MRVGF (MRVGF) Q4 2026 Earnings Report, Transcript and Summary

Welcome to Mirvac Group's FY '26 Results Briefing. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to Mirvac's CEO and Managing Director, Campbell Hanan.

Well, good morning, everyone, and thank you for joining us for our full year results presentation. Joining me is our CFO, Courtenay Smith, our CEO Investments, Richard Seddon; and our CEO, Development, Stuart Penklis. I'd like to begin by acknowledging that we are presenting to you today from Gadigal land, and I'd like to pay my respects to elders past and present. At our half year results, we spoke about the momentum is building across all parts of our business. This momentum has continued into the second half, and we have executed on all of our priorities for the year. Our operating profit of $508 million is up 7% on PCP. NTA has returned to growth, and our statutory profit has improved, reflecting better returns across all asset classes. And all of this has been achieved with gearing below the midpoint of our target range at 24.1%. We set a clear strategy 3 years ago, and we are delivering on this strategy, which continues to drive growth across multiple fronts. What you'll see in these results is the improved quality and growth outlook of the investment portfolio demonstrated by high occupancy at 98%, positive leasing spreads, strong like-for-like income growth and positive valuation growth. You will notice the major restocking and improvement in development returns, which are expected to accelerate into FY '27. you will notice a 15% increase in residential sales volumes and gross margins exceeding target. You will notice the recapitalization and expansion of our major fund vehicles. And importantly, you'll notice the additional balance sheet capacity with assets under construction now fully funded. Having reset the platform, our focus is now firmly on delivering further growth initiatives on multiple fronts. Our additional $130 million of new recurring income will hit the investment portfolio in coming years, benefiting from the completion of assets across build-to-rent, industrial and office. FY '27 will be the first year of NOI growth in the investment portfolio since FY '23 with asset sales no longer required. Our development business has and will benefit from 5 new master planned community launches in FY '26 and '27 as well as the settlement of 5 apartment projects in the next 9 months, restoring double-digit returns. The activation of our restock pipeline will also support development earnings beyond FY '28. Today, we're also announcing a share buyback of up to $200 million. which we view as a compelling allocation of capital at a time when we're trading at a 25% discount to NTA. We have positive valuation growth across every major asset class, strong embedded value in our development pipeline, our growing funds platform and confidence in our future earnings outlook. So a buyback represents good value at this time. Our performance is underpinned by a strong culture, sustainability leadership and active governance. We've progressed our 2030 net positive targets, achieved our social procurement goal 5 years early and increased employee engagement to top quartile. Along with this, we've become a leader in learning and development and continue to have strong diversity outcomes. Achieving these targets are complementary to our strong financial performance. They help us attract capital, customers and talent while supporting long-term value creation for our stakeholders. We are well progressed on AI deployment across the business to increase productivity with over 100 active agents created and 80% of our team regularly utilizing AI and plans for further integration. I'll now hand over to Courtenay to take you through the financial metrics.

Thank you, Campbell, and good morning, everyone. FY '26 demonstrates the earnings benefit of the strategy we've been executing across the business. And importantly, we finished the year with a stronger balance sheet and the capital to deploy capital selectively into attractive opportunities. FY '26 was a year of focused delivery, delivering 12% growth in group EBIT and a return to positive valuation. Development was the major driver with EBIT increasing by more than 50%. Commercial and mixed-use earnings was underpinned by contributions from 55 Pitt Street, Aspect and SEED Stage 2, while residential was supported by higher settlement prices improved margins and capital partnering on Harbourside and Kindira Stage 1. Investment earnings remained resilient despite asset sales with growth in Living and Industrial and positive like-for-like NOI growth across the portfolio. Funds EBIT increased 9%, supported by growth in funds under management as developments completed. Across the group, overheads were broadly stable, while net interest costs increased, reflecting lower capitalized interest. Pleasingly, positive investment and development valuations also contributed to a significant increase in statutory profit. Overall, this was a quality operating result with execution across the platform translating into earnings growth and improved returns. Turning to the balance sheet. We finished FY '26 in a stronger financial position. Over the past year, we have deliberately strengthened that position. Headline gearing reduced to 24.1%, available liquidity increased to $1.6 billion, and our credit ratings remained unchanged at A3 and A-. This reflects active capital management, including around $2 billion of capital partnering transactions, approximately $500 million of asset sales and the refinancing of $2 billion of debt on favorable terms. Importantly, looking forward, we have multiple funding sources available. Having largely completed the asset sales required to create capacity future sales will be selective and tied to reinvestment opportunities that support our capital allocation priorities. Alongside like this, we have $1.5 billion of residential presales retained earnings, further capital partnering opportunities and existing liquidity to support disciplined deployment. We have also restocked the pipeline on capital-efficient terms, giving us the flexibility over future investment. That financial capacity gives us choice, and we will remain disciplined in how we deploy it. As Campbell mentioned today, we have announced an on-market buyback of up to $200 million, which we believe represents a disciplined and value accretive use of capital at current pricing. Importantly, we will fund the buyback out of existing capacity, and it does not constrain our ability to invest selectively in the development pipeline or pursue strategic opportunities that meet our return thresholds. In short, we've created capacity, retained funding flexibility and we'll maintain the discipline to deploy capital where we see the most attractive returns for shareholders. Thank you, and I'll now hand over to Richard.

