MIRVAC GROUP — Audit Report / Information 2017

Oct 31, 2017

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1 November 2017

S&P REVISE MIRVAC’S CREDIT RATING OUTLOOK

Mirvac Group (Mirvac) [ASX: MGR] is pleased to announce Standard & Poor’s credit rating agency has revised Mirvac’s credit rating outlook from stable to positive, while reaffirming its BBB+ credit rating.

Mirvac’s Chief Financial Officer, Shane Gannon, said the revised outlook underscored the strength of the Group’s capital position and reinforced its capital management strategy.

“We have a disciplined and conservative approach to managing our capital, and have undertaken a number of key initiatives over the past 12 months that ensures we are well-placed for the future.

“The revised outlook is also a testament to the quality of our investment portfolio and our significant development pipeline,” he said.

The revised outlook follows the Group’s recent credit rating upgrade from Moody’s Investor Services from Baa1 to A3.

Please refer to the attached release by Standard & Poor’s.

For more information, please contact:

Media enquiries: Investor enquiries: Sarah Clarke Bryan Howitt Group General Manager, General Manager, Investor Relations Sustainability and Reputation +61 2 9080 8749 +61 3 9695 9498

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Research Update:

Mirvac Group Outlook Revised To Positive On Continued Improvement In Investment Portfolio; 'BBB+/A-2' Ratings Affirmed

Primary Credit Analyst:

Minh Hoang, Sydney (61) 2-9255-9899; minh.hoang@spglobal.com

Secondary Contact:

Craig W Parker, Melbourne (61) 3-9631-2073; craig.parker@spglobal.com

Table Of Contents

Overview

Rating Action

Rationale

Outlook

Ratings Score Snapshot

Related Criteria

Ratings List

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Research Update:

Mirvac Group Outlook Revised To Positive On Continued Improvement In Investment Portfolio; 'BBB+/A-2' Ratings Affirmed

Overview

• Australian property group Mirvac continues to grow its investment portfolio and sell noncore assets, strengthening the group's investment portfolio.

• We consider successful execution of the group's development program could materially increase the quality and magnitude of its investment earnings.

• As a result, we are revising the outlook on the long-term issuer rating to positive from stable. At the same time, we are affirming the 'BBB+' long-term and 'A-2' short-term ratings on the group.

• The positive outlook reflects our view that we may raise the ratings over the next 24 months if the group executes its development program and meaningfully lifts its investment earnings, enabling the group to withstand any deterioration in its more-cyclical development earnings.

Rating Action

OnOct.31,2017,S&PGlobalRatingsrevisedtheoutlookonthelong-term
issuerratingtopositivefromstableonMirvacGroup,anAustralianstapled
propertycompany.Atthesametime,weaffirmedthe'BBB+'long-termand'A-2'
short-termcorporatecreditratingsonthegroup.

Rationale

WerevisedtheoutlooktopositivebecausecontinuedimprovementinMirvac's
office,retail,andindustrialinvestmentportfoliocouldmateriallyboostits
investmentearnings.Thispotentialupliftcouldraisetheratingto'A-'over
thenexttwoyears.

Anupgradecouldoccurifthegroup'sinvestmentearningsbecomemorerobust,
enablingthecompanytowithstandmaterialdeteriorationinitscyclical
developmentearnings.WeconsiderMirvac'ssuccessfulexecutionofitsA$2.4
billiondevelopmentprogramcouldmateriallyliftthequalityandmagnitudeof
itsinvestmentearningsoverthenextthreetofouryears.Suchhigher
earningscouldstrengthenthegroup'sbusinessriskprofile.

Overthepastfouryears,Mirvachascontinuedtorepositionitsportfolioby
sellingnoncoreassetsandimprovingtheunderlyingqualityofthegroup's
investmentportfolioviaacquisitionsanddevelopments.Mirvac'sdevelopment

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Research Update: Mirvac Group Outlook Revised To Positive On Continued Improvement In Investment Portfolio; 'BBB+/A-2' Ratings Affirmed

program,whichisfocusedonitsofficeandindustrialassets,couldaddabout
A$90millionperannumofinvestmentearningsfromitsofficeandindustrial
portfolioby2021.Ifsuccessfullycompleted,itwouldsupportoverallgrowth
ininvestmentearningsbyover20%fromcurrent2017levels.

