Comparison Of Mirvac Group And Goodman Group In Real Estate Industry

Goodman Group

Discuss about the Market Discounts and Shareholder Benefits.

In this report, an effort has been made to compare and evaluate the activities and performance of two Australia based real estate companies that are Mirvac Group and Goodman Group. In this report discussion as well as evaluation regarding several aspects of both the companies has been made which includes Business Summary, portfolio of the company’s properties, historical performance of shares, financial information, profitability and holding period return of both the companies (Afolayan 2017). On successful evaluation of each of the following points as well as funds, a report has been prepared to facilitate comparison between the two companies and to provide appropriate recommendations to the investors and other important clients and peoples.

Goodman Group is an Australia based real estate company that owns, manages and develops business areas and industrial spaces of high and premium quality. According to the current records, Goodman Group has over 161 established properties around Australia location in different major cities like Adelaide, Brisbane, Melbourne, Perth and Sydney (Brounen and de Koning 2013). The primary objective of this group is establishment of secure and long-term relation with its client by providing services of premium quality backed by incomparable standard. The blue-chip client database of Goodman Group includes a wide range of well-established and branded industries like Linfox, DHL, Coca-Cola, TNT, Brambles and Toll.

An essential and important subsidiary of Goodman Group is Goodman Australia. In the four unlisted property funds, i.e. Goodman Australia Industrial Partnership (GAIP), Goodman Australia Partnership (GAP), Goodman Australia Development Partnership (GADP) and KWASA-Goodman Industrial Partnership (KGIP), Goodman Group is a cornerstone investor within Australia. The Goodman Australia team comprises of about 300 staffs who have a wide range of professional knowledge regarding Marketing and Finance, Property, Development, Legal matters, etc. The contribution of all these members and staffs is the secret behind the success of the entire Goodman Group.

The significant properties of Goodman Australia are scattered all over Eastern and South Australia’s major cities like Adelaide, Brisbane, Melbourne and Sydney. The group has divided its entire property into four major categories which are In Adelaide the company has a property that is under-construction named Corner Edinburgh Road and West Avenue covering an area of 5000 to 80000 square metre (Hasan. and Sulaiman 2016).

In this segment, a brief summary about the performance of Goodman Group in the security market is being discussed. As far as the security market of the group is concerned, quite decent ups and downs have been found in the share graph of Goodman group in the past 5 years. However, there was an overall increase in the price of the share of the company (Lee et al. 2014). In 2013, the overall percentage change in the performance was 9.23% which has increased to 16.40% in the year 2017 which is approximately 99.04% change in terms of 5 years.

Historic Share Performance

At present the market capitalization of Goodman Group is 14,920.26 Million and the total number of shares currently available in the market is 1,789.00 Million. During the last five year the amount of change in the price of share is 58.67%
(positive).

From the share graph of the company it is quite clear that the company has developed and grown significantly. On 30^th June, 2013 the share price of Goodman Group was 4.88 AUD whereas on 30^th June 2017 the price increased to 7.87 AUD which is more than 61% increase in the price of share of the group. The overall rising line graph is a pure indicator of the fact that the company is developing quite rapidly and has established itself in the industry quite strongly.

After studying the financial statement of Goodman Group it can be found that the amount of net tangible asset have increased quite significantly during the past three years. In 2015 the amount of Net Tangible Asset was $12,49,00,000 which increased to $48,37,00,000 in 2016 and further increased to $58,30,00,000 in the year 2017. Total Assets for the year 2015, 2016 and 2017 was $ 4,01,11,000, $ 4,47,75,000 and $ 4,67,20,000 respectively. The increase for assets during this period was the primary cause behind the increase in the amount of net tangible assets.

Statement showing Financial Performance
Particulars	2015	2016	2017
Investment in Real estate properties	$  2,90,60,00,000.00	$  2,72,07,00,000.00	$  2,01,02,00,000.00
Cash and cash equivalent	$     74,65,00,000.00	$  1,33,70,00,000.00	$  2,09,51,00,000.00
Receivables	$     34,48,00,000.00	$     40,41,00,000.00	$     55,20,00,000.00
Other assets	$       1,38,00,000.00	$       1,57,00,000.00	$       1,47,00,000.00
Total Assets	$  4,01,11,00,000.00	$  4,47,75,00,000.00	$  4,67,20,00,000.00
Total Non-Current Liabilities	$  3,21,43,00,000.00	$  3,29,24,00,000.00	$  3,21,67,00,000.00
Total Current Liabilities	$     67,19,00,000.00	$     70,14,00,000.00	$     87,23,00,000.00
Total Liability	$  3,88,62,00,000.00	$  3,99,38,00,000.00	$  4,08,90,00,000.00
Net Tangible Assets	$     12,49,00,000.00	$     48,37,00,000.00	$     58,30,00,000.00