Thank you, Courtenay. Good morning, everyone. We've continued to sharpen the quality of the investment portfolio, strengthen the resilience of its cash flows and reposition it towards the sectors with the strongest structural growth. There are 3 key points you'll notice this year. First, the noncore disposal program required to fund the committed development pipeline is largely complete. Second, we have added brand-new, high-quality living and logistics assets to the portfolio. And third, we have more than $2.6 billion of committed developments still to complete or reach their full earnings run rate. And the benefit is clearly coming through in the operating metrics you can see on this slide. With the major repositioning work largely behind us, the portfolio is now built for growth, with more than $130 million of further NOI from committed developments now fully funded, market demand that continues to favor quality assets and a constrained supply outlook across the board. In office, we've fundamentally repositioned the portfolio to be high quality, better located and more sustainable, now around 60% premium and exited our exposure to suburban office. Another strong year of leasing has delivered a very attractive expiry profile, with just 9% over the next 2 years and maintained occupancy above 96%. The market is past an inflection point with quality assets clearly outperforming and our portfolio is positioned to respond where the demand is the strongest. In Industrial, development-led growth is translating directly into earnings. NOI is up around 50% over the last 3 years, with a further 90,000 square meters delivered during the year at Aspect and fully leased. Stabilized portfolio metrics are very strong as evidenced on this slide. Construction has commenced at SEED in Western Sydney, the next project in our industrial pipeline at around 380,000 square meters, SEED is nearly twice the size of Aspect and provides excellent visibility of the next phase of growth. Occupier demand is concentrated in high-quality, highly functional new buildings, exactly the products we're delivering. In retail, we've delivered strong performance across all key metrics with sales productivity reaching record levels. Our focus on dense, urban, affluent catchments with strong population growth is delivering and positions us well for resilient performance with constrained supply and strong capital demand. Living remains one of our highest conviction growth themes with EBIT up 9% in the year, both build-to-rent and land lease continue to scale and perform. There are 2 key items I'd like to highlight. In build-to-rent, market rents have grown at twice the rate of inflation over the past 3 years, and the outlook remains well supported. Our recent completions have increased EBIT by over 70% and delivered an attractive 9.5% total return. In land lease, we've increased new home settlements by 16%, supported by strong rent reversions and price growth. We've restocked nearly 800 new home sites and expect to be selling across 7 new communities over the financial year. We'll continue to grow our living exposure in a structurally undersupplied housing sector where demand for these product types is deep, supply is constrained and Mirvac has an enduring competitive advantage. So the repositioning work we've undertaken has strengthened the quality of our portfolio, funded our committed pipeline and created a clearer earnings growth pathway. From here, we'll continue to execute with discipline and conviction. I'll now hand over to Campbell.

Thanks, Rich. Our funds business has reached a significant inflection point, reflecting the strength of the platform we have built and the strength of our relationships with our capital partners. Third-party capital under management has increased to more than $18 billion with approximately $15 billion raised over the past 4 years. This growth has been driven by our differentiated model which combines capital partnership, investment management and asset creation capabilities across the office, industrial, retail and living sectors. Importantly, much of the work to establish our style, our core investment platforms is now being completed, positioning the business for continued growth. On build-to-rent, the recapitalization of the LIV Mirvac Fund with Australian Retirement Trust was a significant milestone. The fund now comprises approximately 2,200 operational apartments with ambition to scale beyond 5,000. During the year, we secured the fund's next opportunity at 577 King Street in Melbourne, and we're progressing a further opportunity at Green Square in Sydney. We are also intending to launch a capital raise to create Australia's first large-scale commingled build-to-rent fund. We delivered another year of strong performance in the Mirvac Wholesale Office Fund and successfully raised the equivalent of $310 million during FY '26 and a total of $632 million since April 25. And leaving it well positioned to pursue acquisition opportunities with 2 premium core CBD assets in exclusive due diligence. MWOF ranked first over the 3-month period and second across the office peer set over 7 years, reinforcing its track record of outperforming through the cycle. We also expanded our industrial platform through the sell-down of SEED Stage 2 to our partner, Australian Retirement Trust and launched the Mirvac Wholesale Retail Venture, seeded by a 50% interest in our East Village shopping center. With approximately $3.2 billion of secured future funds under management currently in development, continued capital raising activity and strong partner engagement, our funds business is well positioned to deliver sustainable earnings growth and enhanced returns for our security holders. I'll now hand over to Stuart.

