venues and have experienced minimal impact with the latest announced administrations, as all retailers recognize the importance of being where the most valuable audience is, in our multi-channel retail paradigm. New nonretail partners also value the exposure to our progressive audiences, and we see this as an area for growth for our assets in the future, seamlessly integrated to amplify our retail users. We continue to be of the view that Mirvac's urban locations across these sectors with exposure to these engaged audiences will continue to deliver outperformance.

Thank you, and I'd now like to hand over to Stuart Penklis.

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [5]

--------------------------------------------------------------------------------

Thank you, Susan, and good morning all. Having achieved very strong settlements in our business in the first half of the year of 1,232 lots, I'm very pleased to share we are on track for a record year of apartment settlements. A recognition of Mirvac's built-form quality, solid valuations and easing financing conditions for many of our purchasers have contributed to strong settlements in this period. This has also delivered a significant 40% reduction in completed, unsold inventory from the previous period. Gross margin is at 20%, in line with our through-cycle expectations. This margin is expected to increase at full year based on the composition of projects settling in the second half. Defaults remained below 2%.

During the period, we've also seen an improvement in the quality and quantity of leads and exchanges, with first-time buyers and investors continuing to return to the market. We have secured 88% of our expected FY '20 EBIT over the half with the balance of lots on track to exchange and settle in the second half of the year. In the past 5 weeks, we have also settled over 300 additional lots.

Completing in July, Marrick & Co in Marrickville, New South Wales has truly set a new benchmark in that community and is testament to the progressive developments that Mirvac delivers. Since achieving practical completion, sales at Marrick & Co have significantly outperformed expectations, as purchasers can fully appreciate the built-form quality Mirvac is synonymous with. This project is now over 84% sold. Marrick & Co incorporated many sustainability and community-building initiatives into its design and, as a result, is the first One Planet Living community recognized in New South Wales.

In honor of its original use, the vision for the transformation of the former Marrickville Hospital focused on ensuring we celebrated the existing heritage through careful restoration and adaptive reuse. The precinct features community solar, delivering reduced operating expenses to all residents. In addition, rainwater reuse facilities reduce the need for potable water, while dedicated electric vehicle, car sharing and bicycle facilities enable residents to use a wide range of green transportation options. Mirvac's commitment to contributing to the surrounding neighborhood is evidenced in the new Marrickville library on site, which is being built and dedicated by Mirvac to the local council, along with several new, affordable key worker homes. In addition, residents have a communal kitchen garden and expansive public spaces to encourage social connection and interaction. This is one of the many projects that truly showcases the Mirvac difference in how we continuously strive to seamlessly weave our new places into the fabric of surrounding communities.

Also highlighted in previous periods, we have been and continue to strategically restock while market conditions remain subdued. I'm pleased to report that close to 4,300 lots have been added to the pipeline in the past 18 months with an end value of $3.1 billion, including 3 significant acquisitions. These acquisitions include 2 built-form medium-density projects in Milperra on the former Riverlands golf course and at the University of Western Sydney campus, together with an apartments project in the Waterloo Metro Quarter development.

While we will deliver a strong return on capital this year, we have strategically deployed capital to take advantage of reduced competition and set the business up to capitalize on forecasted undersupply in our core markets. This, coupled with lower apartment settlements in the coming years, will result in a near-term reduction in ROIC before these opportunities begin to incrementally contribute from FY '22.

Looking ahead to the balance of the year, we are on track to settle more than 2,500 lots. We will see an increase in gross margins through more significant contributions from MPC and JV projects. Following continued significant apartment settlements, our presales balance will decrease prior to the launch of the next phase of major projects in response to improving market conditions. We have reached the bottom of the market sooner than expected and expect to see improved sales volumes continued, followed by price growth in our core markets. We anticipate bringing close to 1,000 lots to the market during the second half of the year, primarily in MPC but also including the next stage at Green Square.

Despite off-the-plan apartment sales remaining subdued, we remain confident in the location, design and quality that continues to set Mirvac projects apart. Our focus on restocking remains, and we anticipate vendor expectations will continue to soften in key markets off the back of reduced competition, particularly from offshore developers. We are confident in our strategy at this part in the cycle and believe the work we are doing now to restock, unlock and release projects will continue to pay significant dividends in the coming years.

