Mirvac Group (MGR) Earnings Call Transcript

Good morning. Good morning, all. Thanks very much for joining us today. Just some brief housekeeping before we kick off. For those in the room, bathrooms, just round behind the stairs over here. And in case of an emergency, can you please follow the instruction of fire wardens who will make themselves known. We'd also appreciate if you wouldn't mind turning your phones to silent mode. As we're in Melbourne today or Naarm, its original name, we'd like to acknowledge the traditional custodians of the land where we gather they were [ Andre elders ] of the collonation and pay our respects to elders past and present. So we're excited to have you all here today and excited to be able to provide some insights into our initiatives across the emerging living sectors of lend lease and build-to-rent and to hear from and to meet some of our team. We'll start off by providing some research insights and outline the investment appeal of the living sectors and then provide an update on the BTR sector and some of our operational and development takeaways from our journey to date. Then we'll discuss our ambitions for entering the lend lease sector. We'll have a Q&A session at the end. And for those online, you can submit your questions via the web link. So Mirvac has a rich history as an award-winning residential developer with many repeat customers. However, this is only part of the picture. We've identified a customer need and demand for affordable housing solutions, which has been supported by strong market fundamentals and tailwinds, including rising population growth, record low vacancy levels for renters and affordability challenges. Our existing apartment and master planned communities product are beneficiaries of these fundamentals and our expansion into build-to-rent and lend lease are natural adjacencies. We are pleased to be able to present our customers with a full life cycle of housing options from when they first entered the market as a renter in one of our BTR assets to their first home or apartment purchase, upgrading or downsizing later in life. And in time, we will have the opportunity to offer an affordable downsizing solution as our customers head into retirement in our lend lease communities. As you will hear today, living sectors are one of the largest and most resilient real estate investment sectors globally and one of the most sought-after asset classes for institutional capital. We are pleased to continue to expand into these sectors with our partners and drive value for you and our shareholders. As we've previously flagged, our organization has been restructured into investments, funds management and development to reflect the growing scale of the funds management platform and the integrated nature of our development division. Asset Management has also been separated from investment management to provide independent support to both Mirvac and its partners, hoping to create a better performance-driven culture. We have a truly integrated business with learnings from our build-to-sell residential, commercial and operational BTR assets feeding into new development designs. Our unique internal design and construction capability is now deeper than ever, spanning commercial real estate and multi-living sectors. We've already shown leadership in the use of digitization and prefabrication in our development process, and this will become even more important going forward in order to achieve Scope 3 sustainability objectives, meeting evolving customer needs and driving investment returns. Over the past few years, our operational environment has shifted, presenting a number of cyclical and structural changes with a number of the key structural megatrends which we aim to continue to leverage over time to drive value for investors. We've been executing on our 5 focus areas outlined in April. Our recent noncore asset disposals, new industrial and BTR development completions and our planned expansion into lend lease has further modernized our investment portfolio and solidified its cash flow resilience in line with our strategic objectives. And we continue to make strong progress towards our other objectives. As a best-in-class urban asset creator, we have more than 50 years of experience in creating exceptional places through multiple cycles. The purchase of a home is the largest investment most people make. Mirvac's reputation a 50-year track record on delivering high-quality, well-designed homes, investing in infrastructure and communities early and continued product innovation means people trust us to deliver on our promises. We have continued to diversify our offering from land, detached homes and terraces through the mid-rise and high-rise apartments. This means everyone from her first home buyer through to upgraders, rightsizes and investors can benefit from Mirvac's commitment to quality as we respond to demand across all customer segments. We've responded to market tailwinds and expanded our living sector exposure now capturing the rental market and in time, the over-55s market, through build-to-rent and lend lease communities in addition to our award-winning residential cell -- to-sell business. As customer preferences and value propositions change, our integrated model has allowed us to leverage our in-house residential expertise and apply to these new sectors. Mirvac's competitive advantage lies in our unique integrated asset design and construction capability which creates significant value for our security holders and capital partners. The integrated model that drives Mirvac's advantage can be thought of as a flywheel that delivers development earnings, a pathway to accelerated growth in [ NRV ] and improved portfolio quality. And at the same time, enables growth in our assets under management and third-party fee income. In an environment of cap rate expansion and elevated delivery challenges, our value creation platform and track record around site selection, risk management and execution will become an even greater differentiator of performance over time. I will now welcome Alex Gray, our Head of Research, to walk through the market fundamentals.

