by mirvac MIRVAC gRoup AnnuAl RepoRt 2012 M I R V A C g R o u p A n n u A l R e p o R t 2 0 1 2 2 1 0 2 t R o p e R l A I C n A n I f l A u n n A t s u R t y t R e p o R p C A V R I M MIRVAC gRoup AnnuAl RepoRt For the year ended 30 June 2012 Mirvac Group comprises Mirvac Limited (ABN 92 003 280 699) and its controlled entities (including Mirvac Property Trust (ARSN 086 780 645) and its controlled entities). 01 Directors’ report 08 Remuneration report 27 Auditor’s independence declaration 28 Corporate governance statement 39 Financial statements 106 Directors’ declaration 107 Independent auditor’s report to the members of Mirvac Limited 109 Securityholder information 111 Glossary of acronyms 112 Directory CoveR IMAGe: ARTIST’S IMPReSSIoN oF 8 ChIFLey SquARe, SyDNey, NSw DIReCtoRs’ RepoRt The Directors of Mirvac Limited present their report, together with the consolidated report of Mirvac Group (“Mirvac” or “Group”) for the year ended 30 June 2012. Mirvac comprises Mirvac Limited (“parent entity”) and its controlled entities, which includes Mirvac Property Trust (“MPT” or “Trust”) and its controlled entities. DiRectoRs The following persons were Directors of Mirvac Limited during the whole of the year and up to the date of this report, unless otherwise stated: — James MacKenzie — Nicholas Collishaw — Marina Darling (appointed as a Director on 23 January 2012) — Peter hawkins — James Millar AM — Penny Morris (retired as a Director on 17 November 2011) — John Mulcahy — John Peters (appointed as a Director on 17 November 2011) — elana Rubin. pRincipAl Activities The principal continuing activities of Mirvac consist of real estate investment, development and investment management. Mirvac has two core divisions: Investment (comprising MPT) and Development (comprising residential and commercial development). There are also two business units, Mirvac Investment Management (“MIM”) which comprises two business activities for segment reporting purposes: third party, listed and unlisted funds management; and the property asset management business, Mirvac Asset Management (“MAM”). on 16 December 2011, Mirvac announced it had entered into contracts for the sale of it hotel Management business, Mirvac hotels & Resorts, to Accor Asia Pacific, together with various associated investments, to a consortium comprising Accor Asia Pacific (“Accor”) and Ascendas. The sale transaction was completed on 22 May 2012. hotel Management was responsible for the management of hotels across Australia and New Zealand. Details are provided within the review of operations and activities. DiviDenDs/DistRibutions Dividends/distributions paid to stapled securityholders during the year were as follows: June 2011 quarterly dividend/distribution paid on 29 July 2011 2.20 cents (2011: 2.20 cents) per stapled security September 2011 quarterly dividend/distribution paid on 28 october 2011 2.00 cents (2011: 2.00 cents) per stapled security December 2011 quarterly dividend/distribution paid on 27 January 2012 2.00 cents (2011: 2.00 cents) per stapled security March 2012 quarterly dividend/distribution paid on 27 April 2012 2.00 cents (2011: 2.00 cents) per stapled security total dividends/distributions paid 2012 $m 75.2 68.3 68.3 68.4 2011 $m 65.3 68.3 68.3 68.3 280.2 270.2 The June 2012 quarterly dividend/distribution of 2.40 cents per stapled security totalling $82.0m declared on 29 June 2012 was paid on 27 July 2012. Dividends and distributions paid and payable by Mirvac for the year ended 30 June 2012 totalled $287.0m, being 8.40 cents per stapled security (2011: $280.1m — 8.20 cents per stapled security). The payments for the year ended 30 June 2012 and the previous year were distributions made by the Trust. Review of opeRAtions AnD Activities The statutory profit after tax attributable to the stapled securityholders of Mirvac for the year ended 30 June 2012 was $416.1m (2011: $182.3m). Included in the statutory profit was a provision for loss on inventories totalling $25.0m (2011: $295.8m). The operating profit (profit before specific non-cash and significant items) was $366.3m which is above market guidance provided previously. operating profit is a financial measure which is not prescribed by Australian Accounting Standards (“AAS”) and represents the profit under AAS adjusted for specific non-cash items and significant items. The Directors consider operating profit to reflect the core earnings of the Group. The following table summarises key reconciling items between statutory profit after tax attributable to the stapled securityholders of Mirvac and operating profit. The operating profit information in the table has not been subject to any specific audit procedures by the Group’s auditor but has been extracted from note 3 of the accompanying financial statements for the year ended 30 June 2012, which have been subject to audit, refer to pages 107 to 108 for the auditor’s report on the financial statements. 01 mirvac group annual report 2012 DIReCtoRs’ RepoRt Review of opeRAtions AnD Activities / continueD profit attributable to the stapled securityholders of Mirvac specific non-cash items Net gain on fair value of investment properties and owner-occupied hotel management lots and freehold hotels Net loss on fair value of investment properties under construction (“IPuC”) Net loss/(gain) on fair value of derivative financial instruments and associated foreign exchange movements Security based payment expense Depreciation of owner-occupied investment properties, hotels and hotel management lots (including hotel property, plant and equipment) Straight-lining of lease revenue Amortisation of lease fitout incentives Net loss/(gain) on fair value of investment properties, derivatives and other specific non-cash items included in share of net profit of associates and joint ventures Net loss on fair value of investment properties, derivatives and other specific non-cash items included in non-controlling interest (“NCI”) significant items Impairment of loans Provision for loss on inventories Net (gain)/loss on sale of non-aligned assets Net gain on sale of hotel Management business and related assets Business combination transaction costs tax effect Tax effect of non-cash and significant adjustments operating profit (profit before specific non-cash items and significant items) 2012 $m 416.1 (148.7) 15.8 82.0 8.5 9.5 (15.9) 14.4 13.7 — 6.0 — 25.0 (0.8) (21.4) — — (37.9) 366.3 2011 $m 182.3 (110.4) 58.6 (7.5) 6.2 8.1 (16.4) 10.4 (11.0) (0.4) 295.8 0.2 31.8 (89.2) 358.5 