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

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thanks, Stuart. Mirvac continues to be in a strong position to deliver long-term value and to grow distributions for our securityholders, leveraging our award-winning asset-creation capability. As you've heard this morning, we have been very active over the past year securing the next generation of value-accretive projects. These projects are all aligned with our urban strategy and our asset-creation capabilities and are targeted to deliver in excess of our cost of capital, creating value over the medium term. And finally, we're pleased to reaffirm guidance of EPS growth of 3% to 4%, being $0.176 to $0.178 per stapled security, and distribution growth of 5%.

Thank you, and we'll now open up the line for questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question in the queue is from Darren Leung from Macquarie.

--------------------------------------------------------------------------------

Darren Leung, Macquarie Research - Analyst [2]

--------------------------------------------------------------------------------

Just a few from me. So first one, on your guidance range, so you reaffirmed 3% to 4% growth in FY '20. Can you please remind us on what the drivers behind this range is?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. It's simply settlements from the residential book, again, in June at Tullamore, which is a high-margin project.

--------------------------------------------------------------------------------

Darren Leung, Macquarie Research - Analyst [4]

--------------------------------------------------------------------------------

Understand. Given, call it, greater confidence in the residential markets, do you not have more confidence around settlements on these projects -- sorry, under this project?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [5]

--------------------------------------------------------------------------------

It's to do with timing, Darren. It's not to do with confidence. It's just whether they settle on one day or the other right around the end of the financial year. Tullamore is a fantastically performing project.

--------------------------------------------------------------------------------

Darren Leung, Macquarie Research - Analyst [6]

--------------------------------------------------------------------------------

Understand. On the Locomotive Workshop, so at your quarterly update, the office component was 97% precommitted. Your result today is 78%. Can you please give a bit of color as to what's changed here?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. We had a head of agreement with a commercial tenant, and that commercial tenant has come into some global difficulties and is not proceeding. We have absolutely no doubt that this will be well-leased. It's a unique asset, and we have significant interest from commercial tenants.

--------------------------------------------------------------------------------

Darren Leung, Macquarie Research - Analyst [8]

--------------------------------------------------------------------------------

Understand. And Campbell mentioned looking to sell the asset in FY '21 or 50% of the asset. What price range do you expect to receive -- achieve?

--------------------------------------------------------------------------------

Campbell Hanan, Mirvac Group - Head of Office & Industrial [9]

--------------------------------------------------------------------------------

Good question, Darren. Look, there's certainly -- the capital markets in commercial are very, very strong at the moment. I know certainly, if you take a read through some of the recent sales data, I would suggest it will be tighter than a 5% cap rate.

--------------------------------------------------------------------------------

Darren Leung, Macquarie Research - Analyst [10]

--------------------------------------------------------------------------------

Understand. And then the final one, in terms of build-to-rent, obviously, an exciting new asset class here. The medium-term target of 5,000 lots seems reasonably ambitious. Can you give us a bit of color perhaps around where the projects will be or perhaps even the time line to get to that volume, please?

--------------------------------------------------------------------------------

Brett Draffen, Mirvac Group - CIO [11]

--------------------------------------------------------------------------------

Yes. Brett here. Just we're obviously very excited with the potential to grow the BTR platform over time. I think you've seen very, very strong execution around the near term in terms of how the book's been built to date. We do see a continued pipeline there and certainly more than enough opportunity in our core markets, primarily Sydney and Melbourne. But also, we do have the ability to stretch, particularly along the East Coast. So look, medium term is medium term, and certainly, I think you've seen, as I said, very strong execution in the near term. But there is plenty of opportunity to grow this portfolio, and we remain very excited and very happy with, I guess, the base underwrite case for our entry into this sector. And I think you can clearly see, it resonates very strongly in terms of Mirvac's capability and adjacencies to other parts of our business. So we're excited. But I think probably in the near term, our focus has been very, very strong execution to get to the point above 1,600-odd apartments. And as Sue said, very focused in the near term around the operational leverage of the platform and getting ready to -- for the operational opening at SOPA. So certainly, that's where it is at the moment. And medium term, I think it will solve itself over time.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question is from Tom Bodor from UBS.