Statement showing calculation of NTA ratio
Particulars	2015	2016	2017
Net Tangible Assets	$     12,49,00,000.00	$     48,37,00,000.00	$     58,30,00,000.00
Issued Units	3696000000	3697000000	3702000000
NTA Ratio	$                        0.03	$                        0.13	$                        0.16

According to the table given below it is evident that the operating margin of the group have consequently decreased from the year 2015 than in year 2016 and decreased further in the year 2017. In 2015 the operating margin was 71.56% which decreased to 64.76% in 2016 and further came down to 54% in 2017. Moreover from the figure of EPS it is quite clear that the company is not maintaining the wealth of the shareholders properly as the EPS has fallen drastically in 2017. In 2015, the EPS was 0.67 which increased to 0.69 in 2016 but fell drastically in 2017 and became 0.42 which is a clear indication that the management in not efficiently utilising shareholders wealth (O’Connell and Young 2017). Even there was a decrease in return on equity from that of the previous year. The figures of return on capital investment also shows negative results. Thus, it is very essential for the management of the company to take immediate and correct action so that the company can make more profit in the future years.

Statement showing Profitability Ratio
Particulars	2015	2016	2017
Gross Margin %	47.01	44.64	46.42
Operating Margin %	71.56	64.76	54
Earnings Per Share AUD	0.67	0.69	0.42
Book Value Per Share * AUD	3.37	3.96	4.51
Asset Turnover (Average)	0.12	0.15	0.14
Return on Equity %	18.65	16.86	9.51
Return on Invested Capital %	15.56	13.4	9.61

MIRVAC Group is a real estate investment trust (REIT) that as per the recent analysis done by several organizations has stated that this is a sophisticated real estate investment, improvement and investment administration group. This is one of the best and diversified group that is engaged in the business if property of Australia. This group has its own integrated asset administration capacity and expansion.  This is traded in the name of ASX: MGR as this is public form company. This is listed in Australian Stock Exchange (ASX) with works in the sector of property development and investment field, as well as in the services found in retail form (Dimovski 2016). This has its headquarters in Sydney in Australia as this was established on 1972. This is one of the top groups in real estate business that has an experience is more than forty years in this sector of business. MIRVAC group has a stapled security system that composed of MIRVAC Limited and MIRVAC Property Trust (MPT). The MIRVAC Limited composed of vital two sectors like development (MGR) and investment (MPT) that involves both commercial and residential enhancements. MIRVAC group functions in almost all over the region of Australia with the few overseas investments. The improvement of the field of MIRVAC group (MGR) is composed of housing merchandises. The main businesses that this group operate are on retail property, property and investments.

Profitability

As critically observed that the enhancement of MIRVAC group’s division that involves commercial merchandises and residential merchandises. As the MIRVAC is lead by the enthusiastic John Mulcahy is the Chairman and Susan Lloyd-Hurwitz is the Managing Director of MGR. This group is mainly centred in around the four cities of Australia is Brisbane, Melbourne, Perth and Sydney (Zhou 2016). This group has owned and administering all over the markets of industrial, retail and office fields that amounts to over a $ 15 Billion of the assets under the title of the group. MIRVAC group’s tactics in urban has given fruitful in Operating income has raised by 11% and distributions has risen by 5% as per the earlier year. The Operating income in 2017 in case of retail was $ 156 Million, residential was $ 302 Million and Industrial & Office was $ 319Million. In aggregate, the MGR had an operating income before tax & interest was $ 750 Million. This huge profit is due to greater understandings of the customers and our cities. The profit is $ 1.16 Billion that is due to utilization of the property in sustainable manner in MIRVAC group (MGR).

MIRVAC group (MGR) invests in industrial, hotel properties, commercial, retail businesses all over Australia, and centred on high revenue assets and the tenant who are good makes it easier for agencies of the government and big firms. MGR keeps the assortment of the present premium level assets as properly given below.