Thank you, Campbell, and good morning. We delivered a strong year in Development. Residential margins recovered, unconditional exchanges increased 15%, return on invested capital improved, and we have a clear line of sight to further growth in returns into FY '27. We have strengthened the platform for future growth by building our pipeline increasing the number of trading projects and bringing capital partners to drive velocity and returns. With these foundations now in place, we expect development returns to exceed 10% in FY '27. In commercial and mixed-use, we have $5 billion of projects underway. Construction is progressing well, all projects on track to complete on time and on budget. We completed over $2 billion of developments in FY '26, which included the North and South precincts of Aspect Industrial Estate, which are 100% leased. LIV Anura and LIV Albert, which have achieved strong leasing outcomes and our new office building at 7 Spencer Street in Melbourne, which is 24% leased and has seen a notable uptick in tenant inquiry since completion. 55 Pitt Street is in a strong position. Pre-leasing is at 40%, tenant interest remained solid, and the project is well placed to benefit from a supply-constrained Sydney office market. At SEED in Badgerys Creek, we have commenced construction of our super prime industrial precinct. Inbound tenant inquiry is strong, supported by the recent completion of the Western Sydney Airport and the new M12 motorway. Harbourside construction is progressing ahead of program and fees from the project will contribute to earnings through to completion in calendar year 2027. Hunter Street East will be a significant addition to the pipeline in the coming year. Secured on attractive capital-efficient terms, the $3 billion project is now unconditional following planning approval and positions us to benefit from the restricted supply outlook for core Sydney office. Importantly, these projects contributed to development profit as well as future NOI, management fees and NTA growth. Turning to residential. We saw an improvement in sales activity over the year with unconditional exchanges up 15%, along with a strong recovery in margins and low default rates. Sales were supported by a ramp-up in activation of new projects in Queensland, WA and New South Wales, which are performing well, with first settlements in FY '27. While sales and inquiry didn't moderate in the fourth quarter as buyers sentiment softened, our residential outlook is underpinned by 4 clear strengths. A high level of owner occupiers, the quality of Mirvac product, the fact that we're selling on more fronts than ever before and a healthy secured presales balance. That sits against an acute undersupply of housing in Australia, tight vacancy and a growing population, which continues to support long-term fundamentals for our residential business. We continue to see the resilience in the Queensland and WA markets where we have doubled the number of trading projects as well as a continued momentum in our built form in Sydney's middle ring. We are now seeing a compelling affordability story appear in Victoria, which is likely to drive an increase in activity as sentiment improves over time. We enter FY '27 in a strong position with approximately $1.5 billion of presales, 63% of settlement secured and a ramp-up in project activations in the middle ring locations. A major achievement over the past few years has been the disciplined restocking of our pipeline. We have secured sites on capital-efficient structures with accretive returns and strong visibility to future earnings. What differentiates Mirvac today is the size, quality and diversity of our pipeline. We've secured over 11,000 new lots over the past 3 years, and we are unlocking over 3,500 lots through state government planning pathways in the middle and inner rings. A recent example of how we're working with government to unlock value is our Bay Centre office building in Pyrmont. This project has been accepted into the Housing Delivery Authority approval pathway for a change of use to a major residential tower. With 26,000 lots in our pipeline across growth corridors, middle ring housing and inner-city apartments we are well positioned to actively respond with the right product to meet customer demand. As you can see from this slide, we expect a marked step-up in settlements into FY '27. This outlook is supported by an increase in active projects with 5 new master planned communities launching and 5 apartment projects settling in the coming year. These apartment projects are already 66% pre-sold on average, and we have further new projects contributing to settlements in FY '28, including Harbourside. So as you can see, development has moved into a growth phase. We have a high-quality pipeline, strengthening returns and clear visibility of earnings into FY '27 and beyond. Thank you, and I'll now hand back to Campbell to conclude.