--------------------------------------------------------------------------------

Tom Bodor;UBS Investment Bank, Research Division, [13]

--------------------------------------------------------------------------------

Just continuing on the build-to-rent theme. Just was interested in your -- what preconditions do you have to hit to commence construction with obviously, the absence of presales. Is it sort of underwritten at acquisition and then you're just going as fast as you can to commit? Or are there certain other things that will cause you to sort of start a project?

--------------------------------------------------------------------------------

Brett Draffen, Mirvac Group - CIO [14]

--------------------------------------------------------------------------------

There's no requirement for presales, obviously, given that we will operate those assets on completion. So very much so, the due diligence is very much at the front end. And once we start construction, it's pretty much based on the confidence of the DD we've done. And basically, it becomes an operating asset at the other end, so no presales as such but still very, very strong discipline around acquisition and the normal underwrite around confidence, around construction commencement, consistent with other parts of the business.

--------------------------------------------------------------------------------

Tom Bodor;UBS Investment Bank, Research Division, [15]

--------------------------------------------------------------------------------

And then one other question, probably more on the financial side. Just was wondering when you see the tax losses being fully utilized. Is it sort of next year? Or how do you see that washing out?

--------------------------------------------------------------------------------

Shane M. Gannon, Mirvac Group - CFO [16]

--------------------------------------------------------------------------------

At the present time, I would give a steer to the next couple of years, would be our expectation.

--------------------------------------------------------------------------------

Tom Bodor;UBS Investment Bank, Research Division, [17]

--------------------------------------------------------------------------------

Yes. Okay. So in the next sort of 2 years? And then the final one is just, I just wanted to sort of check in on the debt side, where you've either had recent refinancing or you've got upcoming refinancing. I just wanted to check in on where you see margins on new debt at the minute.

--------------------------------------------------------------------------------

Shane M. Gannon, Mirvac Group - CFO [18]

--------------------------------------------------------------------------------

Well, I think you've seen a good example of how strong the margins are at the moment or favorable, when one of our peers has just raised debt. But certainly, for us, with our credit rating, it does create a very deep market for future funding. I would say at the present time, we're well funded. I mentioned about the available cash that we have of circa $900 million. So at the moment, no need for us to tap the market. It's not too further out this year that we have a refinancing, so no need for refinancing. Market is around -- for 5-year short-term money, I would be saying around 120, 130 basis points.

--------------------------------------------------------------------------------

Operator [19]

--------------------------------------------------------------------------------

Our next question is from Lauren Berry from Morgan Stanley.

--------------------------------------------------------------------------------

Lauren A. Berry, Morgan Stanley, Research Division - Equity Analyst [20]

--------------------------------------------------------------------------------

Just a question around your guidance around the active EBIT number from FY '19 to '21. So still guiding to that $1 billion level, even though your launches in the second half are going to be significantly higher. Your net sales versus pcp is also up significantly. Are you being conservative around your resi forecasts? Has there been any change in thinking of the recovery around profits in that segment?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [21]

--------------------------------------------------------------------------------

I'll start to answer that, Lauren, and Stuart can add on. Really, the way we're thinking, and what Stuart said in his comments, was that there is a time lag between when you see established housing market prices go up, as in CoreLogic data, and when that flows through into profitability for our portfolio, given presales, given planning, giving -- given construction. So we certainly have not tried to be conservative around that $1 billion. It will take some time for the improvement in the market to flow through into profit. So we remain very confident that $1 billion is the right number for us to achieve between '19 and '21. Stuart, do you want to add to that?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Look, I'd just echo that point. I think one of the important things to note is that there is that lag in the apartments business in terms of our ability to respond quickly. But we are shovel-ready on a number of projects to be able to respond to that undersupply that we expect to see going into 2021 in our core markets.

--------------------------------------------------------------------------------

Lauren A. Berry, Morgan Stanley, Research Division - Equity Analyst [23]

--------------------------------------------------------------------------------

Great. And then just on the Green Square launch. Obviously, this is the first major apartment launch in a few years now. Are you able to comment on the EOI process for that launch? And maybe what other metrics you might be tracking to gauge interest in apartment projects at the moment?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

That Green Square project, that launch is -- that process is underway at the moment. So it's too early to comment on that particular project. But I think one of the interesting projects to sort of get a feel for where the market's at is our Folia project, which is an apartment project at Tullamore. We launched that sort of in the second -- the first half of this financial year, and we're sitting at sort of 65% presold on that. That's about 102 dwellings. And what's interesting there is just looking at the composition of buyers in that project, obviously, heavily weighted to owner-occupiers. But we're seeing investors and first-time buyers really coming back to the market, particularly in Victoria. And we think that, that will follow through into New South Wales as well.