Thank you. Good morning, everyone. Today, we're very pleased to share some insights on rental populations in our cities. So let's begin with Australia's record migration boom underway. While population data from ABS is quite lagged, we get a more timely read from their labor force survey. And this is showing that the working age population growth is currently running at a pace of 2.8% a year at August 2023, well above the 1.9% pace in August 2022. So this is clearly the catch-up from lost levels due to the pandemic, and we do expect this to normalize gradually over the next 2 years. However, 2 decades of migration data tells us these groups don't disburse evenly around the country. They overwhelmingly reside in Sydney and Melbourne, with some flow through to Brisbane and other parts of Australia. So what we're looking at here is the impact overseas migrants have on the housing market upon arrival. It shows the change in settlement patterns in subsequent years. So this is looking at migration data at 2019, and we can see migrants largely enter the rental market on arrival to Sydney and Melbourne. On the left, you can see a rented apartment is the typical dwelling for a new migrant to Sydney, and in Melbourne, both rented apartments, semis and townhouses have been an important product for new migrants. We expect the shared apartments to rise in Melbourne. In the dark blue there, you can see, given the lift in completions in the recent years in the city here and the rapid absorption of that stock. Final key point to this slide is that we find the tenure of migrants shifts over time from renting to home ownership. And for Melbourne, this is around year 5 from arrival, and you can see the importance of detached housing, something we see ourselves within our master plan communities projects. For Sydney, it's a longer transition reflecting the affordability challenges and a longer time in the rental market. The Sydney migrants have transitioned from renting to buying through purchase of typically more affordable apartments and townhouse product. And so while the demand side drivers are lifting, so too are the ambitions and targets for housing supply. At the August meeting of National Cabinet, the National Housing Accord target was increased by 200,000 dwellings to 1.2 million well-located homes to be completed by June 2029. To put this in context, it requires 240,000 housing starts every year for the next 5 years, a pace which this country has never achieved. So the National Housing Accord and the also newly legislated Housing Australia Future Fund policies do not materially impact the near-term outlook for residential construction. While some upside exists towards the end of the decade, the challenge to meet these targets is immense and will clearly require a step change. Delivering at scale will require increasing density and addressing that full housing continuum that Campbell just talked about, something we are focused on here. So we see a picture where dwelling completions in our major cities and nationally are cresting peaking over the next few months. And through 2024, the volume of completions is expected to reduce quickly, providing some easing to construction cost escalation though elevated infrastructure spend exists in all our major cities, especially on the East Coast. And so that provides some -- that will be offsetting some of that. On the current trajectory, completions of detached houses on the left across our 3 largest cities are expected to fall by more than 25% from peak 2018 levels. However, let's dive into the apartment stock. It is in the apartment stock that the undersupply story is more pronounced. And while we expect a tick up in the apartment supply in the major East Coast cities in FY '24, population growth will also be moving through that peak simultaneously. So in subsequent years, we see the volume of new apartments and attached dwellings, which is the typical housing stock for renters, expected to be more than 50% below 2017 levels. Risks are also skewed to the downside here because of the highly constrained funding environment, elevated construction costs Campbell mentioned, and we also have lower presales limiting construction. So where does that leave us today? We look out to the near-term peak picture of a rapidly growing population, sharply lower supply, yet today, vacancy already is at record lows across many submarkets. Apartment rents across our capital cities have clawed back their pandemic impacts and now in the double-digit pace there above inflation. Across our 3 largest cities, renter households have been the fastest growing across all large population age groups. Rental households aged 20 to 59 have recorded a compound average growth rate greater than 3% over the past 15 years. While conversely, you can see that outright ownership has declined or held flat. So our rental households are getting older as affordability constraints around obtaining the deposit or servicing the mortgage, see more young people delaying home ownership. According to ANZ and the researchers of the Australian National University, it took 9.9 years for households on a median incomes to save the 20% deposit for a medium-priced dwelling in Australia in September '23. In Sydney, this was 12.3 years. With dwelling prices now on the rise again across all of Australia's capital cities, this represents a decrease in market buying accessibility for renters. And the time to save the deposit is now on the increase again. As such, we have a growing pool of renters, and they are getting older. You can see the chart on the right is showing a count of households by age over time in the 3 larger cities. Renter households aged 30 to 39 have more than double in 15 years -- almost doubled in 15 years. So as renter households increase, we've also find a growing acceptance and preference for apartment living across all household and family types. These charts here are showing the share of renter households living in a high-rise apartment, which is a structure of more than 4 stories. The largest renter customer groups are on the left side screen. So top left is our single and group households. And the bottom this chart is showing a couple household with no kids. So the light blue line show the story for Melbourne. In 2006, around 1 in 5 of those renting household types was living in a high-rise apartment. Fast forward to 2021, high-rise apartment was the home of 2 in 5 of those groups. And the charts on the bottom -- and top and bottom right of the screen are our families with kids, so we either got a 2 parent or a single parent family. And what stood out to me was the importance and acceptance of high-rise apartments of family living. For example, 15 years ago in Sydney, a high-rise apartment was home to less than 1/3 of all renting 2 parent families with kids. And today, there are now more families with kids renting in a high-rise apartment than any other dwelling type. You can see the other cities are on the same trajectory. Against this background, we think the build-to-rent sector will play an important role in Australia's future housing supply. While rents have continued to lift over this past year, the median rent or affordability pressures are generally not to the same extent as borrowers. Conversely, for residential investors, mortgage repayments have climbed higher than median rents and we've seen residential investors become a higher share of for-sale listings in many areas over the past year. And lastly, we also see huge demand for quality housing from older cohorts. Forecast from the recent intergenerational report show the volumes of people in Australia over 55 climbing strongly over the next few decades, almost doubling by 2063. The potential is there. The 2021 census showed over 70% of Australians aged 50 to 79 living dwellings with just 1 to 2 residents in their home. However, over 80% of those dwellings, they have 3 or more bedrooms up to 40% have 4 or more. And we expect growing volumes of households will look to unlock the value of those dwellings in order to fund a quality retirement. I'm very pleased now to hand over to our CEO Investment, Richard Seddon, to speak more on the investment appeal of living sector.

