MIRVAC GROUP — Management Reports 2013

Feb 6, 2013

development projects update 7 february 2013 by mirvac

Artist’s impression of 8 chifley squAre, sydney, nsw

development projects updAte

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the regular review of development projects nationally, as at 31 december 2012, has been completed and provides evidence that specific micro markets are not recovering as expected.

spring and summer 2012 residential sales have been weaker than expected. feasibility assumptions for unsold stock and projects that mirvac will continue to develop in specific markets, have been revised to reflect continued subdued sale prices and rates.

in addition, where it is considered to be appropriate, certain projects will be sold as englobo lots to generate cash rather than investing additional capital into underperforming projects.

: financial impacts

• A provision of $273.2m or 5.9cpss

• fy13 operating eps guidance of 10.7 to 10.8cpss unchanged

• fy13 dps guidance of 8.5 to 8.7cpss unchanged

• Balance sheet gearing of 23.8%[ 1]

• net tangible Asset (‘ntA’) of $1.64pss[2]

1) net debt (at foreign exchange hedged rate) excluding leases/(total tangible assets - cash), based on management accounts as at 31 december 2012 which forms the basis of the financial statements and is subject to independent Auditor’s review and Board approval.

2) ntA per stapled security, based on ordinary securities including eis securities and based on management accounts as at 31 december 2012 which forms the basis of the financial statements and is subject to independent Auditor’s review and Board approval.

by mirvac

development projects update 7 february 2013

pAge 1

quArterly nAtionAl review of All projects

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mirvac has conducted its regular quarterly review of all markets and projects

queensland - sales activity over the past six months has remained weak. substantial discounting is prevalent in submarkets where mirvac has exposure. the recent floods are expected to further reduce confidence.

western Australia - despite the low to mid price point market showing early signs of recovery, the high end market in perth remains weak, with oversupply a concern for potential buyers.

• victoria A thorough review has concluded that despite declining fundamentals generally, no provisions relating to market conditions are required. mirvac has no active exposure to weak greenfield locations and the only apartment exposure is yarra’s edge which continues to perform in line with expectations.

new south wales - the sydney market remains mirvac’s most robust exposure. Both greenfield and apartment exposures through elizabeth hills, harold park, chatswood and rhodes are performing to expectations.

: provision by state[1]

queensland = 72% western Australia = 27%

1) remaining 1% relates to projects outside of queensland and western Australia.

by mirvac

development projects update 7 february 2013

pAge 2

projects impActed

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impacted projects to be managed in three ways:

continue to develop

management to continue to develop projects over time, with forecast sales prices, sales rates and holding costs updated to reflect revised market expectations.

englobo sales

where considered appropriate, selected underperforming projects to be sold as englobo lots to generate cash and avoid investing additional capital into those projects. As a result of englobo sales, $476m of future cash commitments will no longer be required and $89m[ 1] is expected from englobo sales proceeds. repricing of unsold stock

unsold completed stock has been repriced and sales rates have been updated to align with recent market evidence over the past six months, and the reassessed speed and quantum of a recovery.

• 1) proceeds from englobo sales expected to be delivered over fy13, fy14 and fy15.

by mirvac

development projects update 7 february 2013

pAge 3

projects impActed

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~~Project~~ ~~Product Line~~ ~~State~~ ~~Provision~~ ~~Acquisition Date~~ gainsboroughgreens masterplanned communities qld $58.6m oct 06 waterfront,newstead–siteBalanceApartments qld $51.4m Apr08 Beachsideleighton, stage2 Apartments wA $43.0m Aug 06 mackay commercial qld $30.0m nov07 hopeisland masterplanned communities qld $15.9m jan07 hamilton Apartments qld $13.4m jan 10 Burswood Apartments wA $12.3m feb 03 mariner’speninsula,townsville Apartments qld $11.6m jun06 waterfront,newstead- park Apartments qld $8.6m Apr08 Brookwater masterplanned communities qld $8.4m may 06 other1 — — $20.0m — Total $273.2m

1) remaining 1% relates to projects outside of queensland and western Australia.