--------------------------------------------------------------------------------

Lauren A. Berry, Morgan Stanley, Research Division - Equity Analyst [25]

--------------------------------------------------------------------------------

Okay. Great. And then just on the Waterloo development. Are you able to give a bit more color around the time line for when that might kick off and also how the -- any discussions with capital partners are going?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Really too early, Lauren, to talk about more detail around that, and it's just been awarded just before Christmas. And so we're continuing to work on the scheme, discussions with government. We're obviously partnered with John Holland on that scheme. So we'll give you more detail when we're able to talk in more detail about the timing and the exact usages on that site. But we're very excited about the opportunity to add to that footprint in that area, south of Sydney, where we know that customer base. Whether it's the retail customer, the residential customer or the office customer, we know them very well, given our significant footprint already in that market.

--------------------------------------------------------------------------------

Lauren A. Berry, Morgan Stanley, Research Division - Equity Analyst [27]

--------------------------------------------------------------------------------

Okay. And just if the metro station is finishing in '24, would you expect that the rest of the project to be up and running by that year as well? Is that the kind of time line?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

That's the expectation.

--------------------------------------------------------------------------------

Lauren A. Berry, Morgan Stanley, Research Division - Equity Analyst [29]

--------------------------------------------------------------------------------

Yes. Okay. Cool. And then just finally, on the build-to-rent. Obviously, there's a large pipeline in that segment. As this opportunity grows and your -- that platform expands, do you see any potential to be able to recognize development profits from build-to-rent projects in the future?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I think that would really depend on the capital structure that we use. And right now, our focus is on developing the operations of the business, the LIV by Mirvac platform, getting ready for the first customers. It's actually proving the customer proposition up, which I think is very important. And then we'll start to think about capital. And at some point, if we follow the same fund through structures we've done on other asset classes, in theory, yes, but we've made no decisions around that yet. Our focus is on those first customers.

--------------------------------------------------------------------------------

Lauren A. Berry, Morgan Stanley, Research Division - Equity Analyst [31]

--------------------------------------------------------------------------------

Are you still in discussions with any other investors to go into the club structure at the moment?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [32]

--------------------------------------------------------------------------------

We are still talking to all sorts of global investors. There's enormous interest around the world in this asset class, as you know, with the highly valuable income stream. But our job right now is to prove up that customer proposition before we take any further steps in enhancing more capital.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

Our next telephone question is from Richard Jones from JPMorgan.

--------------------------------------------------------------------------------

Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [34]

--------------------------------------------------------------------------------

Just interested in the residential margin, it obviously had a significant fall in the first half. Can you sort of perhaps just highlight which projects has it impacted? I think previously, you talked about St Leonards and Eastbourne being strong-margin projects. So just interested what was the big drag in the first half.

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [35]

--------------------------------------------------------------------------------

Actually, Richard, it's a composition of what projects were actually in the margin. As Stuart said in his comments, that margin will go up for the full year. So it's nothing to do with projects underperforming where we expected them to be. It's just to do with composition of what actually settled in that period. And as I said, it will rise for the full year.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. But obviously, the apartment contributions were half of the lot settlements, and now are probably, I imagine, 75%, 80% of revenue. So is it fair to say that the margins are much lower on the apartment projects that you've completed in the first half, being St Leonards, Eastbourne and Marrickville?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [37]

--------------------------------------------------------------------------------

On average, the apartment projects are lower margin than MPC but in line with our expectations of where those projects would deliver. So it really is a composition of very high profit contribution coming from those apartment projects, which have settled extremely well but slightly lower than MPC average margins, and that's what's caused the compositional shift. But as I said, it will go up in the second half.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. And then as you then transition into '21, where you've got a much higher MPC, the expected settlement contribution, are you expecting that then the margin growth should continue to expand?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [39]