Thanks, Stu. For FY '27, we target continued growth in earnings and distributions. We're guiding to EPS of between $0.132 and $0.134 per share and DPS of $0.099, representing growth of 4.2%. The guidance is underpinned by between 2,800 and 3,100 residential settlements. While there has been some moderation in residential markets, we start FY '27 with 63% of our settlement target already exchanged which is well above our rate at this time last year. In closing, FY '26 was about execution and laying the foundations for the next phase of growth. We've reset the portfolio, restored development returns strengthened our funds platform and maintained a strong balance sheet. Importantly, we now have multiple drivers of future earnings growth. Additional NOI from development completions, a significantly expanded development pipeline, growing funds under management and increasing living sector exposure. We believe Mirvac enters FY '27 as a stronger, higher-quality business with a visible pathway to sustained EPS, NTA and shareholder value growth. With that, I'll now hand back to the operator and welcome your questions.

[Operator Instructions] Our first question comes from David Pobucky from Macquarie Group.

Just the first question on the resi settlement guidance of 2,800 to 3,100 lots in FY '27. That was well above consensus expectations. So if you could just talk a little bit more about the confidence in delivering that against the current residential backdrop and the key contributors by project, please?

Look, I might start and then Stuart, I'll hand to you. Look, the confidence really came through some of the commentary from Stu. We're selling on more fronts, which we've been talking about for the last 12 months. Most of those sales are now settling, particularly in FY '27. We've also got more launches coming and probably the one that people may not be focused on is the apartment projects that we were selling 3 years ago, 2 years ago, last year, those projects are now settling into FY '27. So with that, we have a pretty strong settlement expectation, which is largely underpinned 63%, as we mentioned, of our settlement target is currently sold, and that's at the top end of our guidance range. So we feel comfortable that we'll have enough inventory and stock on the ground to continue to sell into that and probably more importantly, that is focused very much on the run rate we've been working to for the last 8 weeks, which again is a post budget, post interest rate increase run rate. So we are certainly comfortable that we're selling in line with run rate. Stu, did you want to add anything to that?

Yes. Look, the only thing that I would probably add to that is the diversity of the pipeline. We're selling on more fronts. We're selling across greenfield, middle ring apartments. That diversity of our portfolio, both across the rings, but also then across the states and particularly with an exposure to WA and Queensland, which continue to perform very strongly. That's just put us in a really strong position to obviously have the confidence that we've been able to provide that range and sitting at 63% secured, which is about 10% above where we were last year is a pretty solid result for the business.

Just the second question on FY '27 OEPS guidance. So good growth here, up 2% to 4%, again, above consensus expectations. Resi settlement guidance is for a 38% growth at the midpoint. So just curious to understand some of the key headwinds across the P&L. Obviously, the weighted average cost of debt is -- looks to be stepping up from 5.4% to 5.7%. So any comment on that and capitalized interest, please?

Courtenay, do you want to take that?

Yes. Thanks, Dave. The business is -- we do expect good growth out of the EBIT from the businesses. Investments growth will come online. We've got new income coming in. Development guide, just to help people, I would guide you across development to think about it as a return, an EBIT return on about $3 billion of capital, just above 10%. So it will give you a sense of the total contribution we expect from development and the underlying resi contribution to that, and we still have committed projects in commercial mixed use to contribute. Funds, we expect year-on-year largely be flat. But what you should also factor in, I guess, is gearing, I would expect a long -- the look-through gearing to be at the top end -- towards the top end of the range and with the cost of debt increase, I guess that's what's offsetting the increase in the EBIT line, just to give you a sense of that. But overarching, our business is really well positioned. The income that we've got coming online in investments is secured. We've got good -- expect good like-for-like growth. Developments, as Stu's talked about is well secured and the committed pipeline will contribute. We are looking at some capital partnering across Green Square and Aspect, which we filed last year, which will -- we expect that will contribute to '27. But importantly, it's much less reliant on that capital partnering than we have been before. The underlying performance and earnings resilience of the business is much stronger.

Our next question today comes from Adam Calvetti from Bank of America.

Just a quick one. Just spread between your gross resi margin and your residential EBIT margins widened this half, pretty materially relative to other periods, what's the explanation what's driving this? And what's the expectations for FY '27?

Yes. I think the simplest answer is our sales are up, so we've got more selling costs. So that spread, I think last year it was about 430 basis points. This year, it's about 470 basis points between gross margin to EBIT margin. So largely got to do with increased sales in the year.

Okay. That's pretty clear. And then just the average MPC sales price expectations for FY '27?

They're largely in line with this year, average sales prices, I think, was your question.

Sitting around $452,000 a lot in MPC. .