Thank you, Alex, and good morning, everyone. Over the past 10 years, Mirvac has taken an active approach to portfolio composition, disposing over $4.2 billion of older assets to create over $6 billion of brand-new, highly sustainable, award-winning assets which resonate with customer demand across build-to-rent, industrial and office. This has driven a strong uplift in portfolio quality and operational performance with 97% occupancy across all sectors and outperformance across all time horizons. Our strategic focus is to further improve the cash flow resilience of our investment portfolio by upweighting our exposure to the structurally supported living sectors, build-to-rent and lend lease, continuing to lift our exposure to industrial and moderating our office exposure to more acutely focus on modern high-quality assets. We've made good progress towards these goals with our asset disposals of mostly lesser-quality office assets, progression of our industrial and build-to-rent pipeline with Switchyard and LIV Munro completed in the last 12 months and our planned expansion into land lease. The build-to-rent asset class is underpinned by compelling structural drivers including extremely low vacancy rates of around 1.5% nationally, robust demand supported by strong forecast population growth, a structurally undersupplied housing market with planning and delivery challenges persisting and stretched affordability increasing the proportion and duration of renting in Australia. This provides an attractive investment thesis producing stable income with high occupancy, diversified tenancy risk and a strong underlying customer proposition, a robust rental growth outlook with attractive supply-demand fundamentals and typically higher inflation protection and low cash flow leakage with modest CapEx, minimal incentives and generally low downtime. And it's very aligned to Mirvac's core capabilities, including our deep history of award-winning residential products across a broad range of product types and geographic markets supported by market-leading in-house design and asset creation capability, our deep operational experience in target markets with established customers and understanding of regulatory and customer requirements. And our operating track record with 2 completed assets, providing a first-mover advantage and a wealth of operational data and customer insights from which to draw on. Globally, build-to-rent has demonstrated strong performance. The chart on the left shows in the U.S., the direct residential sector has achieved strong total returns on a comparative basis with a lower standard deviation or variability in returns during this period. In Europe, cap rates have proved resilient and longer-term returns attractive with lower volatility. Capital is responding with recent surveys of investor intentions demonstrating a targeted upweight in allocation across all major geographies. In Australia, the residential sector is exhibiting much of the same structural characteristics as that witnessed globally. Vacancy rates are materially lower than the other major asset classes with the exception of industrial for which we already have a secured development pipeline and are upweighting our exposure to. Rental growth has outperformed other asset classes in real terms with nominal rental growth around 130 basis points above inflation over the past 10 years. We have a structural undersupply of housing with stretched affordability impacting homeownership levels against a backdrop of elevated demand from one of the strongest forecast population growth rates in the developed world of around 1.5% per annum. And our major cities of Sydney and Melbourne are consistently rated as the top -- in the top 10 most livable global cities across a range of metrics, cementing their appeal on the world stage. This chart indicatively sets out the component parts of potential investment returns for illustrative purposes. Whilst the initial yields are comparatively tight, the attraction of these asset classes underpinned by stronger rental growth, supported by the strong fundamentals Alex outlined earlier. And relative to other asset classes, only modest cash flow leakage from incentives, CapEx and downtime. This delivers an attractive true cash yield, underlying growth profile and lower volatility compared to other asset classes. Additional ancillary revenue streams are available via the OpCo for value-added services, which Angela will expand on shortly. Through the cycle, we'll continue to maximize development margins in the vehicle to compensate for delivery risk and provide a positive spread between the stabilized yield on cost to cap rate, boosting underlying cash yields and providing asset valuation uplift post stabilization. The balance of Mirvac returns are illustrated on the right-hand side of the chart from investment and asset management services and acquisition and development management services. The Australian build-to-rent sector is still in its infancy with only 13 operating assets nationally and a total of around 4,000 units. Whilst we're seeing an increase in development activity, much of the potential supply pipeline is yet to receive development approval or commence construction. If all of the current known or potential build-to-rent supply was delivered, this would equate to around 47,000 units or only 0.4% of the total housing stock in Australia. The potential addressable market is significant. In the U.S., penetration rates are at 12%. And in the U.K., they're at 5.4% with the sector only being established in just over 10 years. By contrast, in Australia, the total completed assets and pipeline of just 4% is just 4% -- 0.4% of an approximately $10 trillion total residential market. If build-to-rent achieved a penetration rate of just 3%, this could result in a $290 billion asset class across approximately 350,000 units, which would be considerably larger than the current office, retail or industrial investable universe. Mirvac is pioneering the build-to-rent sector in Australia, having commenced the asset class over 6 years ago, we are now very well placed with 2 operating assets and a secured pipeline well under construction. This operational experience and first-mover advantage will continue to provide great insights into site selection, design, creation and curation of our future assets as we grow our exposure to this sector. And we are able to leverage Mirvac's core capabilities, including our rich history in developing residential product to respond to evolving customer demand in the creation of build-to-rent assets. Our deep end-to-end construction and design capability is invaluable. We can utilize our multisector active operational management platform to drive value at the asset level and have a demonstrated track record of delivering investment outperformance across multiple sectors. We believe these factors will provide us with an enduring competitive advantage with which to drive performance and growth in this emerging sector. I'll now hand over to Angela Buckley.