finAnciAl AnD opeRAtionAl highlights Key financial highlights for the year ended 30 June 2012 included: — profit attributable to the stapled securityholders of Mirvac of $416.1m, an increase of 128.0 per cent, which included a net gain on investment properties (including IPuC) of $132.9m, profit of $21.4m from the sale of the hotel Management business and, as previously announced in February 2012, a provision for loss on inventories of $25.0m in respect to Beachside Leighton, North Fremantle, wA; — operating profit after tax of $366.3m 1, representing 10.7 cents per stapled security; — net tangible assets (“NTA”) per stapled security of $1.66 from $1.62 2; — operating cash flow of $317.0m; and — full year distribution of $287.0m, representing 8.40 cents per stapled security. Key operational highlights for the year ended 30 June 2012 included: — successfully delivered on the Group’s strategy to simplify its business with the sale of the hotel Management business, realising a profit of $21.4m 3; — established strategic relationships with K-ReIT Asia and AvIvA Investors via the sale of 50.0 per cent of 8 Chifley Square, Sydney NSw and hoxton Distribution Park, hoxton Park NSw respectively; — achieved 3.4 per cent like-for-like net operating income growth within the Investment Division’s portfolio; — maintained a high portfolio occupancy rate of 98.4 per cent 4 and a strong weighted average lease expiry of 7.4 years 4 within the Investment Division’s portfolio; — leased 147,646 square metres (10.4 per cent of net lettable area) within the Investment Division’s portfolio; — disposed of four non-core retail properties within the Investment Division’s portfolio, realising $132.0m in gross sale proceeds; — continued the strong focus on corporate responsibility and sustainability with the Investment Division’s portfolio achieving a National Australian Built environment Rating System (“NABeRS”) office energy rating of 4.3 Star average, six months ahead of the December 2012 target of 4.0 Stars, and 8 Chifley Square, Sydney NSw awarded a 6.0 Star Green Star office Design v2 rating; — Mirvac’s safety performance continued to improve with a lost time injury frequency rate of 7.3 for employees plus service providers, representing a 17.0 per cent improvement over the corresponding period for the year ended 30 June 2011. In addition, the number of workers’ compensation claims reduced by 20.5 per cent and the average cost per claim reduced by 34.7 per cent over the corresponding period for the year ended 30 June 2011; and — strong levels of exchanged pre-sales contracts at $907.7m 5 in residential projects and achieved 1,807 residential lot settlements. 1) excludes specific non-cash items, significant items and related taxation. 2) NTA per stapled security based on ordinary securities including employee Incentive Scheme (“eIS”) securities. 3) After costs. 4) By area, excluding assets under development. 5) Total exchanged pre-sales contracts as at 30 June 2012, adjusted for Mirvac’s share of joint ventures, associates and Mirvac’s managed funds. 02 mirvac group annual report 2012 cApitAl MAnAgeMent AnD funDing For the year ended 30 June 2012, the Group maintained its strong capital and liquidity position. on 22 May 2012, the Group completed the sale of the hotel Management business with the proceeds received (totalling $293.2m) used to repay debt, which reduced gearing to 22.7 per cent 1. This is comfortably within the Group’s targeted range of 20.0 to 25.0 per cent. other key highlights for the Group included: — no debt maturities in the year ending 30 June 2013; — $530.0m of debt facilities maturing in January 2014, of which only $237.9m is actually drawn; — high levels of liquidity with $804.4m 2 in cash and undrawn committed debt facilities on hand; — repayment of $140.0m debt facility which was scheduled to mature in January 2013; — weighted average debt maturity of 3.5 years; — average borrowing costs increased slightly to 7.6 per cent per annum including margins and line fees; — maintained the BBB credit rating from Standard & Poor’s; and — continued to comfortably meet all debt covenants. outlook The volatility created by the european debt crisis dominated international capital markets for most of the 2012 financial year, resulting in funding costs remaining elevated and reduced appetite for lending from european based lenders. There will be limited impact of these events on the Group’s borrowing costs for the next six to 12 months, allowing time for conditions to stabilise before any refinancing is required. The Group remains focused on managing its capital position prudently by monitoring and accessing diversified sources of capital, including both domestic and international markets. This ensures Mirvac can continue to meet its strategic objectives without increasing its overall risk profile. opeRAtionAl highlights AnD DivisionAl stRAtegy investment Division At 30 June 2012, the Investment Division had invested capital of $6,002.7m 3, with investments in 66 direct property assets, covering the office, retail and industrial sectors, as well as investments in other funds managed by Mirvac. The asset allocation for MPT invested capital was as follows: — office: 57.6 per cent; — retail: 27.2 per cent; and — other: 15.2 per cent 4. For the year ended 30 June 2012, the Investment Division’s statutory profit before tax was $495.5m and operating profit before tax was $403.7m. Key highlights for MPT for the year ended 30 June 2012 included: — achieved 3.4 per cent like-for-like net operating income growth; — occupancy remained high at 98.4 per cent 5; — 29 properties (43.9 per cent 6) of the Trust’s assets were independently valued resulting in a $163.4m or 3.0 per cent increase over the previous book value for the 12 months ended 30 June 2011; — disposed of four non-core retail assets realising $132.0m in gross sale proceeds (2.6 per cent premium to book value); — established strategic relationships with K-ReIT Asia and AvIvA Investors via the sale of 50.0 per cent of 8 Chifley Square, Sydney NSw and hoxton Distribution Park, hoxton Park NSw respectively; — completed 325 leasing deals over 147,646 square metres of net lettable area (10.4 per cent of the portfolio), with significant office leasing commitments at: — 10-20 Bond Street, Sydney NSw (99.3 per cent 7 of net lettable area secured); and — 8 Chifley Square, Sydney NSw (42.0 per cent of net lettable area secured with the asset’s first lease to Corrs Chambers westgarth); — progressed