by mirvac

development projects update 7 february 2013

pAge 4

provision roll off[1]

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~~Provision Balance Profile~~

~~Provision Release Profile~~

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$500m Existing Provision Balance Continue to develop
Unsold stock Englobo
400
300
200
100
0
1H13 FY13 FY14 FY15 FY16 FY17
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$500m Existing Provision Balance Continue to develop Unsold stock Englobo 400 300

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200
100
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
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1) Based on forecast revenue, market conditions, expenditure and interest costs over project life.

by mirvac

development projects update 7 february 2013

pAge 5

whAt hAs occurred

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historical context:

• Acquisitions made predominantly in a market with high expected growth - average age of provisioned projects is 6.8 years (average acquisition date fy07)

• large capital commitments due to projects being ‘100% on Balance sheet‘

• capitalised interest is 20.6% of gross provisioned inventory

ramifications:

• requirement to extend timeframe assumptions and reduce revenue expectations due to ongoing market weakness

• compounding interest and holding costs over life of project have contributed to deteriorated returns

by mirvac

development projects update 7 february 2013

pAge 6

looking forwArd

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• centralised capital allocation decision making

• Average age of non impaired projects is 2.5 years – purchased consistent with current market assumptions

• pro-actively increasing the number of capital efficient projects:

	~~Projects controlled in capital effcient structures~~ fy07 11%1 fy12 30%2 fy15 45%2

• capitalised interest is 6.8% of gross inventory from non provisioned projects

• forecast development operating eBit focused on robust nsw market

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FY13 FY14 FY15
NSW 38.5% NSW 89.0% NSW 70.1%
QLD 4.4% QLD 4.8% QLD 4.2%
VIC 46.3% VIC 4.4% VIC 1.7%
WA 10.8% WA 1.8% WA 24.0%
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• 1) represents capital structures (such as jvs and investments and Associates) other than 100% inventory on Balance sheet.

• 2) forecasted capital represents the development capital held within jv, investments and Associates structures along with recent inventory acquisitions, acquired under capital efficient terms.

by mirvac

development projects update 7 february 2013

pAge 7

summAry

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• fy13 eps guidance of 10.7 to 10.8cpss is unchanged

• mirvac remains on track to achieve fy14 target of >10% roic using post provisioned eBit and pre provisioned inventory balance

• Balance sheet gearing within the target range at 23.8%[1]

• mirvac remains compliant with all debt covenants

1) net debt (at foreign exchange hedged rate) excluding leases/(total tangible assets - cash), based on management accounts as at 31 december 2012 which forms the basis of the financial statements and are subject to independent Auditor’s review and Board approval.

by mirvac

development projects update 7 february 2013

pAge 8

~~additional~~ information

by mirvac

Artist impression of yArrA’s edge, docklAnds, vicdevelopment projects update 7 february 2013 by mirvac

pAge 9

net reAlisABle vAlue

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• mirvac undertakes comprehensive and regular reviews of the carrying value of inventories and jv and Associates. inventory is required to be carried at the lower of cost and net realisable value (“nrv”). nrv for the purposes of inventories provision is the difference between costs accumulated to date, plus all future costs (including interest and cost to sell) less forecast net revenue. Any future loss is booked as a provision immediately rather than progressively over the life of the project.

• englobo projects are assessed on the basis of expected current market/saleable value of the project (which differs to the nrv build out scenarios previously adopted).

by mirvac

development projects update 7 february 2013

pAge 10

cApitAlised interest policy

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• mirvac assesses and allocates capitalised interest on a stage-by-stage basis within a project and accounts for the stage separately (not project wide)

• mirvac allocates interest to stages by the gross value of wip irrespective of whether the project is in provision or not (therefore not burdening other profitable projects)

• capitalisation of interest occurs when a stage is active

• capitalisation ceases when a stage is practically complete, where a stage is inactive or deemed on-hold

• projects recently announced as on-hold (mariners peninsula, townsville and foreshore, hamilton) have commenced expensing interest