Okay. Amazing. And then one more if I may, just -- should we think we got 23% -- circa 23% gross margin, 24% gross margin this year. Should we think of that as a peak margin year? Or could that continue, ex impaired projects into future years?

Look, I might jump in there, Adam, I think just remember that FY '26 was predominantly Master Planned Communities, which is higher margin, but relatively less profit, what you'll see moving into FY '27 is more apartment projects, which are higher profit, a bit lower margin, which is why we've always guided that 18% to 22% range, and you should expect we'll be within that range.

Our next question comes from Tom Bodor from Jarden.

I'm just interested in how much of the buyback is included in the earnings guidance?

Yes. I think we've considered it as we've arrived at guidance, Tom, I think it obviously depends on how quickly that executes over the next period. I think it's an important -- we see value in the buyback today, I think, is the most important thing, and we -- it is accretive to the growth both on EPS and an NTA perspective. So happy that we're able to deploy some capital towards it this year.

So how much of the $200 million is in your guidance?

We're assuming we work through the $200 million. We've considered it. But of course, it depends on how quickly that executes.

So I guess the full $200 million over the course of the year. Is that the right way to think about it?

Yes. Yes.

Okay. Great. And then the other one I'd be interested in, maybe one for Stu, just on the apartment sales in the second half appeared to be fairly subdued. Interested in the comments around how the apartment sales tracked particularly post budget as well?

Since budget, obviously, we did see a bit of a drop off in sales in Q4. But we have certainly seen since our apartment projects are nearing completion and uptick in inquiry and an uptick in conversion. To give you some color at Harbourside on the weekend, we took 3 deposits across a broad spectrum of price points. What we're definitely seeing on the ground is strong activity from owner occupiers that's without question. . And as projects are nearing completion, the quality of the product really resonating. So activity is still remaining solid. Obviously, off the highs that we saw 12 months ago, but really resonating with that owner-occupier buyer.

Our next question comes from Solomon Zhang from UBS.

Just wanted to pick up on, Courtenay, your comments earlier, just around the 10% ROIC on your $3 billion of development capital. So it implies that you've got north of $300 million of development EBIT for '27. I just wanted to ask about the mix of resi and condo. Would you expect a higher resi proportion given the step-up in volumes?

Yes. The short answer to that question is, yes, we do expect a higher contribution from resi. But I just want to make sure that we're sort of talking about the same thing. So what we're guiding to is an EBIT return on the capital deployed. So we'll have about $3 billion out the door in development. And so I'm guiding on the EBIT line, you'll get it just above 10% return. When we talk about ROIC, we not only contribute -- include the operating earnings, but also in our nonoperating profit is the NTA uplift we get on the completion of these developments. So when we think about development return overall and talk about ROIC, it's actually including those -- both of those 2 components, just to make sure we're talking about the same things. And I think importantly, we're seeing return of that return from the development business, which is great progressively from '24 to '25 and now '26, and we expect that to happen into '27 and the business is performing well on that basis.

Sure. So just to pick up on that. So would you expect that development line just on the EBIT line to be up year-on-year or not? '27 versus '26?

Yes, it will be up year-on-year.

Just wanted to also ask about the FY '27. I guess, settlements secured at 63%, that includes both conditional and unconditional sales. I'm just wondering what that number would be if you stripped out the conditional sales.

Stu, do you want to take that?

If we were to strip out the conditional sales, I think we're sitting at about 58%.

Yes. I think it might be 58%, sorry, just to help, the conditional sales are just over 300, and we haven't seen any -- the performance of those conditional sales, which are Queensland and Western Australia have been performing well. So we don't expect any concern with that, so we don't think about it without those in.

And just to talk to those projects, it's really the new Darling Brook project -- Bullsbrook in WA, Monarch Glen and Everdene in Mulgoa in New South Wales.

Our next question comes from James Druce from CLSA.

Just a follow-up on Adam's question on the margin outlook for residential. Are there any sort of high-margin projects coming through on the apartment front to call out? Or -- and are there any impairments still coming through for '27 or are we done there?

Look, what we've kind of done. I think we were pretty clear this time last year that we thought most of the impairments were behind us. What we can talk to in the environment we're in now from a development and construction perspective, is that probably for the first time, we're seeing real stabilization in construction margins. We're seeing stabilization in the quality and strength of subcontractors. And if anything, across the board, we're probably performing a little better than we'd expected when we think of the time associated with construction and the release of contingency because we're building better. So across the board, it's certainly, I think those bad times are well behind us.