with Development Approvals for: — the development of the old Treasury Building, Perth wA, which incorporates 30,000 square metres of prime office space that is 100.0 per cent pre-leased to the wA Government for 25 years; and — the Stage 2 Development Application at 190-200 George Street, Sydney NSw which incorporates 38,500 square metres of net lettable area over 32 office levels, and includes 63 basement car spaces; — the Development Division completed construction on the final industrial building at Nexus Industry Park, Prestons NSw in october 2011, which is now 100.0 per cent leased to hPM Legrand Australia and held within MPT’s investment portfolio; — received authority approvals for expansions at Kawana Shopping Centre, Buddina qLD, Stanhope village, Stanhope Gardens NSw and orion Springfield, Springfield qLD; and — Broadway Shopping Centre, Sydney NSw was ranked second nationally in the Big Guns for MAT of $9,833 per square metre 8. The Group’s focus on corporate responsibility and sustainability delivered results within the Trust’s portfolio, with key achievements including: — 8 Chifley Square, Sydney NSw awarded a 6.0 Star Green Star office Design v2 rating; — a NABeRS office energy rating of 4.3 Star average, six months ahead of the December 2012 target of 4.0 stars; — 275 Kent Street, Sydney NSw achieved a 4.5 Star NABeRS energy rating for the first time since construction as a result of management efficiencies within the building; — 23 Furzer Street, Phillip ACT achieved 5.5 Star NABeRS energy rating with the building contractually designed to only achieve a 4.5 Star rating; and — 340 Adelaide Street, Brisbane qLD achieved a NABeRS energy rating of 5.0 Stars, a significant improvement on the prior rating of 1.5 Stars. The Trust’s earnings continue to be secure with a strong weighted average lease expiry profile of 7.4 years 9, 72.7 per cent of Fy13 rent reviews being fixed or linked to the Consumer Price Index (“CPI”), and 72.2 per cent of revenue derived from multinational, Australian Securities exchange (“ASX”) listed and government tenants. 1) Net debt (at foreign exchange hedged rate) excluding leases/(total tangible assets – cash). 2) Total liquidity includes total available liquidity of $721.1m and cash on hand of $77.3m. 3) By book value, includes assets under development. 4) Includes industrial assets, assets under development, indirect property investments, car park assets and a hotel. 5) By area, excluding assets under development. 6) By total number of investment properties. 7) Incorporates heads of Agreement and executed leases as at 30 June 2012. 8) The national magazine, Shopping Centre News, publish an annual awards for Big Guns shopping centres. Big Guns are defined as those centres with a gross lettable area in excess of 45,000 square metres, and typically contain a department store/s, discount department store/s, supermarket/s and specialties. Moving Annual Turnover (“MAT”) is the total retail sales for the past 12 months including GST. 9) By area, excluding assets under development. 03 mirvac group annual report 2012 DIReCtoRs’ RepoRt opeRAtionAl highlights AnD DivisionAl stRAtegy / continueD outlook The Investment Division remains focused on providing secure passive income to the Group, with key areas of focus including: — improving the quality of the portfolio via non-aligned asset sales and new development product; — remaining strategically overweight in the office sector; and — focusing on prime sub-regional shopping centres located in growth markets. Development Division The Group announced a new organisational structure on 15 February 2012 with the formation of national product and service functions to further leverage the Group’s integrated model in the delivery of residential and commercial product. The Development Division now operates four national product lines consisting of Apartments, Masterplanned Communities and Commercial, as well as a new product line being Resource Partnerships, designed to meet the increasing accommodation needs of the resource sector. At 30 June 2012, the Development Division had invested capital of $1,807.3m 1. hotel Management The Group completed the sale of its hotel Management business to Accor on 22 May 2012. For the year ended 30 June 2012, the Division’s statutory loss before tax was $10.0m and operating profit before tax was $15.2m. Residential In the Group’s core metropolitan markets, the Division continued to deliver quality residential product, with new release projects targeted at the right price points and right locations such as: Apartments: — harold Park, Glebe NSw: launched the first residential precinct (296 lots) and received Master Plan Development Consent post 30 June 2012 with site works to commence in August 2012, in line with the development program; — Rhodes waterside, Rhodes NSw: achieved 223 settlements for the 12 months ended 30 June 2012, with settlements at waters edge (114 lots), elyina (106 lots) and Amarco (three lots). The Division also commenced construction on the final stage of Rhodes waterside (Pinnacle, 231 lots); and — Array, yarra’s edge vIC: achieved planning approval for Mirvac’s seventh apartment tower at Docklands and successful vIP launch. Masterplanned Communities: — elizabeth hills, NSw: Stage 1 (96 lots) released with 86 contracts exchanged; — Middleton Grange, NSw: 180 settlements with 46 contracts exchanged; and — Rockbank, vIC: the 5,780 lot site located in Melbourne’s western growth corridor was identified by the State Government for an accelerated planning approval process. For the year ended 30 June 2012, the Division secured future income with $907.7m 2 of residential exchanged pre-sales contracts and settled 1,807 residential lots. As at the settlement date, the hotel Management business comprised a portfolio of 45 hotels covering 5,648 rooms throughout Australia (42) and New Zealand (three) under a suite of four core brands comprising Sea Temple (five star resorts); quay west Suites (five star all-suite hotels); Sebel (four and a half star hotels and resorts); and Citigate (four star hotels). For the period up to settlement (22 May 2012), the business unit achieved a statutory profit before tax of $15.5m and an operating profit before tax of $17.2m. investment Management MIM comprises two business activities for segment reporting purposes: third party, listed and unlisted funds management; and property asset management. For the year ended 30 June 2012, MIM recorded a statutory loss before