--------------------------------------------------------------------------------

We're obviously not making any comments yet about FY '21. We'll give you more detail about FY '21 when we get to the full year. But if we start -- we continue to see improvement in the market, with the caveat of our comments around lag into profitability in the business, we should see continued strong performance from our MPC projects.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. And then if I look at some of your key MPC projects, Woodlea, Olivine, Googong, the sales rates looked really low in the first half. Can we -- can Stuart maybe touch on whether that's project release or is the demand just pretty slow to filter through?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

You'll find that it's largely driven by release. I think I'd point to a recent project that we have just released in Smiths Lane in Southeast Victoria, where we've had very strong take-up, obviously driven by first-time buyers. So it's really driven by release and you'll see that strength. You'll see we'll release about 1,000 lots in the second half, and we're expecting solid take-up.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Okay. And just one final question. Sorry to harp on build-to-rent. But the rent growth assumptions underpinning your greater than 7% IRR, can you talk us through what -- back-solving, back of the envelope, looks like you're assuming 4% per annum growth over a 10-year period. Would that be about what you're expecting?

--------------------------------------------------------------------------------

Brett Draffen, Mirvac Group - CIO [43]

--------------------------------------------------------------------------------

Yes. Richard, Brett here. Look, I guess at a high level, the underwrite in terms of the business case is pretty much based on submarket-by-submarket but at basically market rent. So to Sue's point, our focus now in the short term is really proving up the customer offer. SOPA is obviously the first cab off the rank. And whilst we are highly optimistic and confident that the rental premium to market rent over time will be established in this business, as we've seen in other jurisdictions, at the moment, the sort of figures we quote to you are pretty much an assumption based around market rental scenarios. So that's something significantly for us to play for over time, but the business case in terms of our deployment of capital to this sector is, I think, based on relatively conservative estimates at this stage.

--------------------------------------------------------------------------------

Richard Barry Jones, JP Morgan Chase & Co, Research Division - VP [44]

--------------------------------------------------------------------------------

So you're assuming market rent growth is 4% then. Is that what you're saying?

--------------------------------------------------------------------------------

Brett Draffen, Mirvac Group - CIO [45]

--------------------------------------------------------------------------------

No. Look, it's very much a submarket-by-submarket view based on detailed research, but yes, overall averages around those sort of levels, yes, around those sort of levels but very much different submarket-by-submarket.

--------------------------------------------------------------------------------

Operator [46]

--------------------------------------------------------------------------------

Our next question in queue is from Sholto Maconochie from Jefferies.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [47]

--------------------------------------------------------------------------------

Just on the -- looking at the last presentation, I think you said the resi split would be 65% first half skew, obviously. I think there was profit because the apartments have a higher absolute value. Now on lot, it's about 50-50. What is that skew by profit now? Is it broadly 50-50 still?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [48]

--------------------------------------------------------------------------------

We can check that number for you, but I think it is. And look, I suppose just -- there's obviously some questions around that split for the half year, as to the 50-50 split. It was really driven by just projects completing towards the back end of last year and obviously being very focused on ensuring that, that customer experience at settlement and that we weren't settling too much product too quickly, particularly running into Christmas. And as I mentioned in my speech, we've subsequently settled over 300 lots in the last 5 weeks.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [49]

--------------------------------------------------------------------------------

Okay. And then because I think you said at the -- at your last result that, in effect, this is a stabilization year, '21, recovery. If you look at the lot settlements, you only -- on MPC, you were down exactly 200 lots, New South Wales particularly weak. Is that -- is MPC taking a bit longer? And then was that -- do you expect more settlements -- at 300, do you expect that to fall into the first half?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

I think the 300 was largely driven by, again, timing across both apartments and MPC business, largely driven by some at St Leonards and, more recently, Woodlea, which was really just a timing into Christmas. But we're starting to see, as I mentioned in my speech, a strengthening of inquiry, better leads, better foot traffic into our display centers, largely driven by first-time buyers. But also, it's good to see that we're seeing investors starting to come back to the market, particularly in Victoria.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [51]

--------------------------------------------------------------------------------

Okay. And then just on the margin again, I think you said to be in the last -- or above the 18% to 22% target band. Do you -- does that still stand for FY '20 on gross margin?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [52]