Good morning, everyone. As the team has highlighted today, I'm going to talk to you more about, I think, what really makes up build-to-rent for us and the commitment that Mirvac has made over a 7-year period to deliver in the asset class and what we've learned along the way. We have an ambition to lead the category. As Richard said, we have a first-mover advantage really being backed by 50 years of residential experience, which we can lean on every single day, which the development team will talk to you more about. This truly integrated business and the commitment to continuous learning has really given us a very strong focus on iterating and operating in this space, which we will, again, we consider through the whole life cycle. Our secured and diversified development pipeline puts us in a fantastic position with all of that pipeline to be operational within by FY '25, which provides a meaningful, scalable portfolio and delivery certainty. And we have the capability and capacity to grow this pipeline with exposure across Sydney, Melbourne and Brisbane. Our experienced team and proven platform, we believe, really set us for growth into the sector and the opportunity and the runway, as Richard has noted, is significant. Importantly, we've invested heavily right throughout the whole business. We've created a market-leading brand in LIV, and we have a truly customer-centric approach to everything that we do. We have more than 1,100 customers today, and that number is rapidly increasing and will do so over the course of the next year and have now been operating at Sydney Olympic Park for more than 3 years and coming up to our first anniversary in Melbourne. And this has really given us great insights proving up operating metrics, maintaining high occupancy, resident retention and customer satisfaction. And we have a really strong emphasis on removing the friction points from people's lives and creating a more enhanced living experience, which we'll talk to you shortly. It's not surprising to say that ESG is at the heart of everything we do and build-to-rent is just an example of this. We have -- we aligned to Mirvac's This Changes Everything strategy. We've achieved net positive Scope 1 and Scope 2 within our build-to-rent portfolio and a commitment to Scope 3 target by 2030. Importantly, for built-to-rent, being able to deliver ESG with social sustainability is one of the greatest opportunities that we see having driving community benefits being central to the LIV offering and also the opportunity to deliver more broadly across the housing continuum and doing so with partnerships, government partnerships to deliver affordable housing like we have at LIV Anura. And importantly, over the last 12 months, we've really been the successful establishment of our build-to-rent venture. Importantly, we've taken the next step in creating an aligned partnership with the developed to core vehicle with very aligned investors who also see the opportunity for us to grow and doing so in a way that provides great visibility and transparency and that commitment to grow the portfolio to over 5,000 apartments. Here is a snapshot of the portfolio as it exists today. As I said, we have -- we really think about the portfolio as being over 3 generations. And we were fortunate to have our first project in LIV Indigo at Sydney Olympic Park, which, as I said, has now been operational for 3 years. That, again, has given us really wonderful insights. Since the project stabilized in more than 18 months ago, it has and -- through a COVID period, it's never had occupancy less than 95%. So it's really being able to and achieved really great leasing results and customer satisfaction as well. Our first foray into Melbourne is what we really consider to be generation 2 of our portfolio. This is a much more purposefully designed build-to-rent opportunity rather than a repurpose build-to-sell development. And again, the learnings, the diversity of the customer and our initial performance results here have been extremely pleasing in outperforming strong market conditions. And now we turn our focus really to what's next within the next -- within the next 12 months, we'll be delivering 2 new projects, 1 at LIV Aston, which is -- which you will hopefully get the benefit of seeing today. We pleasingly topped out that project last week, and we're well on our way to completing that mid next year as well as LIV Anura, which the development team will talk to in more detail. And finally, Albert Fields, which is also in Brunswick, which is really our first foray into medium density style development within build-to-rent. You can see here that all of the ESG targets we have across the portfolio are extremely strong. We're market leading with respect to that. And we really believe we have a -- can take advantage of this going forward. I think importantly, we really believe that this is about creating a new category of housing. This is not just about optimizing renting or trying to bring some attributes of what people -- what customers currently on the -- security, they currently only received as part of being in a built-to-sell style development or being an owner of a property. And that is really about putting the customer at the center of everything that we do. We are really about delivering to those deep human needs. Safety, security, connection that really evokes belonging and flexibility that enables individuality. And these are the attributes that really set build-to-rent apart in the customer's eyes start to see the value of what we are delivering and where they can belong. It is no surprise that if you are a renter in this country, you're not used to being treated as a customer. The current makeup is that really the landlord is the customer of the real estate agent and the tenant is simply the person that pays the rent. And so the benefit build-to-rent model is really about flipping that and putting the resident at the heart of what we deliver and creating an experience centered around that, which we believe will create much more certainty, security for those customers and leads to ultimately why we have conviction that they can deliver stability in the cash flows over long periods of time. How do we do that? How do we deliver that every single day? There are -- you can see the attributes that we talk to here. But it's starting really -- we know from our customer feedback offering security of 10 year delivers really -- is really important for our tenants. That comes through in a number of ways. It's not just the security of the lease that the customer can choose how long they live with us for, you can rent with us for 3 years or for 12 months. But also what's included as well. So having a team on site 7 days a week, white goods are always included, you have -- we create removal of friction through the renting process. You can seamlessly connect to WiFi, the electricity is on when you move in. We can offer additional services, which I'll talk to in a moment, and you may never lose a parcel again. And these attributes are really, really important. I think the way that we design the buildings is really centered around creating connection and that belonging. And we always say, in the LIV building, you're feeling at home when you walk into the building, not when you open your apartment door. And then importantly, flexibility, and that really enables individuality. We don't just welcome pets. We make -- we encourage residents to paint their walls to ensure that they can hang pictures that they can really make the home their own. And that we can add on or take off what they don't need. So if you don't necessarily need to own a car park -- own a car to live with us because we can offer a different solution, and that is all part of the value proposition as well and importantly, creating third spaces, spaces that genuinely add to the living experience for our residents. I'm often asked about the pricing of build-to-rent and our apartments and how does that really compare. And I think it's really important to think about it in 2 components. There is the pure financial proposition for the resident. But then how really we think about the other inclusions and amenity and how that really ladders up to -- for the individual customer. I think really importantly here, what we've done is show and something that we've learned through the process is really that our -- we find very regularly residents are prepared to trade down in order to their size. So while they might rent a 2-bedroom apartment in the open market, in the build-to-sell space, they are happy to be in a one-bedroom apartment in LIV Munro. And you can see that quote from one of our customers who relocated from just from Queen Street a 2-bedroom apartment, but have actually found that they feel they have more space at Munro within their apartment because it's well designed, but also because they have access to and they utilize the additional spaces as well. What we're doing here is just showing really how the value of those inclusions shows up financially. You can see, interestingly, if we compare just a one-bedroom apartment, to LIV Munro. At the moment, for the September data where the rent difference purely to the market at the 90th percentile is about 11% and then to the 75th percentile at 17%. And that really -- and it's very quickly, easily able to be seen where the customers do see the value and what the attraction of that -- what that is. Once we take the fact that they don't need a health and wellness membership, or necessarily a car that white goods are included, that there isn't an outlay for a bond, the numbers become quite compelling quite quickly. And that is before all of the other inclusions that are listed below, which are actually for a lot of people, what really makes the difference and where they see the value. As I said, we have more than 1,100 customers today. This is -- we also have a lot of pets, more pets than children, which is an interesting trend in and of itself. And again, we are really using and having that one-to-one relationship with those customers to really understand their living preferences, their experience, where we can continue to evolve and improve the offer. And testament to our incredible team who deliver a really wonderful experience, and it comes through in the customer feedback that we have. We've made a really strong commitment to delivering right across the whole spectrum of the living experience and a big important part of that is actually digitizing the experience. So our residents don't have keys. Everything is electronic, they had -- can do much of what they need with our purpose-built Mirvac app, whether that be to collect a parcel, to book a space, to have a request for repair or maintenance that can be done on site, to attend an event and to get to know their neighbors or simply building information, which interestingly was built through AI technology, which has enabled us to -- for there to be an on-demand concierge for our residents through the app at any point in time, which we get wonderful feedback on as well. And then the insights that this information is really giving us in terms of understanding then how many bookings are being made? How those customers are using those spaces? What is popular in each of the different projects? And why how attendance and events might lead to retention rates? And then also areas like booking -- car bookings, where you're able to -- our residents are able to have on-demand access to their own red car share services as well, which has had incredible take-up and is already delivering ancillary revenue for us. I'd just like to end on, I think, some of the really important learnings that we've had over this period of time and really how we try to implement those in real time and those are coming through into the development projects and benefit of that cycle. The first is really around partnerships. So while Mirvac has an end-to-end capability right across the board, we are certainly about -- also about making sure that where appropriate, we work in partnership with others who are subject matter experts. As I said at LIV Munro, we have 2 resident only Tesla EV -- Tesla vehicles in the basement. And those -- they have had incredible take-up. They have been used every single day since we implemented them. And we -- and the latent demand is significantly more than we expected, and it really again for the car saving amount that someone has, they could have a -- they could use that car for 30 hours a week under the subscription model. So it's really easy to see how it starts to create value for the customers. Maybe other important part is really considering that life cycle assessment right through the project and really what are the operating expenses at the other side of that development phase. All that is every single decision that we make in the development phase has an impact through the operating period and making sure that we're considering the whole life cycle assessment of that. And we know that, that will be important in terms of the resiliency of the returns and that CapEx profile that Richard spoke to earlier. And while we've really digitized the living experience for our customers, by and large, can tell you that the value that the on-site team brings and how important they are to driving customer satisfaction is so paramount and you'll meet some of the wonderful LIV Munro team there today, and you might even run into Jackie, who is one of our residents, who interestingly enough, moved out of the retirement village to live at LIV Munro. And then finally, I think it's important to understand our approach to amenity space is really about creating and improving the everyday experience of people. It's not about creating brand spaces and having what we've referred to as an amenity arms race, it is about making sure that those spaces have maximum utilization that they're very well designed, that they're tech enabled. Our dining room can be a meeting room by day at a dining room by night. The studio has -- is used for a myriad of different reasons and purposes and, therefore, improving the accessibility for our customers. And having that utilization, we know is really a key part of resident retention. Thank you.