tax of $9.0m and an operating loss before tax of $6.7m. At 30 June 2012, MIM remained responsible for the management of four wholesale funds: Mirvac wholesale Residential Development Partnership; Travelodge Group; JF Infrastructure yield Fund; and, Australian Sustainable Forestry Investors. MIM also managed the ASX listed Mirvac Industrial Trust and two unlisted residential development funds. MIM continued to rationalise activities considered non-core to Mirvac’s strategy as demonstrated by the exit from the following: — 25.0 per cent interest in the Mirvac City Regeneration Partnership; — investment in the RedZed residential mortgage warehouse; and — roles as investment manager and responsible entity for: — New Zealand Sustainable Forestry Investors; and — Mirvac wholesale hotel Fund (as part of the Group’s exit from its hotel management business). MAM provides asset management services for the Investment Division’s portfolio. MAM currently manages 78 properties principally located in metropolitan locations on the east coast of Australia. outlook MIM will continue to seek to exit its responsible entity, trustee and investment manager responsibilities as the opportunities arise. MAM will seek to continue to expand its asset management services in accordance with growth in the Investment Division’s portfolio. 1) Development Division’s total inventories, investments and loans in associates and joint ventures as at 30 June 2012. 2) Total exchanged pre-sales contracts as at 30 June 2012, adjusted for Mirvac’s share of joint ventures, associates and Mirvac’s managed funds. 04 mirvac group annual report 2012 opeRAtionAl highlights AnD DivisionAl stRAtegy / continueD State based settlements for the year ended 30 June 2012 were as follows: State NSw wA vIC qLD total State based settlements by product for the year ended 30 June 2012 were as follows: State NSw wA vIC qLD total Masterplanned Communities Apartments 812 318 179 145 248 — 37 68 Lots 1,060 318 216 213 1,807 Total 1,060 318 216 213 1,807 For the year ended 30 June 2012, the Development Division’s residential pipeline totalled 29,787 lots, which was supplemented by the acquisition of a number of key projects that will contribute significantly to the Division’s Fy15 and beyond development pipeline, including: — Googong, NSw: acquired in December 2011. Stage 1 was released with 174 exchanged contracts. Googong is a joint venture with CIC Australia to develop a masterplanned community comprising approximately 5,800 lots; — Clyde North, vIC: secured site in November 2011 on capital efficient terms. The 200 hectare site located in Melbourne’s south east growth corridor will comprise approximately 2,100 lots on completion; — Alex Avenue, NSw: in February 2012 Mirvac secured 259 lots on capital efficient terms. Alex Avenue is located in Sydney’s north west growth centre; and — Green Square, NSw: in March 2012 Mirvac executed the project agreement with Landcom and joint venture partner, Leighton Properties, to deliver the Green Square Town Centre core sites. on completion, the core sites will comprise approximately 1,600 lots, 48,000 square metres of office space and 12,000 square metres of retail space as well as substantial public domain and open space. During the period, the Division completed the disposals of its non-core inventory at Magenta Shores, The entrance NSw and The Royal, Newcastle NSw (Stages 1c and 2), thereby finalising the major provisioned englobo sales for the year ended 30 June 2012. commercial Mirvac’s commercial development activities include office, retail and industrial projects, and the Group’s strategy is to sell a part share to aligned third parties and retain the remaining share within the Investment Division’s property portfolio. For the year ended 30 June 2012, Mirvac’s commercial pipeline totalled $1,361.9m. Key highlights for the year ended 30 June 2012 included: — completed the sale of 50.0 per cent of 8 Chifley Square, Sydney NSw to K-ReIT Asia and secured the first lease to Corrs Chambers westgarth for 42.0 per cent of the building’s net lettable area; — completed the sale of 50.0 per cent of hoxton Distribution Park, hoxton Park NSw to AvIvA Investors and achieved practical completion on the Dick Smith and Big w warehouses, five months ahead of schedule; — progressed the Stage 2 Development Application at 190-200 George Street, Sydney NSw with architectural firm, Francis-Jones Morehen Thorp, being selected as preferred architect following a design excellence competition; — approval received for the development of the old Treasury Building, Perth wA, which incorporates 30,000 square metres of prime office space that is 100.0 per cent pre-leased to the wA Government for 25 years; — commenced construction at orion Springfield, Springfield qLD and Kawana Shopping Centre, Buddina qLD 1 after building approvals for expansions at both centres were approved; — completed the final building at Nexus Industry Park, Prestons NSw in october 2011, which is now 100.0 per cent leased to hPM Legrand Australia; — named as the preferred proponent by the wA Government to deliver a major residential and hotel development at Port hedland in partnership with the wA Government and LandCorp; and — shortlisted in July 2012 as the preferred proponent by the wA Government to develop the mixed-use Perth City Link project, in conjunction with Leighton Properties. outlook The Division remains on track towards achieving its 2014 recovery, with key areas of focus including: — improving earnings to represent a 20.0 per cent contribution to the overall Group result; — continue to improve key metrics including return on invested capital (10.0 plus per cent target) and gross margin (18.0-22.0 per cent target); — selectively restocking the development pipeline; and — strong levels of pre-sales to mitigate future earning risks. 1) Construction at Kawana Shopping Centre commenced in late July 2012. 