--------------------------------------------------------------------------------

Yes. So we expect gross margin -- obviously, I think the question that was asked before was the composition and the apartment projects that contributed to the first half number. We will see -- and it's important to note that, obviously, St Leonards is a joint venture project. So that isn't in our gross margin number, but it does come in our EBIT margin. So you'll see that, that continue to play through and a greater contribution from MPC projects like Tullamore, like Olivine, that will contribute in the second half.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [53]

--------------------------------------------------------------------------------

And then I should see that margin still above what you -- the target bands for the full year?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [54]

--------------------------------------------------------------------------------

Yes, improving or increasing, sure.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [55]

--------------------------------------------------------------------------------

Okay. And then just on -- to shift gears a bit to the passive side of the business. I know it's a -- I think 29% was revalued. It seems a bit low. And your cap rate, relative to peers, seems a bit high. Is it that we have revalued the whole portfolio for the full year?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [56]

--------------------------------------------------------------------------------

No. We have a policy that we have not deviated from, that we revalue approximately 25% of the portfolio every period. And that is one of the causes of why you see a slight lag, as Campbell mentioned, in our cap rate relative to peers, especially given the quality of the portfolio that we own and the quality of the income, the densities that we can achieve in the long WALE. And we just don't think it's prudent to externally value 100% of the portfolio every period, and we're going to stick to our policy of around 25% every period.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [57]

--------------------------------------------------------------------------------

Yes. Okay. And then just on the -- in the last result, you expect passive earnings to increase an average of 5% per annum for '19, '21. Is that expected to be a little bit higher now, given what we saw in the like-for-like numbers coming through across the portfolio?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [58]

--------------------------------------------------------------------------------

I think it's -- that's still a good number to guide to, given that a portion of that number, at least, comes from the new income coming into the portfolio, which is locked and known. And so I think 5% per annum over the '19 to '21 in passive income is still a good number.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [59]

--------------------------------------------------------------------------------

And then just finally on the retail, the incentives as a percentage of lease term. Could you give that number on a typical lease? How many percent it was? And how much they were -- increased compared to the last period or decreased?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [60]

--------------------------------------------------------------------------------

In line with last period. So we're seeing elevated incentives in new deals, so double-digit, that we're averaging out. We're slightly lower than where we ended full year, but we came in at just under 6%, but we expect that full year figure to probably come in combined at around 7%.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [61]

--------------------------------------------------------------------------------

Okay. On 2- or 5-year deal?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [62]

--------------------------------------------------------------------------------

Yes. No, I mean we are certainly seeing some shortening of lease terms, but where we're giving larger incentives, we're obviously looking to give it to the right retailers, as we talk about progressive retailers and looking at what sort of lease term we get for that incentive.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [63]

--------------------------------------------------------------------------------

All right. That's -- and my last question,[I surmise] -- did you not -- in the last [presser], you were going to release Ascot Green. Is that -- was that released at all? Or have you pushed that into the next financial year?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [64]

--------------------------------------------------------------------------------

The next -- we're in the process of launching, obviously, the next stage of Ascot.

--------------------------------------------------------------------------------

Sholto Maconochie, Jefferies LLC, Research Division - Equity Analyst [65]

--------------------------------------------------------------------------------

But it won't be FY '20?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [66]

--------------------------------------------------------------------------------

It will be FY '20.

--------------------------------------------------------------------------------

Operator [67]

--------------------------------------------------------------------------------

Our next question in queue is from David Lloyd from Citi.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [68]

--------------------------------------------------------------------------------

Just a couple to go, questions for Stuart predominantly. So just hoping you could give us -- if we step back, just without diving too much into the specific project volumes, just the foot traffic versus pcp. What are the lead indicators? How are they tracking versus pcp over the last 6 months? You mentioned foot traffic, inquiry levels. Can you give us some sense of the quantum change?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [69]

--------------------------------------------------------------------------------

Yes. Look, we're seeing a very -- I suppose, a significant increase in inquiry. But I think it's more important the quality of inquiry that we've been seeing through our projects, particularly in Victoria but also in Sydney, Southwest Sydney with our Crest project tracking very, very well. And as I mentioned, we've obviously seen a 40% increase in first-time buyers coming back into the market compared to last year. So that is really fueling, I suppose, the MPC business, both in Sydney and Melbourne. As I mentioned earlier, the Smiths Lane project is a good example of a new project in that southeast corridor, where we've had very strong sales over the course of the last few months, in particular. Again, Victoria probably leading the charge in terms of that affordability piece over New South Wales. But in saying that, we're still seeing very strong sales coming through now into New South Wales as well.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [70]

--------------------------------------------------------------------------------

Okay. So -- all right. So what's the typical sort of time line, do you think, between what you're seeing as lead indicators before sort of settlement of MPCs? Is it typically sort of like a 3- to 6-month type of time line? Just trying to get...