Thanks, Ang. Good morning, everyone. As you are aware, our funds management offering has expanded considerably in recent years and is now an important part of our overall group strategy. We recently reorganized our corporate structure to ensure that we have market-leading corporate governance and has been well received by both our existing and our potential capital partners. Our focus is on leveraging our in-house asset creation and asset curation capabilities to form aligned partnerships with growth-minded capital in areas where we have deep operational capability and high conviction. We added 3 new aligned partnerships over FY '23, including our BTR venture and grew our third-party capital under management by $7 billion to $17 billion. As Ang touched on, we are proud to have launched one of Australia's first operational build-to-rent ventures with key cornerstone investors, including Clean Energy Finance Corporation. The venture comprises Mirvac's operational build-to-rent assets, including LIV Indigo in Sydney and LIV Munro here in Melbourne as well as 3 pipeline assets with around 2,200 lots in our secured pipeline with an expected end value of $1.8 billion. Mirvac owns 44% of the venture with the other 56% owned by outlined long-term capital partners. Our new BTR venture allows us to accelerate our growth ambitions in this sector with aligned capital partners who will partner with us in the funding and delivery of our secured development pipeline as well as in the purchase of future development sites. This partnership frees up capital from the Mirvac balance sheet and allows us to get to scale faster. The BTR venture is serviced by our operating company under the brand LIV which will manage the investments and the assets while Mirvac will provide development and construction services on behalf of the venture. Mirvac has retained 100% ownership of the LIV operating platform. The platform has been created with future scale in mind and spans property management, leasing, customer and brand, technology and finance. The platform has been created over our 6-year build-to-rent journey and the operational expertise and learnings across this capability is a considerable point of difference in what remains an immature asset class in Australia. In a BTR context, our LIV platform typifies what we would describe as deep operational capability that sets Mirvac apart. As the face of LIV for our customers, this platform is a critical component in the quality of our residence experience. The feedback loop from the platform contributes to the evolution of our offering and is highly scalable, providing opportunities for consolidation in what is a highly fragmented sector of subscale players. Mirvac generates numerous fee streams for this platform, including property management and investment management, while our broader development capability also generates development management and construction service revenues. As this platform scales up over time, it has the potential to generate meaningful earnings contribution to the group and to generate value creation for our shareholders. We see considerable scope for growth in our funds platform over time with the opportunity to further grow initiatives across the living sector spectrum. Our deep operational capability, leadership across the sectors we choose to operate in, our ability to create and own our own product, along with our strong focus on alignment and corporate governance are all important points of difference, which will continue to attract like-minded and aligned capital partners to the platform. Going forward, we'll continue to expand our funds management offering, via our existing vehicles and also across a broader suite of asset classes and product types. We'll continue to utilize the depth of our asset creation and asset curation capabilities. This will allow us to deliver higher returns for investors and accelerate value and capital being unlocked from our deep development pipeline. Pleasingly, in the leaving sectors, we are seeing strong tailwinds and forming in the medium term. With an acutely undersupplied market, strong migration trends and tight vacancy, we are confident that we have the pipeline, the brand and the track record to take advantage of these opportunities in the coming years. I'll now hand over to Stuart Penklis to outline the development opportunity in BTR.

Thank you, Scotty, and good morning, all. As you know, the development skill set at Mirvac is key. With over 50 years of experience, that skill set is more important today than it has ever been. Our deep integrated development platform is a key competitive advantage and a major driver of considerable value to shareholders across commercial, mixed-use and residential creating new, modern, sustainable investment assets delivering development earnings to our shareholders. We are renowned for our quality, independently recently reflected in our 5-star iCIRT rating, the first 5-star rating to be awarded in Australia. The diversity of our platform provides resilience of earnings through the cycles in our recent consolidation of the Development division into one United team, as mentioned earlier by Campbell, drives efficient capital allocation ensures we are fully leveraging our skills across the platform and provides unparalleled opportunities for our people at Mirvac. We have an innovation focus reflected in our push into prefabrication and digitization, which is driving efficiency and safety benefits. And you'll be able to see this firsthand on the tour, particularly at LIV Aston. We are taking a more selective approach to development in the current environment, placing $1.8 billion of office developments on hold. This integrated model has created over $1.3 billion of value over the last 10 years in commercial and mixed-use alone, created over $6 billion of assets for our balance sheet and capital partners, including our 2 operational BTR assets. This is part of the reason we have one of the most modern, sustainable and high-performing investment portfolios in the market. This deep experience and capability and alignment of interest drives benefits across site selection, design, procurement, managing construction and planning risk. It also helps us to deliver positive sustainability outcomes and maintain high-quality standards for our customers. Our success in pioneering the BTR asset class in Australia has been underpinned by our prior learnings across residential and commercial projects and leveraging skill sets across the wider team. I'll now pass on to Sarsha, who will -- who is our Head of BTR development to provide some further color on our BTR development pipeline. Thanks, Sarsha.