05 mirvac group annual report 2012 DIReCtoRs’ RepoRt MARKet AnD gRoup outlooK Market outlook whilst the resource sector continues to underpin domestic economic output, the easing of economic policy settings over the past nine months has started to provide support to the non-mining sectors of the economy. commercial outlook The european debt crisis has resulted in weaker levels of activity in finance related industries, as demonstrated by the softening in white collar employment resulting in an easing in office demand in Sydney and Melbourne. with the exception of Perth, vacancy rates have trended higher by varying degrees. however, the low level of office construction should limit the upside to vacancy rates. Conditions in the retail sector remain subdued. even though income growth is solid and saving appears to have stopped increasing, there has been a growing tendency for consumers to substitute goods for experiences. while vacancy rates are expected to remain stable, this is expected to be at the expense of incentives and rental growth. Industrial sector rents and demand remain subdued. Limited speculative construction, along with the majority of new supply being pre-committed, should see support for modest rental growth. Residential outlook The factors underpinning the residential property market have improved over the past year and vary by state. The combination of soft property prices and declining mortgage interest rates has resulted in an improvement in affordability, while population growth has started to pick up. The bias towards medium density accommodation continues, especially in the south eastern states. This trend is expected to continue given housing affordability, the preference of new migrants, transport infrastructure constraints, the cost of travel and the ageing population. housing approvals in NSw are now broadly in line with their pre global financial crisis levels. A low rental vacancy rate and rising rental growth are evident of strong underlying demand. A further strengthening in population growth, together with measures by the State Government to increase dwelling supply, suggests a further improvement in market conditions. with the appreciation of the Australian dollar continuing to exert pressure on the state’s manufacturing base and investment remaining biased towards the resource states, the victorian property market is likely to continue to underperform the other main states. The qLD property market has been adversely affected by the rising Australian dollar impacting on its tourism industry, weak economic conditions and a slowing in population growth. There are early signs the housing market is undergoing a modest recovery. Longer term prospects are underpinned by resource related activity, in conjunction with an improvement in population growth. The wA property market is showing signs of a recovery. Population growth has increased significantly, while property prices are starting to edge higher. Short-term prospects for the property market are expected to improve while, in the longer term, resource related activity is expected to lead both stronger dwelling demand and prices. 06 group outlook The Group remains focused on being an Australian real estate expert concentrating on its two core Divisions. The Investment Division remains focused on providing secure passive income to the Group, whilst improving the quality of the portfolio via non-aligned asset sales and new development product. The Division also maintains a focus on prime sub-regional shopping centres located in high growth markets. In spite of the subdued retail environment, Mirvac’s portfolio is comprised of shopping centres that are primarily driven by non-discretionary spend. The Development Division will continue to improve its return on invested capital and increase its earnings contribution to the Group by selectively restocking the development pipeline and maintaining strong levels of pre-sales to mitigate future earning risks. on 15 August 2012, the Group announced that by agreement, Nicholas Collishaw would be stepping down as Managing Director on 31 october 2012, and that Susan Lloyd-hurwitz has been appointed Chief executive officer and Managing Director. Susan will take up the role before the end of the 2012 calendar year. The Group also announced post 30 June 2012, the appointment of Bevan Towning as Chief executive officer, Platform, effective 9 July 2012, and the appointment of Greg Dyer as Finance Director, effective 4 September 2012. Greg will join the Mirvac Board as an executive Director on his commencement and will assume the responsibilities of the current Chief Financial officer, Justin Mitchell, who previously announced his intention to leave the Group on 1 october 2012. enviRonMentAl RegulAtions A key initiative to reduce greenhouse gas emissions was a commitment to achieve an average 4 Star NABeRS energy rating on applicable office buildings by December 2012. The Investment Division achieved this target during the 12 months ended 30 June 2012, six months ahead of schedule. This has resulted in improved environmental performance, demonstrating excellent energy or water performance due to design and management practices, and high efficiency systems and equipment. Mirvac and its business operations are subject to compliance with both Federal and state environment protection legislation. At the Federal level, Mirvac has triggered the energy efficiency opportunities Act 2006 (“eeo”) threshold and is required to participate. An eeo Assessment and Reporting Schedule (“ARS”) has been approved under section 16 of the eeo and Mirvac is progressing assessments in accordance with the ARS. Mirvac has also triggered the participation threshold of the National Greenhouse and energy Reporting Act 2007 (“NGeR”). The NGeR requires large energy-using companies to report annually on greenhouse gas emissions, reductions, removals and offsets, and energy consumption and production figures. Mirvac must report annually by 31 october. Mirvac is also subject to the commercial Building energy efficiency Disclosure Act 2010. This involves the disclosure of energy efficiency related information at the point of sale or lease of office space greater than 2,000 square metres. within Mirvac’s health, safety and environment performance reporting systems, including internal and external audits and inspections, no incidents of significant harm to the environment occurred during the year ended 30 June 2012. Mirvac’s development projects across Australia were issued a total of two environmental infringement notices throughout the year with a total value of $3,000. The notices related to minor incidents of potential environmental impact at development sites and were rectified immediately. The two instances related to the potential for uncontrolled sediment run off. mirvac group annual report 2012 enviRonMentAl RegulAtions / continueD The Federal Government has introduced a price on carbon pollution, which came in to affect on 1 July 2012. Mirvac is not a liable entity under the legislation and is marginally affected. The