Purchase of Mirvac Property Group (ASX: MGR)

Across the Australian equity component of investor accounts, we have bought Mirvac Property Group (ASX: MGR), a leading diversified Australian property group.

Starting off as a small joint venture in 1972, Mirvac has grown to a ~$15b asset owner and developer with an additional ~$10b of external funds under management. Around half the portfolio is invested in high-grade office assets, with the remaining spread across retail and industrial properties. A small proportion of the portfolio is also allocated to residential development activities.

We are attracted to Mirvac for the following reasons:

  • Lower gearing relative to peers
  • Quality of its office portfolio
  • Robust income generation
  • The diversification benefits it provides to the overall portfolio

Mirvac has two key levers for value creation that we would like to highlight:

  • Firstly, the balance in the office leasing market is being restored medium term. As COVID hit and people were forced to work from home, a significant amount of new leasing stock also came onto the market, leading to an increase in vacancies. This is beginning to normalize, and vacancy rates are starting to decline.
  • The second is their longer-term portfolio strategy. Currently, there is a definite preference for newer, higher-grade buildings. In response to this, Mirvac is currently divesting lower-grade, older buildings and running a more conservative balance sheet. In time the plan is to opportunistically purchase and redevelop these older buildings, to match evolving tenants evolving needs.

We are conscious of the risk of rising rates on the valuation of their portfolio. Following stress testing of the balance sheet under different interest rate scenarios, we are comfortable that we are being adequately compensated for this risk.

We think it is suited to the portfolio because of its steady earnings growth prospects and attractive dividend yield.

The purchase of MGR has been funded through the de-weighting of several portfolio holdings.


 

If you have any questions or would like more information, please contact your adviser.

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