• All future interest costs (capitalised and/or expensed on gross value) are factored into nrv calculations

by mirvac

development projects update 7 february 2013

pAge 11

hypotheticAl profit mAking development project — treAtment of cApitAlised costs

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	~~Project Metrics~~ ~~Total~~ sales revenue 120 land (20) cost of property development and construction (60) sales & marketing expenses (10) interest costs (10) Total project return 20 Cash Flow Year 1 Year 2 Year 3 sales revenue 120
	land (20) cost of property development and construction (20) (40) sales & marketing expenses (5) (5) interest costs (3) (5) (2) Net cash fow (48) (45) 113 P&L Year 1 Year 2 Year 3 sales revenue 120 cogs (80) Gross margin — — 40 sales & marketing expenses (5) — (5) EBIT (5) — 35 interest and fnance charges paid/payable — — (2) interest capitalised in current and prior years expensed this year — — (8) Total fnance costs — — (10) Operating net proft (5) — 25 Balance Sheet Year 1 Year 2 Year 3 cost of acquisition 20 20 —
	development costs 20 60 — Borrowingcosts capitalised duringdevelopment 3 8 — Gross inventory 43 88 —

during construction all interest costs are capitalised to inventory. these are released in the p&l on settlement through ‘Borrowing costs capitalised during development’.

upon the completion of construction interest costs are expensed directly to the p&l

upon settlement capitalised acquisition (land) and development (construction) costs are released in the p&l through ‘cogs’.

by mirvac

development projects update 7 february 2013

pAge 12

hypotheticAl provisioned development project — treAtment of cApitAlised costs

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	~~Project Metrics~~ ~~Total~~ sales revenue 100 land (25) cost of property development and construction (50) sales & marketing expenses (10) interest costs (25)	~~Project Metrics~~ ~~Total~~ sales revenue 100 land (25) cost of property development and construction (50) sales & marketing expenses (10) interest costs (25)
	Total project return (10)
	Cash fow Year 1 Year 2 Year 3 Year 4 Year 5 sales revenue 100 land (25)
	cost of property development and construction (5) (10) (15) (20) sales & marketing expenses (5) (5) interest costs (3) (5) (7) (8) (2) Net cash fow (38) (15) (22) (28) 93 P&L Year 1 Year 2 Year 3 Year 4 Year 5 sales revenue 100 cogs (75) Gross margin — — — — 25 sales & marketing expenses (5) — — — (5) EBIT (5) — — — 20 interest and fnance charges paid/payable (2) interest and fnance charges paid/payable - provision release 2 interest capitalised in current and prior years expensed this year – provision release (23) interest capitalised in current and prior years expensed this year – provision release 3 Total fnance costs — — — — (20) Operating net proft (5) inventoryimpairment (5) Statutory net proft (5) (5) — — — Balance sheet Year 1 Year 2 Year 3 Year 4 Year 5 cost of acquisition 25 25 25 25 — development costs 5 15 30 50 — Borrowing costs capitalised during development 3 8 15 23 — Gross inventory 33 48 70 98 — provision for loss — (5) (5) (5) —
	Net inventory 33 43 65 93 —

this is the same project but it has suffered from a 2 year delay in construction, increasing interest costs and resulting in a negative project return.

in year 2 when the construction delays become apparent, an inventory impairment is taken to reflect the reduced net realisable value of the project.

Gross margin is not affected by interest (project delay impact) Impairment in this example relates to increased finance costs from time delay. If the impairment related to increased development costs causes the margin to be negative then the impairment is applied to make gross margin zero through COGS provision and COGS interest provision, released on settlement.

the inventory is not written down at the time of the impairment but a provision for loss is added to the balance sheet. this provision is released against interest costs upon settlement.