legislation bill provides for increases in the total carbon cap and therefore does not preclude expansion of the number of directly liable entities before the scheme transitions to a cap and trade system in 2015. infoRMAtion on DiRectoRs Directors’ experience and areas of special responsibilities The members of the Board, their qualifications, experience and responsibilities are set out below: James MacKenzie, BBus, FCA, FAICD — Chairman — Independent Non-executive Chair of the nomination committee Member of the audit, risk and compliance committee Member of the human resources committee James MacKenzie was appointed to the Mirvac Board in January 2005 and assumed the role of Chairman in November 2005. James led the transformation of the victorian Government’s Personal Injury Schemes as Chairman of the Transport Accident Commission (“TAC”) and victorian workCover Authority from 2000 to 2007. he has previously held senior executive positions with Australia and New Zealand Banking Group Limited (“ANZ”), Norwich union and Standard Chartered Bank, and was Chief executive officer of the TAC. A Chartered Accountant by profession, James was a partner in both the Melbourne and hong Kong offices of an international accounting firm, now part of Deloitte. nicholas collishaw, SAFin, AAPI, FRICS — Managing Director — Dependent Nicholas Collishaw was appointed Managing Director on 26 August 2008. Prior to this appointment, he was the executive Director — Investment responsible for Mirvac’s Investment operations including MPT, Investment Management and hotel Management, having been appointed to the Mirvac Board on 19 January 2006. Nicholas has been involved in property and property investment management for over 25 years and has extensive experience in development and investment management of real estate in all major sectors and geographies throughout Australia. Prior to joining Mirvac in 2005 following its merger with James Fielding Group, Nicholas was an executive Director and head of Property at James Fielding Group. he has also held senior positions with Deutsche Asset Management, Paladin Australia Limited and Schroders Australia. Marina Darling, BA (hons), LLB, FAICD — Independent Non-executive Member of the human resources committee peter hawkins, BCA (hons), FAICD, SFFin, FAIM, ACA (NZ) — Independent Non-executive Chair of the human resources committee Member of the audit, risk and compliance committee Member of the nomination committee Peter hawkins was appointed a Non-executive Director of Mirvac on 19 January 2006, following his retirement from the ANZ Bank after a career of 34 years. Prior to his retirement, Peter was Group Managing Director, Group Strategic Development, responsible for the expansion and shaping of ANZ’s businesses, mergers, acquisitions and divestments and for overseeing its strategic cost agenda. Peter was a member of ANZ’s Group Leadership Team and sat on the Boards of esanda Limited, ING Australia Limited and ING (NZ) Limited, the funds management and life insurance joint ventures between ANZ and ING Group. he was previously Group Managing Director, Personal Financial Services, as well as holding a number of other senior positions during his career with ANZ. James Millar AM, BCom, FCA, FAICD — Independent Non-executive Chair of the audit, risk and compliance committee Member of the human resources committee James Millar AM was appointed a Non-executive Director of Mirvac on 19 November 2009 and is the former Chief executive officer and oceania Area Managing Partner of ernst & young, one of the world’s leading professional services firms. he was a member of the global Board of ernst & young. James commenced his career in the reconstruction practice, conducting some of the largest corporate workouts of the early 1990s. James has qualifications in business and accounting, and is a Fellow of The Institute of Chartered Accountants of Australia. John Mulcahy, PhD (Civil engineering), FIeAust — Independent Non-executive Member of the audit, risk and compliance committee Member of the human resources committee Member of the nomination committee John Mulcahy was appointed a Non-executive Director of Mirvac on 19 November 2009 and is the former Managing Director and Chief executive officer of Suncorp-Metway Limited (“Suncorp”). Prior to Suncorp, John held a number of senior executive roles at Commonwealth Bank, including Group executive, Investment and Insurance Services. he also held a number of senior roles during his 14 years at Lend Lease Corporation, including Chief executive officer, Lend Lease Property Investment and Chief executive officer, Civil and Civic. John has more than 27 years of management experience in financial services and property investment. Marina Darling was appointed to the Mirvac Board on 23 January 2012. elana Rubin, BA (hons), MA, FFin, FAICD, FAIM, FAIST — Independent Non-executive Marina is currently the Managing Director of Caponero Group, a diversified property development and investment organisation. Alongside her executive role, she is currently a Non-executive Director of Southern Cross Media Group Limited and until recently a Non-executive Director of Argo Investments Limited. Marina has previously been a Non-executive Director of a number of listed companies and other entities including Southern Cross Broadcasting Limited, National Australia Trustees Limited, GIo holdings Limited, Deacons (Lawyers) and Southern hydro Limited. Member of the audit, risk and compliance committee Member of the nomination committee elana Rubin was appointed a Non-executive Director of Mirvac on 11 November 2010 and has extensive experience in property and financial services. elana is the former executive Director — Investments of the Australian Retirement Fund, one of Australia’s leading superannuation funds. elana has been a Director on a number of listed companies and other entities including Tower Australia Ltd and Bravura Solutions Ltd. 07 mirvac group annual report 2012 DIReCtoRs’ RepoRt infoRMAtion on DiRectoRs / continueD John peters, BArch, Adv Dip BCM, ARAIA, MAIPM, GAICD — Independent Non-executive Member of the audit, risk and compliance committee John Peters was appointed a Non-executive Director of Mirvac on 17 November 2011. John brings to the Board 35 years experience in architectural design, project management, property development and property management. For the last 16 years, John has been the principal of a private property development company focused on substantial mixed