Okay. And maybe just a comment from Stu on the demand by apartment type, maybe contrasting luxury versus affordable versus mid-market? How has demand changed since these tax changes have come through?

Look, I think if we just look at the Sydney market in particular we're still seeing strong demand from owner-occupiers in the middle ring. So Highforest project, which is due to complete in the coming months. We have certainly seen a significant uptick in inquiry from downsizers in that market, recognizing the quality, recognizing the value that, that product delivers into that catchment. And then if a good yardstick is really Harbourside, which is premium, probably not sitting at the super premium end of the market. where, as I said, we obviously had a significantly successful launch early on in that project, selling a significant proportion of that tower. But sales have continued, particularly in the last few weeks, leads have picked up. There was an element of uncertainty in the market. No question when those tax changes and successive interest rates came through. But we're seeing the market sort of stabilize, and we've seen inquiry pick up. And as I said, Harbourside is a good example where we secured 3 deposits on the weekend, which again is just reflective of that upgrade or downsize is still being active in the market. Investors still are in the market. Obviously, we do expect there continue to be a demand from investors, particularly because of the way in which those tax settings favor new product, and we think we're well positioned to be able to respond to that demand over the near term.

Our next question comes from Lauren Berry from Morgan Stanley.

Another question on apartments. Are you able to talk about what you're seeing around your appetite to launch any new projects this year, cognizant of the fact that the majority of your apartments under construction will complete in FY '27, so there's a bit of a pipeline to backfill at the moment?

Thanks, Lauren, for the question. Look, we certainly see opportunity to launch new projects into the market. We've been very focused on unlocking planning. And Green Square is a great example of that, where we've been able to progress planning, unlock significant uplift on that site. So we will look to launch the next stages of Green Square into the market this financial year as a result of what we see is an undersupply starting to really come through in the market, and we're well positioned to be able to respond to that. We're seeing a number of the smaller developers retract from the market. And with continued structural undersupply plus population growth, we think that we're well positioned to continue to deliver, particularly around that owner-occupier product.

And then second one is just on the buyback. Firstly, how did you come up with that $200 million figure for the buyback and also why wouldn't you deploy that capital into your development pipeline rather than into your own stock?

Thanks, Lauren. That's a great question. Obviously, we balance a lot of things when we're thinking about investing decisions. Clearly, we're very return focused and will always be return focused. We see pretty good terms ahead of us, and we think buying that at a discount makes sense for our shareholders. In terms of scale, we're always very aware of what our look-through gearing numbers will look like. We're very cash flow focused. We're sort of, on one hand, thinking about settlements coming in with increased apartment settlements this year and then certainly into the year after with Harbourside versus cash outflow as we start to redeploy some of that capital into the next wave of apartment projects, which you spoke to in your first question. So that feels about the right number, and that's something we'll continue to monitor.

So would you need some of that cash coming back from the apartment settlements in order to deploy the buyback? Or is that a separate conversation?

No, that's a different conversation. We're pretty confident on the settlement outlook we have in front of us, and we obviously reported our gearing numbers today, so we've got capacity.

Our next question comes from Suraj Behani (sic) [ Nebhani ] from Citigroup.

Just a couple of questions for me. Firstly, on the land lease side. You called out strong activation. I don't know if I missed this, but have you given some sort of guidance on settlement or anything you're looking for in FY '27?

Rich, do you want to take that?

We haven't, specifically, but we've referred to the strong growth that we've achieved in [ '29 ], seeing great operating metrics across the board with the growth in new settlements and the fact that -- we've been effective in restocking close to 800 new sites as well as opening up new communities. The guidance, we haven't put a particular lot figure on it, but you'll be looking at that in the context of the contribution from our investment portfolio and as Courtenay touched on, we're expecting to see good like-for-like growth from the investment portfolio for '27, noting that we do have the impact of some of the noncore disposals rolling off in office and retail, but offset by that strong growth in living and logistics development, switching on.

Understood. And one for Courtenay, a typical one, every result. Can you give us some guide on the capitalized and, I guess, the interest expense this year?

Yes. It's always a favorite question. So the guide on interest generally, as I said earlier, so top end of the range on the look through with weighted average cost of debt for the year at about 5.7% and then on the capitalized interest. This year, it's been a slight tailwind. It's about $6 million, next year, I would expect a headwind, less than $10 million. And the reason for that movement is the apartment completions that we're seeing coming through and the unwinding of that capitalized interest. So the interest line will be higher than it is this year.

Our next question comes from Ben Brayshaw from Barrenjoey.