by mirvac

development projects update 7 february 2013

pAge 13

glossAry

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~~Term~~	~~Meaning~~
cogs	cost of goods sold
cpss	cents per stapled security
dps	distribution per stapled security
eBit	in the current reporting period, mirvac has revised its defnition of earnings Before interest and taxes (eBit). mirvac considers interest income from
	joint ventures and interest income from mezzanine loans to be part of a business’s operations and should therefore form part of operating revenue.
	prior to fy11, interest income from joint ventures and interest income from mezzanine loans were shown as part of interest revenue. All historical eBit
	fgures in this presentation have been re-stated to refect the current defnition of eBit for comparability.
eis	employee incentive scheme
englobo	group of land lots that have subdivision potential
eps	earnings per stapled security
fy	financial year
jv	joint venture
mgr	mirvac group AsX code
mpt	mirvac property trust
nrv	net realisable value
ntA	net tangible Assets
roic	return on invested capital. eBit divided by average invested capital.
wip	work in progress

by mirvac

development projects update 7 february 2013

pAge 14

disclAimer And importAnt notice

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mirvac group comprises mirvac limited ABn 92 003 280 699 and mirvac property trust Arsn 086 780 645. this presentation (“presentation”) has been prepared by mirvac limited and mirvac funds limited (ABn 70 002 561 640, Afsl number 233121) as the responsible entity of mirvac property trust (collectively “mirvac” or “the group”). mirvac limited is the issuer of mirvac limited ordinary shares and mirvac funds limited is the issuer of mirvac property trust ordinary units, which are stapled together as mirvac group stapled securities. All dollar values are in Australian dollars (A$).

the information contained in this presentation has been obtained from or based on sources believed by mirvac to be reliable. to the maximum extent permitted by law, mirvac, its affiliates, officers, employees, agents and advisers do not make any warranty, express or implied, as to the currency, accuracy, reliability or completeness of the information in this presentation or that the information is suitable for your intended use and disclaim all responsibility and liability for the information (including, without limitation, liability for negligence).

this presentation is not financial advice or a recommendation to acquire mirvac stapled securities and has been prepared without taking into account the objectives, financial situation or needs of individuals.

Before making an investment decision prospective investors should consider the appropriateness of the information in this presentation and the group’s other periodic and continuous disclosure announcements lodged with the Australian securities exchange having regard to their own objectives, financial situation and needs and seek such legal, financial and/or taxation advice as they deem necessary or appropriate to their jurisdiction.

to the extent that any general financial product advice in respect of the acquisition of mirvac property trust units as a component of mirvac stapled securities is provided in this presentation, it is provided by mirvac funds limited. mirvac funds limited and its related bodies corporate, and their associates, will not receive any remuneration or benefits in connection with that advice. directors and employees of mirvac funds limited do not receive specific payments of commissions for the authorised services provided under its Australian financial services licence. they do receive salaries and may also be entitled to receive bonuses, depending upon performance. mirvac funds limited is a wholly owned subsidiary of mirvac limited.

An investment in mirvac stapled securities is subject to investment and other known and unknown risks, some of which are beyond the control of mirvac, including possible delays in repayment and loss of income and principal invested. mirvac does not guarantee any particular rate of return or the performance of mirvac nor do they guarantee the repayment of capital from mirvac or any particular tax treatment.

this presentation contains certain “forward looking” statements. the words “anticipated”, “expected”, “projections”, “forecast”, “estimates”, “could”, “may”, “target”, “consider” and “will” and other similar expressions are intended to identify forward looking statements. forward looking statements, opinions and estimates provided in this presentation are based on assumptions and contingencies which are subject to change without notice, as are statements about market and industry trends, which are based on interpretations of current market conditions. forward-looking statements including projections, indications or guidance on future earnings or financial position and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. there can be no assurance that actual outcomes will not differ materially from these statements. to the full extent permitted by law, mirvac group and its directors, officers, employees, advisers, agents and intermediaries disclaim any obligation or undertaking to release any updates or revisions to the information to reflect any change in expectations or assumptions. past performance information given in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. where necessary, comparative information has been reclassified to achieve consistency in disclosure with current year amounts and other disclosures.

this presentation is not an offer or an invitation to acquire mirvac stapled securities or any other financial products and is not a prospectus, product disclosure statement or other offering document under Australian law or any other law. it is for information purposes only.

by mirvac

development projects update 7 february 2013

pAge 15