Currently,thegroup'searningsmixremainsweightedtoitsdevelopment
earningsinlightofbuoyantresidentialmarketconditions.AsofJune30,
2017,Mirvac'sdevelopmentearningsrepresentedabout40%oftotalgroup
earnings.Theratingfactorsinourviewthatthebusinesswillmaintainat
leastabouttwo-thirdsofitsearningsfromrecurringinvestmentearnings.

TheratingsonMirvacGroupreflectouropinionoftherelativelystable
earningsgeneratedfromthegroup'sdiversepropertyinvestmentportfolio,a
well-spreadandlong-termlease-expiryprofile,andMirvac'smoderate
financialpolicies.Temperingthesestrengthsarethegroup'sexposureto
cyclicalpropertymarkets,andthevolatilecashflowandlumpycapital
requirementsofthegroup'sproperty-developmentoperations.

UnderpinningtheratingisourviewthatMirvac'sinvestmentportfoliowill
contributesubstantiallytofutureearnings.WeexpectMirvac'searningsto
remainrobustoverthenexttwotothreeyearsfollowingcompletionand
settlementofvariousdevelopmentprojectsandsteadyearningsgrowthfromits
investmentportfolio.

Developmentearningsarelikelytoremainelevated.Weexpectasubstantial
portiontocomeintowardtheendofthenextthree-yearperiod,primarilydue
tothescheduledcompletiontimingofitscurrentresidentialpipeline.A
higherratingwouldbedependentonamorenormalizedearningsmixthatis
sustainable,withagreaterweighttowardhigher-qualityinvestmentearnings.

Ourbase-casescenarioreflectsthefollowingassumptionsoverthenexttwo
years:

• Our base-case forecasts for Australian GDP growth of 2.8% in 2018 and 3.1% in 2019; and consumer price index growth of 2.2% in 2018 and 2019. These macro indicators should support tenant demand for Mirvac's Sydney and Melbourne investment properties;

• Revenue decline of about 3% to 5% in 2018, and relatively flat growth in 2019, driven by completion timing of developments, which will result in lower development revenues over the next two years;

• Profitability to remain solid over the next two years, with EBITDA margins approaching 35%, and supported by favorable residential market conditions;

• Investment in developments of between A$500 million and A$800 million per annum; and

• Dividends likely to be between 75% and 80% of the group's operating earnings.

Liquidity

Mirvac'sstrongliquidityreflectsourexpectationthatoverthenext12
months,thegroup'ssourcesoffundswillexceedusesbymorethan1.5xand

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Research Update: Mirvac Group Outlook Revised To Positive On Continued Improvement In Investment Portfolio; 'BBB+/A-2' Ratings Affirmed

remainabove1xoverthesubsequent12-monthperiod.Wealsoexpectthat
Mirvacwillachievepositivesources-less-usesintheshortterm,evenif
EBITDAweretofallby15%.

Thegrouptargetsaweighted-averagedebtmaturityofgreaterthan3.5years,
whichwas6.2yearsasofJune30,2017.Thegroupmaintainswell-established
relationshipswithitsbanks,andagenerallyhighstandingincreditmarkets,
asindicatedbytherecentUS$400millionissuanceofeuromedium-termnotes.

AsofJune30,2017,thegrouphadthefollowingliquidityprofile:

Principalliquiditysources:

• A$106 million cash balance as of June 30, 2017;

• A$643 million of undrawn committed bank facilities over the forthcoming 12 months;

• FFO of around A$590 million in the year ending June 30, 2018; and

• Completed US$400 million euro MTN issuance on Sept. 20, 2017.

Principalliquidityuses:

• Scheduled debt maturities over the next 12 months of about A$200 million;

• Dividends in 2018 of about 75%-80% of the group's operating earnings; and

• Capital commitments for developments underway.