use developments and redevelopments in South east queensland. During this period, he has also consulted to various investors and other financial stakeholders in several queensland development projects. Prior to this, John was with Lend Lease for 14 years, where he was queensland Manager Lend Lease Development, and Director, Lend Lease Commercial. company secretary Margaret Mezrani, LLB, FCIS, FCSA Margaret Mezrani was appointed Company Secretary in November 2011 after joining Mirvac in February 2011. Margaret has had over 15 years experience as a company secretary in listed and unlisted companies, including onePath wealth Management (formerly ING Australia Group), MLC wealth Management Group, Promina Group and westpac Banking Corporation. Meetings of DiRectoRs The number of meetings of the Board of Directors and of each Board standing committee of which the relevant Director was a member held during the year ended 30 June 2012 and the number of meetings attended by each Director are detailed below: Director James MacKenzie Nicholas Collishaw Marina Darling 2 Peter hawkins James Millar AM Penny Morris 3 John Mulcahy John Peters 4 elana Rubin Board B A 16 16 6 16 16 6 16 10 16 16 16 6 16 16 6 16 10 16 Audit, risk and compliance committee (“ARCC”) B A Board committee 1 B A human resources committee (“hRC”) B A Nomination committee B A 3 4 — — 2 — — — — 3 4 — — 2 — — — — 7 — — 7 7 — 7 2 7 7 — — 7 7 — 7 2 7 6 — 2 6 6 2 6 — — 6 — 2 6 6 2 6 — — 3 — — 3 — — 3 — 3 3 — — 3 — — 3 — 3 1) Committees of the Board established to deal with particular purposes during the year. 2) Appointed as a Director on 23 January 2012 and appointed as a member of the hRC on 24 January 2012. 3) Retired as a Director on 17 November 2011. 4) Appointed as a Director on 17 November 2011 and appointed as a member of the ARCC on 20 February 2012. A) Indicates number of meetings attended during the period the Director was a member of the Board or Committee. B) Indicates the number of meetings held during the period the Director was a member of the Board or Committee. ReMuneRAtion RepoRt The remuneration report comprises the following sections: 1 highlights for the year ended 30 June 2012 2 Alignment of remuneration strategy and business strategy 3 Mirvac’s approach to executive remuneration design 4 Remuneration components and outcomes for the executive Leadership Team 5 Five year snapshot of business and executive remuneration outcomes 6 Service agreements for the executive Leadership Team 7 Non-executive Directors’ remuneration 8 Additional information This report covers the key management personnel (“KMP”) of Mirvac. KMP are those people with authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly. In essence, the KMP are responsible for determining and executing Mirvac’s strategy. For Mirvac, the KMP are: — members of the executive Leadership Team (“eLT”); and — Non-executive Directors. For the year ended 30 June 2012, the eLT comprised: — Managing Director — Nicholas Collishaw; — Chief executive officer — Investment — Andrew Butler; — Chief executive officer — Development — Brett Draffen; — Chief operating officer — Gary Flowers; and — Chief Financial officer — Justin Mitchell. 08 mirvac group annual report 2012 ReMuneRAtion RepoRt / continueD The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. 1 highlights foR the yeAR enDeD 30 June 2012 (“fy12”) fixed remuneration 1 In accordance with its market positioning strategy, Mirvac assessed the remuneration levels and mix for members of the eLT and identified where adjustments were appropriate based on current market benchmarking. As a result, some members of the eLT will have their fixed remuneration reduced effective 1 July 2012. short-term incentives (“sti”) 2 To ensure that the STI pool was appropriately aligned to Mirvac’s strategic drivers, Mirvac continued with its balanced scorecard of measures for determining the STI pool for the year ended 30 June 2012. 3 The Fy12 STI pool was larger than the STI pool in Fy11. This was largely due to Mirvac exceeding threshold performance levels on the return on assets and customer/ investor satisfaction measures in Fy12. long-term incentives (“lti”) 4 introduction of Minimum securityholding guidelines Rebalancing remuneration components 5 6 7 8 9 The three year performance period for the LTI grants made during the year ended 30 June 2010 finished on 30 June 2012. In total, 37.5% the performance rights from this grant vested as the relative total securityholder return (“TSR”) performance hurdle was met. Consistent with the intention stated in the 2011 Remuneration Report, two performance measures will be applied to the LTI grants made in the year ended 30 June 2012: 50 per cent of the LTI allocation will be tested against a Relative TSR hurdle and 50 per cent against a return on equity (“Roe”) hurdle. These two performance measures will also be retained for the Fy13 LTP grants. The hRC approved the Minimum Securityholding Guidelines for the Managing Director (100 per cent of fixed remuneration) and his direct reports (50 per cent of fixed remuneration), in order to further align the interests of the eLT with the interests of securityholders. executives covered by the guidelines will have five years to build up their securityholding to the minimum level. The hRC also approved the introduction of Minimum Securityholding Guidelines for Non-executive Directors. under the guidelines, each Non-executive Director will be required to hold a minimum of 25,000 Mirvac stapled securities. Non-executive Directors will have two years to build up their securityholding to the minimum level. To support the Minimum Securityholding Guidelines, commencing from Fy13 25 per cent of STI awards for eLT members will be delivered in the form of Mirvac securities (with the remainder paid in cash). while there is no set deferral period for securities granted under the STI plan, members of the eLT will be expected to retain their securities until they satisfy the Minimum Securityholding Guidelines. The combination of the Minimum Securityholding Guidelines and the payment of STI in the form of equity will reinforce the alignment between executive and securityholder interests and focus the eLT on delivering consistently strong performance across the business cycle. To recognise the acceptance of reduced fixed remuneration by some eLT members, the affected executives will receive increased LTI awards in the Fy13 and Fy14 grants. These additional awards will be “at risk” to the executive and subject to applicable performance hurdles and service conditions. non-executive Director fees 10 The maximum aggregate Non-executive Director remuneration for Fy12 remained unchanged from the $1.95m limit approved by securityholders at the 2009 Mirvac Annual General Meeting/General Meeting (“AGM”). No increase to this maximum remuneration amount is proposed for Fy13. 