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [71]

--------------------------------------------------------------------------------

Look, it really depends project to project. Obviously, a number of our projects are now maturing. So you'll see sort of the same number of exchanges and settlements occurring in the one year versus some of the, I suppose, more infant projects like a Smiths Lane, where we do have that pent-up demand. And you will see higher levels of presales for the first few years of a project before we sort of start to produce product and sort of get back into an equilibrium.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [72]

--------------------------------------------------------------------------------

Okay. And sorry to harp on a couple of projects. It might have been brought up before. Can you just confirm when practical completion was for St Leonards? My understanding was it might have been midway through the first half. Is that correct?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [73]

--------------------------------------------------------------------------------

Yes, October. We started -- we got PC in October. And then obviously, we started to call settlements and then into the Christmas period. But I suppose, at full year, we spoke about St Leonards and the confidence we had in that project and the product and, I suppose, the location, and that's obviously come through. We're seeing very strong settlements. We're seeing very strong valuations coming through and, most importantly, very happy customers.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [74]

--------------------------------------------------------------------------------

Sure. So -- I suppose the market's expectation is you would have cleaned up most of those in the first half. Is that just still a reflection of getting financing is still a little bit tougher? Or is it just a drawn-out process to purchase it?

--------------------------------------------------------------------------------

Stuart Penklis, Mirvac Group - Head of Residential [75]

--------------------------------------------------------------------------------

Well, it's just the sheer volume of that project and making sure that we deliver high levels of customer service and a quality Mirvac service. So we're just very conscious of -- settlement's one thing, but the move-in process and making sure that we provide enough space between, I suppose, the move-ins to allow that experience to be of what you would expect from a Mirvac project.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [76]

--------------------------------------------------------------------------------

Okay. And well, just last one on the gross margins. Sorry to sort of bang on about this in (inaudible). I mean the FY '19 full year presentation was pretty clear. The FY '20 outlook statement was that gross margin is to remain above through-the-cycle target, 18% to 22%. It feels like you're sort of stepping back from that a little bit today. Is that a fair read-through?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [77]

--------------------------------------------------------------------------------

I think what we're seeing is that the composition for the first half is causing that gross margin -- the combination of the projects that we're settling, the fact that the apartments are slightly lower margin than MPC, that some of them are joint ventures in the EBIT margin, there's a lot going on in that number. And we remain confident that the gross margins will elevate above that for the full year.

--------------------------------------------------------------------------------

David Lloyd, Citigroup Inc, Research Division - Director & Analyst [78]

--------------------------------------------------------------------------------

Okay. But -- all right. So I suppose the first half/second skew mustn't be as aggressive then because otherwise, the -- it would imply that maybe gross margins on masterplanned communities might be running -- it's a bit of a stab here, but more around that 26%, 27% mark to get a full year number above 22%.

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [79]

--------------------------------------------------------------------------------

No. We're not going to pull out specific margins on projects or MPC versus apartments. And we can talk in more detail on the call this afternoon if you want to go through more project specifics.

--------------------------------------------------------------------------------

Operator [80]

--------------------------------------------------------------------------------

Our next question is from James Druce from CLSA.

--------------------------------------------------------------------------------

James Druce, CLSA Limited, Research Division - Research Analyst [81]

--------------------------------------------------------------------------------

Just a question for Campbell. The 15% leasing spreads, can you just remind, was that a face number, an effective number? And is that for the whole portfolio?

--------------------------------------------------------------------------------

Campbell Hanan, Mirvac Group - Head of Office & Industrial [82]

--------------------------------------------------------------------------------

That's a face number. It's a face number, and it's for the new leases and renewals.