Outlook

ThepositiveoutlookreflectsourviewthatMirvac'scontinuedimprovementin
itsoffice,retail,andindustrialinvestmentportfoliocouldlifttherating
to'A-'overthenexttwoyears.Successfulexecutionofthedevelopment
programmayleadtoahigherqualityinvestmentportfolioandrecurrent
earnings.Weexpectthecompanytomaintainmoderatefinancialpolicies,
includingadjustedfundsfromoperations(FFO)tototaldebtofmorethan15%.

Upside scenario

Wecouldraisetheratingsifthegroup'sinvestmentearningsbecomemore
robust,enablingthecompanytowithstandinherentvolatilityinits
developmentearnings.Webelievethiscouldoccurifthegroupsuccessfully
executesitsdevelopmentprogramoverthenexttwoyears,resultingin:

• a meaningful uplift in the quality and magnitude of recurring earnings; and

• normalization of the group's earnings mix, such that the group sustains a substantially higher proportion of higher quality recurring earnings.

Downside scenario

Wecouldrevisetheoutlooktostableifthegroup'sdevelopmentstrategydoes
notmeaningfullyupliftitsrecurringearningsandthegroupwasunlikelyto
sustainatleastabouttwo-thirdsofitsearningstorecurringearnings.

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Research Update: Mirvac Group Outlook Revised To Positive On Continued Improvement In Investment Portfolio;

'BBB+/A-2' Ratings Affirmed

Ratings Score Snapshot

CorporateCreditRating
BBB+/Positive/A-2

Businessrisk:Satisfactory

• Country risk: Very low

• Industry risk: Intermediate

• Competitive position: Satisfactory

Financialrisk:Modest

• Cash flow/Leverage: Modest

Anchor:bbb+

Modifiers

• Diversification/Portfolio effect: Neutral (no impact)

• Capital structure: Neutral (no impact)

• Liquidity: Strong (no impact)

• Financial policy: Neutral (no impact)

• Management and governance: Satisfactory (no impact)

• Comparable rating analysis: Neutral (no impact)

Stand-alonecreditprofile:bbb+

Related Criteria

• General Criteria: Methodology For Linking Long-Term And Short-Term Ratings , April 7, 2017

• Criteria - Corporates - General: Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Dec. 16, 2014

• Criteria - Corporates - Industrials: Key Credit Factors For The Homebuilder And Real Estate Developer Industry, Feb. 3, 2014

• General Criteria: Group Rating Methodology, Nov. 19, 2013

• Criteria - Corporates - Industrials: Key Credit Factors For The Real Estate Industry, Nov. 19, 2013

• Criteria - Corporates - General: Corporate Methodology: Ratios And Adjustments, Nov. 19, 2013

• Criteria - Corporates - General: Corporate Methodology, Nov. 19, 2013

• General Criteria: Country Risk Assessment Methodology And Assumptions, Nov. 19, 2013

• General Criteria: Methodology: Industry Risk, Nov. 19, 2013

• General Criteria: Methodology: Management And Governance Credit Factors For Corporate Entities And Insurers, Nov. 13, 2012

• General Criteria: Use Of CreditWatch And Outlooks, Sept. 14, 2009

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Research Update: Mirvac Group Outlook Revised To Positive On Continued Improvement In Investment Portfolio;

'BBB+/A-2' Ratings Affirmed

Ratings List

RatingsAffirmed;CreditWatch/OutlookAction

	To	From
Mirvac Group
Mirvac Property Trust
Mirvac Group Finance Ltd.
Mirvac Group Funding No.2 Ltd.
Mirvac Ltd.
Corporate Credit Rating	BBB+/Positive/A-2	BBB+/Stable/A-2
Mirvac Group Finance Ltd.
Senior Unsecured	BBB+	BBB+
Short-Term Debt Rating Issue	A-2	A-2
Mirvac Group Funding No.2 Ltd.
Senior Unsecured	BBB+	BBB+
Short-Term Debt Rating Issue	A-2	A-2

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