ASSET TYPE	ASSET	VALUE	WALE (years)	CAP RATE	MAJOR TENANT
Retail	BIRKENHEAD POINT OUTLET CENTRE DRUMMOYNE, NSW	$ 374.9 Million	2.9	5.50%	100% MPT
Residential	WATERFRONT, PIER PRECINCT, NEWSTEAD TERRACE NEWSTEAD, QLD (in progress)	$ 320.9 Million (in progress)	(in progress)	(in progress)	100% MWRDP (in progress)
Residential	WATERFRONT, PARK PRECINCT, UNISON, CUNNINGHAM STREET NEWSTEAD, QLD (in progress)	$ 532.3 Million (in progress)	(in progress)	(in progress)	100% Mirvac Limited (in progress)
Office	200 GEORGE STREET SYDNEY, NSW	$ 432.0 Million	9.3	5.00%	50% AMP, 50% MPT
Office	101-103 MILLER STREET NORTH SYDNEY, NSW	$ 237.1 Million	4.5	5.88%	50% TIAA Henderson Real Estate, 50% MPT
Office	275 KENT STREET SYDNEY, NSW	$ 516.0 Million	10.2	5.25%	50% Blackstone, 50% MPT
Office	8 CHIFLEY SQUARE SYDNEY, NSW	$230.0m	6.5	5.00%	50% Keppel REIT 50% MPT

MIRVAC group (MGR) has taken for a extra portfolio diversification with asset investments from numerous fields as displayed by the chart. In addition, it is very alike to Goodman group; MIRVAC Group (MGR) has spent the fund on chiefly on the regions of New South Wales with a considerable segment of its investment portfolio into office type of assets. Although, this is slightly diverse than Goodman Group (GMG), as it has invested in most of the class of assets in the market (Ratcliffe and Dimovski 2014).

From the chart, we can critically understand that diversification of investments on retail, office and industrial sectors. The investment in office class is 56%, retail is 34% and industrial is 10%. As per Geographical diversification, New South Wales is the chief centre for all investments but it is nicely diversified in the whole Australia.

The WALE (Weighted Average Lease Expiry) is being displayed in the above chart that is composed of one figure for aggregate portfolio and rest three of different classes. The total portfolio’s WALE is 5.9 years and as all the rest is between 4.2 years to 7 years. 

Mirvac Group

The prices of share of MIRVAC Group (MGR) have been properly displayed in the form of a graph for five (5) years for the assessment of the market worth of the fund that has been done. The price of the share is increasing continuously that is very good sign in long run. The share has displayed good signs of growth stock that increase over a period of holding that this is best for long run investments as its fundamentals is also very strong.

In examining the selected funds, an elaborated assessment of the balance sheet is for a period of five long years had been pursued to ascertain the Net Tangible Assets for MGR over the period of examining.

Statement showing Financial Performance
Particulars	2015	2016	2017
Investment in Real estate properties	$     26,19,00,000.00	$     31,10,00,000.00	$       3,40,00,000.00
Cash and cash equivalent	$       5,98,00,000.00	$     35,40,00,000.00	$     10,60,00,000.00
Receivables	$       7,30,00,000.00	$     11,00,00,000.00	$       9,70,00,000.00
Other assets	$  9,96,98,00,000.00	$10,31,50,00,000.00	$11,79,30,00,000.00
Total Assets	$10,36,45,00,000.00	$11,09,00,00,000.00	$12,03,00,00,000.00
Short-term borrowing		$     60,40,00,000.00	$     20,00,00,000.00
Long-term debt	$  2,63,36,00,000.00	$  2,21,10,00,000.00	$  2,76,50,00,000.00
Capital leases	$            3,00,000.00
Payables and accrued expenses	$     67,31,00,000.00	$     42,50,00,000.00	$     46,20,00,000.00
Other liabilities	$     63,44,00,000.00	$     74,90,00,000.00	$     70,90,00,000.00
Total Liability	$  3,94,14,00,000.00	$  3,98,90,00,000.00	$  4,13,60,00,000.00
Net Tangible Assets	$  6,42,31,00,000.00	$  7,10,10,00,000.00	$  7,89,40,00,000.00
Statement showing calculation of NTA ratio
Particulars	2015	2016	2017
Net Tangible Assets	$  6,42,31,00,000.00	$  7,10,10,00,000.00	$  7,89,40,00,000.00
Issued Units	3696000000	3697000000	3702000000
NTA Ratio	$                        1.74	$                        1.92	$                        2.13
Statement showing Profitability Ratio
Particulars	2015	2016	2017
Gross Margin %	51.3	49.2	41.5
Operating Margin %	31.2	41	31.5
Earnings Per Share AUD	0.17	0.28	0.31
Book Value Per Share * AUD	1.28	1.3	1.49
Asset Turnover (Average)	0.19	0.27	0.2
Return on Equity %	9.65	15.14	15.36
Return on Invested Capital %	8	12.05	12.48