Courtenay, could you just talk briefly about the incremental contribution from the 3 MPC estates that are contributing to FY '27 settlements, Mulgoa, Bullsbrook and Kindira?

I think -- I mean, Stuart can add some color in terms of how those projects are performing, but I might sort of steer away from specific contribution to guidance. Like the development business is performing well. I don't mean to be repetitive, but we do expect this just above 10% return across development, commercial mixed use will contribute, but so would residential in the context of the frame we've given and the guidance we've given. Those projects are performing well. I don't know, Stu, if you want to add to that?

The only thing that I would add, just to give some more color at a granular level of those 3 projects being Everdene Mulgoa, Darling and Kindira Monarch Glen, it's around 200 lots coming from each of those lots in FY '27.

And just in relation to Serenitas, could you just give an update on how the business is tracking? And do you expect that Mirvac's preemptive right on the remaining interest in the partnership may become up for sale in FY '27?

Look, I think that's probably a little bit of a hard one for us to answer. Obviously, it's not our asset -- it's our asset potentially to buy, but it's not our asset to sell. So we'll monitor that as we go. But just in terms of activity across the board, Rich?

Yes. Well, thanks, Ben. I'd just reaffirm what I mentioned earlier, which is the operating performance we've seen across the board has been very strong. We've continued to grow new home settlements. We've continued to see price growth, rental growth and the portfolio is heavily skewed to the markets where we're seeing the strongest underlying demand being WA and Queensland. So look, we're very focused on growing the business. We're seeing great performance come through. And naturally, as Campbell touched on, whilst there may be opportunities, we don't control the timing, and that's something we'll continue to monitor.

Our next question comes from Claire McKew from Green Street.

My question is more to the contrary perhaps of Lauren's in relation to the buyback. I'm just curious as to why $200 million? Why not more, just given where the stock is trading. When we look at your implied net initial yields, you're at north of 7%, just ahead of some of the returns that you're getting on the development side, let alone on a risk-adjusted basis. So just curious as to how you navigate that versus, say, putting SEED Stage 2 into the committed pipeline when SEED Stage 1 doesn't have any pre-leasing. I appreciate the comments around the inquiry levels. But just curious to understand how you're pairing those capital allocation initiatives.

Yes, that's a great question. Thank you, Claire. Look -- I'll go back to my first point. We're obviously thinking about look-through gearing constantly. And remember, we're still completing Harbourside. We're still completing 55 Pitt Street, which are large development assets, which are largely finished, but not quite there yet. So there is still a capital drag that will continue to come through those. And then with reference to any specific asset, just remember that in the CMU line, we play for a couple of things. We're playing for NOI growth, which is a high multiple activity in our business. We're playing for development fees. We're playing for investment management fees, and we're playing for development profit. And so all of those things are unwinds during those capital partnering of CMU projects. which are great return profiles for us. So we do tend to focus on all of those things when we're making these decisions.

Okay. And just in relation to appreciate the comments on development on that front. Then just coming back to the opportunities within your portfolio to dispose of more noncore assets and leverage that to fund a more meaningful buyback to shore up the portfolio? Is there appetite there, whereby you're not increasing your gearing and you can continue along the development front?

No, look, our focus in the short term has been stabilizing the investment portfolio, getting it to grow again. And as I mentioned in my early comments on the call, you will see growth in the investment portfolio, our net operating income for the first time since FY '23. We think that's really important. That's 70% of our balance sheet. And whilst the quality of that portfolio has increased and improved dramatically over the last 6 or 7 years, the reality is that we haven't seen a lot of growth in that headline number. So we're very focused on bringing that back, well funded. And so that's an important element for us. Will we continue to sell assets through cycle? Yes. But we will look at that more on the base of our ability to replace the income with income. So it's not as though we're selling assets in our future outlook to fund future development. We're very much thinking about income for income swaps as they may present themselves.

Okay. And one more, if I may, just around just some of the media speculation on a few office acquisitions. Is this something that's under consideration with respect to some of the partnerships that you're in discussion with or existing funds? Or is it purely speculation and unlikely to materialize?

Look, I think I mentioned in the call that we are in exclusive due diligence on a couple of office assets right now for our wholesale office fund. So yes, we are where appropriate, where it fits the return expectations of the fund, the asset allocation of the fund. So yes, we are. And certainly, one of the benefits of having a good performing fund that's raising equity is the opportunity to deploy that capital into acquisitions.

Our next question comes from Richard Jones from JPMorgan.

Just a question for you, Courtenay. The underlying performance in '27 being much stronger. I think, a strong message you are suggesting. So just wondering if you can quantify what the delta might be broadly between '26 and '27 on industrial development profits and resi JV sale profits.