Thanks, Stuart. We've now been developing build-to-rent assets for almost 7 years. And having created 2 of the first assets in the country, there have been considerable learnings we've been able to benefit from. With access to constant feedback loop from our customers and data sets from 2 distinct assets, we can implement changes we believe are necessary in current and future design, all of which is possible with our in-house design and construction teams. This has been demonstrated in our lobby design at LIV Munro, which we carefully considered taking on learnings from Indigo, we worked through a number of iterations to get the design just right. The lobbies open plan with a casual concierge desk which allows the interaction between the community team and residents, creating a comfortable land-like environment where the residents can congregate. The design provides the perfect environment for incidental interactions as residents come and go from their apartment. And we have had many successful events in the space already. Also, we found that co-working is one of the most utilized amenity spaces at Munro, which is already a big step up from Indigo. We are now further enhancing our assets under development by adding additional meeting rooms and desks to cater to the demand. Lastly, modular construction creates valuable savings in cost, time and waste and ensures a very high-quality finish. Our bathrooms are created in an off-site factory under controlled conditions with all of the tiling, plumbing, fittings and fixtures installed. Then the pod are craned in reducing the need for numerous subcontractors during that busy finishing phase where there's a lot of wet trades typically. Our design team continued to evolve the layouts of the pods, and we can use our scale to forward order these pods across our entire residential development book of projects delivering considerable savings. Developing with ESG is the heart of everything we do and has truly become more important to the industry, partners and residents. Our socially aware residents expect more than just token sustainability measures and are making decisions based on their values. LIV Munro has a strong sustainability focus, targeting an 8.1 NatHERS rating. From sustainability by design in how we activate our spaces and provide communities where people can age in place. Sustainability and the positive choices we empower our residents to make every day. Across our build-to-rent portfolio, we're eliminating gas, installing solar panels and buying 100% renewable power through embedded networks as well as targeting Green Star points that improve air quality, access to daylight and thermal performance, all of which optimize the consumers living experience while reducing energy use. We're installing EV chargers for car [ sharing ] and upgrading our substations to cater for the future transition to electric vehicles and providing one-for-one bike parking and access to scooters to encourage alternate modes of transport. Looking now at our current development pipeline under construction. This is our project, LIV Aston, which we'll all take you on a tour today as the previous speakers have advised. LIV Aston is located on the corner of Spencer and Flinders Street in the Melbourne CBD and will set a new benchmark for build-to-rent development in Victoria and will cater to customers that are seeking a frictionless lifestyle. This project has just topped out, as [ Angela ] mentioned, which was very exciting, and is due for completion mid-2024. It will include 474 apartments, 20 of which will be provided as affordable units, which the LIV Team will manage. There will be 670 square meters of ground [ floor ] retail, which is focused on food and beverage and services, and service uses aimed to complement the residential offering. The [ whole ] of Level 5, over 2,000 square meters, is dedicated to resident amenity, with a focus on health and wellness, and includes co-working, cinema, pool, gym, saunas and a pet park, of course. There are also communal areas for people to entertain friends and family with our Level 32 private dining offering spectacular views down the [ Yarra ] River, which we will have the benefit of showing you on the tour. LIV Anura is our first project in [ Newstead ], Brisbane and includes 396 apartments and 1,200 square meters of retail. The project is part of the pilot program with the Queensland government to deliver high-quality tenure-blind housing for key workers. 25% or 99 apartments will be offered to people with locational needs, who work in professions such as health care, emergency services or education, and satisfy the state's eligibility. The apartments will be leased, managed and operated by the LIV Team and spread throughout the building to ensure diversity. The key workers will have full access to all the building amenity, which includes pool, sauna, co-working, pet park and resident lounges. LIV Anura is currently under construction and is due for completion mid-next year. And finally, LIV Albert Fields. LIV Albert Fields is 6 kilometers to the north of the Melbourne CBD in Brunswick, which has a really strong art in live music scene while being highly connected and multicultural. Albert Field is a mid-rise project of 498 apartments on a 1 hectare site, surrounded by 20 hectares of park land. The project will include 15 affordable housing units and retail activating the ground plane. The amenity at Albert Fields is curated to target our target customer, the progressive humanist, who lean into sustainability and seek out suburbs led by community feel. There is over 2,600 square meters of internal and external amenity, including gym, co-working, a workshop and a communal laundry, which is a bit different from our other assets, rooftop dining and kitchen gardens. LIV Albert Field will be 100% fossil fuel free and is our first project targeting 5 stars under the new Green Star buildings tool. We started construction earlier this year, and we are targeting completion mid-2025. I will now pass across to Stephen Gould, our GM of Land Lease, sorry, to walk you through the land lease sector. Thank you.