--------------------------------------------------------------------------------

James Druce, CLSA Limited, Research Division - Research Analyst [83]

--------------------------------------------------------------------------------

Yes. That's correct. Okay. And then can you provide a bit of an update on sort of timing or how you think about timing for 55 Pitt, La Trobe and Kemps and any of -- and Kemps Creek? And any sort of milestones you need to hit to get those things ramped up?

--------------------------------------------------------------------------------

Campbell Hanan, Mirvac Group - Head of Office & Industrial [84]

--------------------------------------------------------------------------------

Look, we're at -- the short answer is, we are at the beck and call of the government planning process. So to a certain extent, we feel that we've made enormous inroads working very, very closely with government as part of this whole enormous Aerotropolis growth program, which is planned for Western Sydney. So we've been highly engaged, and that certainly is hopefully going to bear fruit by the end of this year. From a planning outcome, 55 Pitt Street is in the city of Sydney's planning program right now. So it's -- and again, we would hope that by the end of this calendar year, we would be in a position where we're well through design excellence and starting to get into stage 2 DA position.

--------------------------------------------------------------------------------

James Druce, CLSA Limited, Research Division - Research Analyst [85]

--------------------------------------------------------------------------------

And La Trobe?

--------------------------------------------------------------------------------

Campbell Hanan, Mirvac Group - Head of Office & Industrial [86]

--------------------------------------------------------------------------------

La Trobe, we still have a lease in place in La Trobe for a period of time. So we're -- until we get a little more advanced on the timing of that lease expiry, we probably don't need to push the planning program too much just yet. But it's certainly between that and our most recent acquisition in Flinders West, they are certainly -- we're starting those processes sort of imminently.

--------------------------------------------------------------------------------

James Druce, CLSA Limited, Research Division - Research Analyst [87]

--------------------------------------------------------------------------------

Okay. That's clear. And then maybe just one question on build-to-rent. The LIV by Mirvac platform, Susan, can you provide a bit of a sense of the costs that will go into that platform as you build out -- build it out?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [88]

--------------------------------------------------------------------------------

We really haven't released any metrics around the profitability of that platform. We've always said that we do have an aspiration to get to 5,000 apartments. This is a scale game, and we have invested significantly. As Shane said, in our expense line, you can see, we have invested significantly in setting up this platform. But we're really not ready to release any information about the profitability of the operating platform itself. It is a scale game, and that's why we're focused on 5,000 apartments in the medium term.

--------------------------------------------------------------------------------

James Druce, CLSA Limited, Research Division - Research Analyst [89]

--------------------------------------------------------------------------------

All right. When do you think you might be able to release some information on that?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [90]

--------------------------------------------------------------------------------

Well, I think -- I'll reiterate what I said before. Our focus right now is on proving up the customer experience and generating leads, which we're in the process of, and converting those into leases and having people move in to, hopefully, a completely revolutionized way of renting in Australia. And that's our 100% focus. So I am not going to be drawn on giving you any timing on when we're going to talk about the profitability of the platform.

--------------------------------------------------------------------------------

James Druce, CLSA Limited, Research Division - Research Analyst [91]

--------------------------------------------------------------------------------

Okay. Can you provide a little bit on that what costs you've already actually put in to date then or how many people you've hired or anything like that?

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [92]

--------------------------------------------------------------------------------

Why don't we go into detail on the call this afternoon? That's probably beyond the scope of this call, but we can give you some more detail. We have got a team in place with more hires to be made, and we could talk you through the type of people that they are and what they're focused on. That's probably beyond the scope of a public call to talk that through.

--------------------------------------------------------------------------------

Operator [93]

--------------------------------------------------------------------------------

Without further questions at this time, I'd like to hand the call back to the speakers for any closing remarks. Please go ahead.

--------------------------------------------------------------------------------

Susan Lloyd-Hurwitz, Mirvac Group - CEO, MD & Executive Director [94]

--------------------------------------------------------------------------------

Well, thank you very much for spending time with us this morning. I hope that you have shared with us the future that we see for Mirvac with the $8.5 billion commercial pipeline that we now have secured, 27,000 lots under management, new recurring revenue coming from our build-to-rent platform and our third-party capital management. And we are very excited that we are in the process of setting this business up for success over the next decade. Thank you, and we look forward to meeting with some of you this afternoon or on the phone.