I think there is less reliance on capital partnering in FY '27 than there has been on '26. I think that's the nub of your question. And I think it's -- capital partnering will continue to be something that we do. It's an important part of the model, and we can drive velocity of capital and additional returns from that model. And we've been very successful over the last number of years at doing that. But as we go into '27, the performance of the underlying business and the need to capital partner is less. And so we have less reliance in '27. We've got Aspect Central, which we flagged in FY '26. It is a smaller and the remaining, the last parcel of Aspect to bring to market. And then Green Square, Stu has talked about the success through the HDA and the opportunity to unlock that this year, and we will look at that. There's a build-to-rent opportunity potentially on that, that we'll talk to the build-to-rent fund about. And we've been talking about that for a little bit. But those 2 things in isolation are not significant contributors, which has been in the past 2 years, we've had a much more significant contribution from capital partnering.

And really, Richard, just to add to that. This time last year, we spoke about Aspect Central and Green Square being part of our guidance for FY '26. We didn't complete those transactions in FY '26, they're rolling into FY '27. But just to follow on from Courtenay, we're moving into a more BAU business model. We will always continue to look for capital partnering. We think it's good for the balance sheet. It's good for returns. And it's good for our capital partners who are looking to buy the best quality real estate in the best locations.

Our next question comes from Andrew Dodds from Jefferies.

A lot has already been covered, so just one for me. On 7 Spencer Street, it looks like you've downgraded your yield on cost assumptions again and you've written down the value of the asset by another $200 million. So can you just talk to, I guess, your expectations for the asset moving forward. Leasing progress seems to have stalled. So I guess just what needs to improve to see a bit of a stabilization or improvement in the asset going forward?

Rich, do you want to take -- look, I might just start there. Look, our office portfolio is performing really well. So I'd probably start with that. I think over 96% occupation is probably the envy of most. So we're starting in a really good point. The 60% allocation to premium grade is certainly a sweet spot in terms of the market right now, 7 Spencer Street without doubt a little disappointing in terms of its leasing success. It's a really good quality building. We're incredibly proud of what we've delivered there. And I think now that the building is open, we are pleasantly surprised with the demand that is now looking at that building. But Rich, do you want to sort of give any more color?

Yes, I'll just expand on exactly that. We've seen a noticeable uptick in inquiry now that the building is complete, we can see the quality of the building coming through. And that's resulting in much more elevated inspections. We're probably doing 2 to 3 inspections a week with prospective customers. And naturally, we're very focused on delivering them. So no question, the Melbourne office market has been slow to recover, but I would reaffirm the work that we've done on the quality of the portfolio has given us a very strong forward expiry profile. And naturally, now with this building completed, we'll be focused on leasing it up, but we have positioned the portfolio materially towards the parts of the market that we're seeing the strongest growth with now close to 60% premium grade across the portfolio.

Our next question comes from Suraj Nebhani from Citigroup.

Thank you for opportunity again. Just one for Stuart. Just on construction costs, it seems like it was a big topic initially when the Middle Eastern conflict started. Obviously, prices sort of increased first and came back and diesels have gone back up in recent weeks. Keen to get your perspective, Stuart, on what you're hearing from subbies on the ground. How is the market looking? Maybe if you can touch on major states and what does that mean for, I guess, the margin outlook?

Yes. Thanks, Suraj, for that question. Look, I think initially, there was some real concern around the impact of what the Middle East crisis may have across the construction sector. There's no question, fuel price increases over the period did have some impact on costs, particularly in the civil space where we saw users of high levels of diesel look for some relief in that segment, but it ended up being quite immaterial in the scheme of our projects. So we were able to navigate that very well. As a broader lens of construction across the country, we've certainly seen a dramatic improvement in productivity in Queensland. Here in New South Wales on a Tier 1 project at Mirvac typically runs here in New South Wales. We're seeing very competitive tendering. We're seeing the major subcontractors gravitate to the likes of Mirvac because of the safety, the productivity, the certainty of payment. So we remain quite confident moving forward that things have certainly stabilized. We do expect that construction costs for '26 will increase or escalate by about 4.5% here in New South Wales and about 4% in Victoria. But we do certainly see a very stable construction market moving forward.

That's the last question we have time for. So I'll hand back to Campbell Hanan for closing remarks.

Great. Well, look, thank you. I just want to pass on our thanks from the team for taking time to hear us today. We will look forward to meeting with as many of you as possible in coming weeks as we get through the road show process. So thank you for your time.

That concludes today's call. Thank you for joining us.