Diversified developer and landlord Mirvac has taken advantage of favourable financial conditions to raise $750 million in fresh capital, as it looks to fund new projects in the nation’s two biggest cities.
Amid signs of renewed confidence in the housing sector, the funding will be used by Mirvac to expand its build to rent business as well as to develop large-scale inner ring mixed use sites in Melbourne and Sydney’s city.
Mirvac chief executive Susan Lloyd-Hurwitz said there has been a “uptick in enquiries” in the developer’s residential business, since the federal election and a proposal by the Australian Prudential Regulation Authority to wind back constraints on mortgage lending.
“We have seen a slight shift in enquiries since the re-election of the government, but it has only been two weeks. But the trend is encouraging,” she said.
“And any reduction in interest rates will be a positive for Mirvac.”
Mirvac said its residential settlements in 2019 financial year remain on track at 2,500 lots and defaults are still less than 2 per cent.
While its balance sheet supports its existing project pipeline, Mirvac said the proceeds of the raising will be used to fund future opportunities, worth about $2 billion.
It is the first capital raising for the diversified group since 2013 when it tapped investors for $400 million, at $1.69 a security to help fund the purchase GE Capital office portfolio.
Under the terms of the deal Mirvac will raise the bulk of the funds through an institutional placement at $2.97 a security and an additional $75 million from retail investors. Macquarie Capital, JPMorgan and UBS are handling the deal.
Mirvac’s share price was $3.10 before it requested a trading halt for the raising.
Mirvac also updated its operational outlook, saying the strong office and industrial markets and stable residential sales, its expecting to deliver at the top end of the 2019 earnings per security guidance range.
The group recently opened its South Eveleigh project at the Australian Technology Park in Sydney, with the Commonwealth Bank as the office anchor.
“We believe now is the time to undertake an equity raising to position Mirvac for future growth,” Ms Lloyd-Hurwitz said.
Analysts have said with more favourable lending conditions, it could kick off a new phase of raising within the real estate investment trust market.
Ms Lloyd-Hurwitz said the trigger for the capital raising was the “conducive financial environment”.
“The company is in a position to transform the business into the next phase and take advantage of the competitive prices and terms of financing,” Ms Lloyd-Hurwitz said.
“The projects we have identified are across office, master-planned communities, build to rent and other urban projects.”
Macquarie Equities’ analyst Rob Freeman said Mirvac has been successful at identifying cycles in each property sub-market “as well capitalising on residential; developing into office and executing on the residential book”.
Aside from the future projects the group has a current pipeline of $4 billion which includes an industrial site at Kemps Creek, Sydney and an office tower at Walker Street and Pacific Highway, North Sydney.
But UBS’s analyst James Druce said he believes the 2020 financial year will disappoint, due to a combination of a weak residential land market, residential margins peaking, and some commercial profits falling into 2021.
“We are 3 percentage points below consensus growth of 8 per cent in 2020 and considerably below upside forecasts of 14 per cent,” Mr Druce says.
Ms Lloyd-Hurwitz said the group’s development pipeline, including the Harbourside shopping centre at Darling Harbour, Sydney and Melbourne CBD apartment build-to-rent opportunity will boost the performance of the group.
“These identified acquisition opportunities are all aligned with our urban strategy and asset creation capabilities. They are targeted to deliver in excess of Mirvac’s cost of capital, creating value over the
medium-term,” she said.
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