Thanks very much, Sarsha. And good morning, everyone. It's a real pleasure to be here with you today and also online. So my name is Stephen Gould. I've been given the exciting opportunity to lead Mirvac's launch into the land lease sector. I've been at Mirvac now for just under 18 years, and I'm really looking forward to seeing Mirvac write the next chapter and really push hard into the living sectors. So over the past 12 months, we've been advancing towards establishing our land lease platform with a focus on land that we control or we own within our residential MPC business. So today, I'll provide an update on the progress that we've made as well as providing a high-level overview of the land lease model and why it's so attractive to Mirvac. So first, on the land lease model, and this might be known to some of you already through investments in other platforms, but at a high level, land lease involves the creation of purpose-built communities for downsizes, who want to live in an inclusive and safe community alongside other like-minded people, and they're designed to promote a physical and mentally active lifestyle. As the developer of a land lease community, Mirvac retains ownership of the land and the community facilities while the customers enter into long-term lease agreements for specific areas within the community, upon which their home is located. The customer buys the home from Mirvac, which releases a development profit to Mirvac, and the customer then pays a weekly rent for the land that the house is situated on. Each resident in land lease community is responsible for the maintenance of their own home and ensuring that externally, it continues to meet the standards that are set by the developer. And the developer's obligation is to ensure the community facilities are maintained to a high standard and includes, which includes the upkeep of the common area landscaping. So under the long-term rental agreements, which are commonly referred to the site agreements, the rents are escalated annually generally in line or slightly above CPI. When residents exit a land lease community, there's no -- generally, there's no deferred management fees or exit fees, although some operators do have these arrangements. But where they don't, what it means is the customer retains all capital gains. And this is a key difference between our retirement villages and land lease. When customers enter a land lease community, they buy the house, there's no stamp duty payable because the purchase of the house is considered a [ chattel ], and there's no stamp duty, given that the relocatable nature of the homes. For customers who are eligible to receive the Commonwealth Rental Assistance, which is normally a high percentage of land lease customers, a portion of their weekly rent is funded by the Australian government. One of the pathways to qualify for Commonwealth Rental Assistance is being eligible to receive the age pension. And this requires satisfaction of two tests, an asset test and an income test. The income test is generally satisfied because these customers are generally retired persons or retired couples. On the asset test, however, in the case of a couple, they need to have financial assets, financial assets and things like cash, shares, superannuation, valued at less than $986,500, so it's quite a lot. And if they've got less than that, they qualify for an age pension or part pension. And importantly, the value of the home that they're buying is excluded from that asset test. So Commonwealth Rental Assistance for a couple is $74 a week and $78.50 for a single person. So assuming a $200 per week rent under a land lease site agreement, almost 40% of the rent is funded by the Commonwealth Government. So that, from an investment perspective, that's quite appealing to us. So the combination of low-risk, secured, passive recurring income with embedded, contracted rental growth, together with development profits and the recycling of capital through the sale of homes provides the basis of a real compelling investment proposition. Coupled with the strong tailwinds driven by our aging population, low penetration rate within an emerging sector, the government support of qualifying customers through the Commonwealth Rental Assistance, virtually no vacancy, no downtime and limited arrears risks and low CapEx and incentives, we think land lease provides our security holders with a really favorable risk-adjusted investment return profile. We think the size of the market opportunity in the land lease sector is significant, with the population older than 55 years of age expected to almost double over the next 40 years. So penetration within the sector is relatively low compared to the retirement villages sector and the manufactured housing market in the U.S. So as awareness of the land lease sector in Australia grows and as the quality of the offering improves, growth in the land lease sector will accelerate, driven by the combination of the large population of over 55, together with the expansion of the market share. The land lease sector is rapidly evolving away from its cottage industry past and becoming a meaningful institutional asset class. As well as being a highly compelling investment proposition, land lease also provides a compelling customer proposition through lifestyle, financial and social benefits in an environment which is supported by the Commonwealth Government and aligned with government policy. Customers are able to downsize from their family homes and use the equity that's released to purchase a modern land lease home in communities which have resort-like facilities. Homes within land lease communities are purposefully designed to offer low-maintenance living, which for many downsizes, is a key attraction with no lawns to mow and gutters to clean. A key aspect of the customer value proposition in land lease is the social connection on offer. Customers trade off or trade away the need for large backyards and are instead provided access to community facilities, which open up opportunities to interact with their neighbors in a way that would have been difficult in the family home. The community facilities are generally extensive and can include swimming pools, spas, gyms, saunas, industrial kitchens to cater for large gatherings, tennis and pickleball courts, lawn bowling greens, cinema rooms, dining rooms, games room, craft and hobby rooms, golf simulators, communal gardens. And we're even seeing our bowling alleys being incorporated into these communities. There are many ways that residents can choose to remain connected to others in a land lease community and to make new friends, whether through informal bumpings or participating in organized events or activities, which are normally curated by the resident-formed social clubs within the community. And many land lease communities offer on-site storage for caravans as many downsizes will lock up and leave for extended periods. And having a low-maintenance home makes this easily achievable. And for older people, physical security becomes more important and particularly so for single people. The safety offered within a land lease community through perimeter fences, vehicle access controls and CCTV coverage enhances the customer proposition further. And I've already mentioned the financial benefits through no stamp duty and the access to the Commonwealth Rental Assistance. Land lease homes are generally very affordable and normally sold at a lower price to the surrounding market, adding to the financial benefits that the customer receives. On the housing supply side, when downsizes move from their family home and into a land lease home, they're freeing up a home for first home buyers and upgraders to help solve Australia's housing shortage. Mirvac has many of the building blocks internally to establish a presence in the land lease sector, including being an existing land owner. Mirvac has over 50 years experience in the residential development sector with a strong brand and thousands of existing customer connections, all of which will assist in establishing our presence in the sector. Prefabrication of entire homes or elements of homes offers future benefits within the sector, and Mirvac has experience in prefabrication within our Residential business. And that knowledge is transferable to Land Lease. Our first Land Lease project will be located within our Everleigh MPC project in Brisbane. And the [ Greenbank ] site of just over 11 hectares has been identified, and planning works are underway to bring this site to life, which will initially require a change-of-use application being submitted to the approving authority later this year. Everleigh sits within the Logan LGA and will benefit from a large potential customer base of downsizes in the surrounding region. Significant amenity is already being invested by Mirvac into our Everleigh master-planned community project, including sports fields, a wetland park and a future town center. Future residents of our land lease community at Everleigh will have access to all of this amenity in addition to the facilities that will be delivered within the community for the benefit of those land lease customers or residents only. The site that we've identified for land lease at Everleigh will provide customers with a sense of privacy but also remaining connected to the broader master-planned community with fantastic visual connection into the adjoining future wetland park and conservation forest area. As land leases targeting downsizes, there's minimal cannibalization of residential demand by our land lease project, given residential master-planned community projects typically target first home buyers and upgraders. So land lease is complementary through this incremental demand that it generates. We're excited about bringing this project to life and creating a very attractive community for our future residents at Everleigh. Aside from this first project, we're also looking at unlocking additional land lease opportunities within our MPC portfolio, and we hope to talk about those at a later time. So we look forward to the growth of our exposure in this really attractive asset class over time. And we'll now open to questions from the room and via the webcast. I'll be joined by Courtenay, Richard, Stuart and Angela. So thank you.

Great. So we'll just move to the Q&A session now. I will take questions from the room. And obviously, those on the webcast, please send them through, and I'll ask the questions out as well. Thank you.

Are you able to talk about what percentage of your capital you see allocated to the entire living sectors over time. And also, whether there would be any additional capital partnering opportunities in Land Lease?

So maybe I'll start with that one. So our plan, I think, as we've spoken about it in April and again at the full-year results, is to grow our allocation. We haven't set a target yet. The natural growth you will see just through the development pipeline we've got in BTR. So that's roughly 3% now. By the time we get to 2,200, that's sort of getting close to 5%, and then we have an aspiration of growing to 5,000. So that will start to give you a sense of where the allocation is going to. Land Lease, we certainly have high expectations of growth. And to many in the room we've mentioned in the past, we will look organically and also inorganically if opportunities exist to help us. And we're largely do that by funding over time via the disposal of some of the older office assets with an aim to maintain our office portfolio with a real focus only on the premium-grade stock, which is roughly 50% of the portfolio at the moment.

And more capital partnering?

Capital partnering, I think you should -- we're a big believer in capital partnering across the board. It's -- we think it frees up our balance sheet, gives us a lot of flexibility, and it gets aligned capital to work alongside us. So yes, potentially.

Just a question for -- on land lease. You've got one project in Everleigh, it's obviously early days. Do you expect to activate that across all the land bank of your mass [indiscernible], going forward, and -- similar to one of your peers bring in a capital partner to accelerate that? And on that same thing, would you look at a platform to accelerate that entry into the market because it takes time to get scale? So a few questions there, but all land lease focused.