The profit in a year of MGR has constantly improved over a period of analysis. Gross margin percentage in 2017 was 41.5% compared to earlier years 2015 was 51.3% and 2016 was 49.2%. As observed carefully, the gross margin percentage has reduced rapidly in this few years. Operating margin percent in 2017 was 31.5% as compared to 2016 was 41% that has declined so required to check and regulate the operating expenses (Yap et al. 2017). Return on Equity is good enough on respect to long-term return as it has displayed in the period that it has increased steadily. As on 2017 was 15.36% compared to earlier years 2015 was 9.65% and 2016 was 15.14%. The Earnings per share that is in Australian dollar in 2017 was 0.31, 2016 was 0.28 and 2015 was 0.17. This is clearly be interpreted as earnings per share is increasing that is good for investors. Return on Invested Capital percent in 2015 was 8%, 2016 was 12.05% and 2017 was 12.48%. This is very good sign for investors as return is very attractive for the investments. The Book value per share in Australian dollar in 2015 was 1.28, 2016 was 1.3 and 2017 was 1.49.

An assessment of the revenue and profit in a year of MGR for analysis is been taken and studied with greater sensitivity in ascertaining the interest cover ratio and return on assets. As this permits to computation of average return on equity to its shareholders for a period of three (3) years. The profit in 2017 of MGR is $ 1.16 Billion that is influenced by significant possession revaluation is raised in the portfolio of the investment. The operating profit after payment of tax in 2017 of MGR is $ 534 Million. This is signifying 14.4% cents per stapled security (Yüksel et al. 2017). The MIRVAC group has an operating flow of cash of $ 513 Million and had 23% gearing that is at lowest finishing of the goal of the group’s range from 20% to 30%. The Return on investment in 2017is 12.4% on the capital invested by the shareholders.  

In the middle of the year 2014, the hasty decline in the sector of mining led to the confidence in the business and the optimism of the economy in Australia was falling. This has coincided with an enlargement of the rate of unemployment to 6.3% on 2015 as per the Australian Bureau of Statistics. This was much weaker than anticipated results in the domestic field and the decline in the prices of the commodity (Chou and Chen 2014). There was cut in rates of interest as this was to done to accommodate with global financial situations has supplied the usual market with a filled energy and confidence in the business. 

The properties for commercial purposes market has gained from a twelve to eighteen months of enhancement, specifically in areas of CBD after a very passive period from the year of 2008 to 2014 that was veteran in the majority of the real estate field within the country of Australia. These markets have face the economic shock that may have a considerable and unfavourable influence on the commercial and retail costs and worth stages.

The properties in industrial field went through a unstable time from the year of 2008 to the year of 2012 involving huge numbers of receiver stock and mortgagee has sold it in the year of 2014 and 2013. On the other hand, this has benefited stable interest since the start of the year of 2015 with both the investors and occupiers re-entering the market (Titman et al. 2013).

Analysis	Goodman GR	MGR
Total Assets	$4,67,20,00,000.00	$12,03,00,00,000.00
Total Liability	$4,08,90,00,000.00	$4,13,60,00,000.00
NTA Ratio (Current)	$0.16	$2.13
GP Ratio	46.42%	41.5%
ROI	9.61%	12.48%
Return on Assets	0.14	0.20
Return on Equity	9.51%	15.36%

The details and comparison of the key statistics are provided below:

Statement showing Comparison of Key information
Particulars	Goodman	Mirvac	Industry
Price/Earnings TTM	19.6	7.4	47.7
Price/Book	1.8	1.1	2.3
Price/Sales TTM	8.5	3.7	7.9
Rev Growth (3 Yr Avg)	14.6	8.1	8.3
Net Income Growth (3 Yr Avg)	5.8	37.6	18.1
Operating Margin % TTM	54	31.5	32.9
Net Margin % TTM	43.1	49.6	16.6
ROA TTM	6.2	10	2
ROE TTM	9.5	15.4	4.8
Debt/Equity	0.3	0.7	1

The important risks in real estate investments are prices of share has hiked in prior year of 2015. The considerable percent of assets that are been invested that is chiefly located in the regions of Sydney. A modification of the costs in the region may have lead to major losses to the worth of portfolio. In general, the WALE is below the yardstick mark of five (5) years may be a little risk of enlarged vacancies and that results in lower revenues (Loo et al. 2016).

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