Maybe I'll address the, I guess, organic pathway here. We are looking at all of the land that we own. Real focus on East Coast. There are some planning constraints in the Sydney Basin, so that's probably going to push us more into the Victorian market. But we're going to start in Queensland, which has traditionally been a pretty strong market from a land lease perspective. And, we think that the Everleigh project is well located and should be quite attractive from a customer perspective.

I think the team has identified 6 to 8 sites already across the portfolio that they could develop into, that will happen over time. But as you've heard from [ Gould ] and Gavin today, we like the sector, and we want it to be material for the group. So for it to be material, we'll look at opportunities. But what you're hearing today is the opportunity on our existing platform, which I think we've got the capabilities to deliver. But getting to scale is interesting for us. So we'll look at those opportunities.

So you would look at external and also capital partnering to accelerate, a fair comment?

Potentially.

Okay. And then just finally for me, on the build-to-rent stuff is great because you've been a first mover. In commercial, you make a lot of profits, Campbell, in -- historically, to that spread. It looks like build-to-rent, there's not a lot of development profit, more fee and income base and more total return driven as opposed to the upfront development. Is that a way to look at it?

I think that's probably a fair assessment. I think when we look across the developing activities in Mirvac, build-to-rent probably is at the lower end of development return if you're looking at return on its own. But if you look at the quality of the income stream that's created, it's probably one of the better-quality income streams. So for us, it makes a lot of sense to keep investing from our MPT perspective because it's good, secure long-term income streams with low volatility, which goes to the resilience in income that we are looking for from Mirvac Property Trust. And we're looking for capital partners to help us on the developing side because the returns are a little lighter than we have in other areas of the business. However, this is all about growing long-term income streams. And we need a like-minded capital, which we have, to join us in that pursuit.

Just following on Lauren's question, how capital light do you see the living sector being or the strategy being when it fully matures?

Well, maybe from a capital-light perspective, if you take our full-year results a few months ago, we are spending, on average, $88 million a year in tenant incentives across predominantly office and retail, and we're spending roughly $44 million in maintenance CapEx. As we allocate more capital to these sectors, we think those numbers will diminish over time, which means that the capital efficiency of our business should get better, which means the cash flows from our business become a little more secure, a little more regular without those heavy CapEx burdens that comes from tenant incentives and maintenance CapEx.

And if you think about the BTR business, you guys are at 44% of the business. Do you see that being steady for the next few years or over 5, 6 years? Will that be down at 10, 15?

Look, we're looking to grow the business, as we've said. So capital, we still need capital to grow out the build-to-rent part of our business. And LIV needs to get to scale. We're obviously on a pathway to 2,200 apartments, with an ambition of 5,000 apartments. It's going to take time. This is a sector that doesn't exist in Australia really yet. And so this is a developed-to-core strategy. It's going to take us time. But we have like-minded capital that wants to get there with us.

Thank you. Good morning. Thanks for hosting today, David Pobucky from Macquarie. Just in terms of the timeline around the 5,000 apartments, what are your thoughts around that timeline? And is there enough opportunity in the subsector across all the players, given the structural tailwinds? Or would you expect constraints like more competition for land, et cetera?

I think in terms of the pathway to 5,000, we definitely see being able to secure and have that pipeline operationalized by 2030 as an ambition and the one we see being executable as well. I think that the market is in an interesting phase right now, just with respect to the number of -- there's a big difference between the number of genuine participants that have built and developing product as compared to what is early planning or even just approval pipeline. So I think that the sector is in a stage of maturity, certainly, but there's, as Campbell said, a long way to go, but a quite significant runway and opportunity. And we certainly feel we're really well placed to be able to deliver on that.

Just second one for me, if I could, please. You spoke a bit about building scale in land lease. Can you speak to how investors should be thinking about returns for that part of the segment at this early stage?

Yes. So sort of a yield on cost of between 5% and 5.5% for an established land lease project, rental growth of minimum 3.5% for CPI, whichever is higher. And from a sort of a development perspective, generally targeting a normal development IRR return.

Lou Pirenc from Jarden. Two questions. One on build-to-rent, can you talk about affordability issue? And how are you going to balance delivering returns for your investors versus the political pressure of "we need more affordability?" And linked to that is, you talked about one project, 25% for essential workers; other projects, 15 units out of 400. How do you determined that? Is that just to get the DA approved? Or is there more thinking behind that?

Yes. I answered the first question -- the second question first. So certainly, it's a range of different scenarios with respect to the -- what ends up being the total quantum of apartments that might be affordable and also the range of that affordability in terms of addressing, perhaps, a medium to low income earner as well. And that really is dependent on the -- some can be planning driven, so it can just be that we will dedicate to provide a certain percentage at -- a certain percentage at a certain discount for a defined period of time. And that, of course, is then considered as part of the overall metrics and return of the project. But then at the other end of the scale, there is obviously the opportunity to work more in partnership with government. And Anura is a great example of that, where we can provide a more meaningful contribution to a more diverse customer base. So we see build-to-rent as being really in a great place to be able to deliver probably to what we call the missing middle of people that not -- don't necessarily need income support in any way but do need to be located ideally close to where they work. And so I think we think that's really great. And there is a fantastic example of that as a project in the -- 2 kilometers from the CBD, 100 apartments that will -- close 100 apartments that will be delivered for exactly that cohort. And that is really important in terms of creating sustainable and productive cities as well. And -- but it is difficult to do without government partnerships. So I think the great part about that is, obviously, there's a lot of dialogue in play now. And I think the opportunity to continue to work in partnership, going forward, particularly as we talk about the housing targets, is good, and we are well placed to be able to deliver on that as well. And certainly, I think we recognize and Alex's research also really shows that there is a very big addressable audience beyond what our current Gen 1, Gen 2 product type is. And we are really focused on trying to broaden that out. That will come from a range of product typology as well. And certainly, that conviction that we have that people are prepared to trade down some private space in order to perhaps have a more affordable solution when you can complement it with a level of amenity not -- doesn't have to be ridiculous amounts of amenity, but just meaningful changes, and so there's an element of product and also location and -- within the developments as well. So it is something that I think we recognize that we can address a much larger audience. And as we scale, it becomes even easier to be able to do that as well, which we think is important.