2 AlignMent of ReMuneRAtion stRAtegy AnD business stRAtegy Mirvac’s remuneration strategy is designed to support and reinforce its business strategy. linking the at-risk components of remuneration (that is, our sti and lti schemes) to the drivers that support the business strategy ensures that remuneration outcomes for executives are aligned with the creation of sustainable value for securityholders. Mirvac’s remuneration arrangements support its strategic vision of being a globally recognised leader in real estate investment and development. The Board has identified drivers that are critical to the achievement of this strategic vision, being: 1 financial performance and capital efficiency; 2 customer and investor satisfaction; 3 employee engagement; and 4 health, safety environment and sustainability (“hSe&S”) excellence. The at-risk components of executive reward are directly tied to these four strategic drivers, as shown in the following diagram. This is intended to motivate executives to focus on the areas the Board has identified as most important for delivering the business strategy. Actual remuneration outcomes for executives are directly affected by, and aligned with, Group performance in these areas. 09 mirvac group annual report 2012 DIReCtoRs’ RepoRt 2 AlignMent of ReMuneRAtion stRAtegy AnD business stRAtegy / continueD t A h w s t c e f f A y l t c e R D i i D A p e R A s e v i t u c e X e t e g r a t n i e m o c t u o I T S f o % 6 9 = 2 1 y F r o t c e r i D g n g a n a M i T L e r e h t o r o f 2 1 y F % 2 8 = s r e b m e m n i I T S e g a r e v A t e g r a t f o h t w o r g h t i w e n i l n i s a w d n a , 1 1 y F m o r f t n e m e v o r p m i t n a c fi n g i s i a d e t n e s e r p e r t l u s e r A o R 2 1 y F — . 1 1 y F n i . m 5 8 5 3 $ 1 . s t e g r a t 4 y F e v e h c a o t d e r i u q e r i : 2 1 y f n i i t n a c fi n g i s a d e v e h c a c a v r i M — i y t i n u m m o c t n e m t s e v n i l a n r e t x e l e v i t a e r k r a m h c n e b e c n e d fi n o c . s t l u s e r 1 1 y F o t e h t i t s n a g a t n e m e v o r p m i i e r e w s g n n r a e g n i t a r e p o — : 2 1 y f n i m o r f . % 2 2 p u , . m 3 6 6 3 $ n o n r u t e r l a u n n a e g a r e v A — . . % 8 4 s a w y t i u q e e m o c t u o g n i t s e v I T L % 8 3 = 2 1 y F n i t e g r a t f o . 1 1 y F m o r f % 4 1 p u , 9 5 s a w e r o c s t n e m e g a g n e e e y o p m e s ’ c a v r i M — l : 2 1 y f n i e h t n o s e r u s a e m e h t f o % 2 9 — e r e w d r a c e r o c s S & e S h : 2 1 y f n i . ’ n e e r g ‘ s a d e s s e s s a . p u o r g n o s i r a p m o c a n i s e i t i t n e r e h t o y t i l i b a t fi o r p s ’ c a v r i M s e r u s a e M ) ” e o R “ ( y t i u q e n o n r u t e R l ’ s r e d o h y t i r u c e s o t e v i t a e r l . p u o r G e h t n i t n e m t s e v n i r, a e y e h t r o f d e t a r e n e g s a h s s e n i s u b e h t e u n e v e r h c u m w o h s t c e fl e R . s t s o c g n i t a r e p o s s e l i s g n n r a e g n i t a r e p o y t i l i b a t fi o r p s ’ c a v r i M s e r u s a e M s i t I . s t e s s a l a t o t s t i o t e v i t a e r l ) ” A o R “ ( s t e s s a n o n r u t e R . s t e s s a l a t o t s t i y b s g n n r a e i l a u n n a t n e m t s e v n i n i t n e m e v o r p m i e c n e d fi n o c y t i n u m m o c - n o - r a e y s ’ c a v r i M s e r u s a e M i i s ’ p u o r G e h t g n d v d y b d e t a u c l a c l i n o i t c a f s i t a s r o t s e v n i d n a r e m o t s u c n a s r o t s e v n i d n a s r e m o t s u c e d v o r P i , e c n e l l e c x e s r e v i l e d t a h t e c n e i r e p x e i t s n a g a t n e m e v o r p m i r a e y s n o i t a t c e p x e s d e e c x e y l t n e t s i s n o c l a n r e t x e t n a d n e p e d n i n a . y t l a y o l s r e d n e g n e d n a n o i t a s i n a g r o r i e h t o t t n e m t i m m o c t n e m t s e v n i f o k r a m h c n e b . e c n e d fi n o c y t i n u m m o c t n e m e g a g n e t t i w e h n o A s e m o c t u o y e v r u s l ’ s e e y o p m e f o e r u s a e m A d e t a v i t o m d n a d e g a g n e n a e v a h s l l i k s r o i r e p u s h t i w e c r o f k r o w t n e m e g a g n e e e y o l p m e . s e i t i l i b a p a c d n a s y e v r u s t t i w e h n o A . s s e c c u s s t i d n a l a s e t a u c l a c d n a s e e y o p m e c a v r i M l . 0 0 1 f o t u o p u o r G e h t r o f e r o c s ” d r a c e r o c s “ e c n e l l e c x e s & e s h d e d a r g e r a s e i t i r o i r p S & e S h e h T n i r e d a e l a s a d e s i n g o c e r e B e c n e l l e c x e s & e s h c a v r i M . m e t s y s t h g i l c fi f a r t a g n i s u e s o h t f o n o i t r o p o r p t a h w t a s k o o l . ’ n e e r g ‘ d e t a r e r a s e r u s a e m l s e c a p k r o w e d v o r P i . y t i l i i b a n a t s u s y b d e t r o p p u s d n a m r a h m o r f e e r f i s n a m e r y t e f a s e r e h w e r u t l u c a . y t i r o i r p e t u o s b a n a l . p u o r g n o s i r a p m o c o t e v i t a e r l , e m i t r e v o s e i t i r u c e s e h t t a d e k n a r s a w R S T s ’ c a v r i M — s t i o t e v i t a e r e l l i t n e c r e p d r 3 6 c a v r i M f o e c n a m r o f r e p e h t s e r u s a e M ) ” R s t “ ( n r u t e r 2 1 y f - 0 1 y f m o r f r e d l o h y t i r u c e s l a t o t e v i t a l e R … e c n A M R o f R e p … s e R u s A e M … s e R u s A e M e c n A M R o f R e p l a i c n a n fi d n a y c n e i c fi f e l a t i p a c e c n a m r o f r e p I . s n r u t e r T e R A 3 p o t - r e v i l e D ’ l A u t c A s c A v R M o s i e c n A M R o f R e p i t l D n A i t s n i D e t c e l f e R e R A i … s R e v R D c i g e t A R t s R u o 10 mirvac group annual report 2012 2 AlignMent of ReMuneRAtion stRAtegy AnD business stRAtegy / continueD The following table sets out the actual value of the remuneration receivable by the eLT members during the year. The figures in this table are different from those shown in the accounting table in section 4(f). The main difference between the two tables is that the accounting table includes an apportioned accounting value for all LTI grants on foot during the year (some of which remain subject to satisfaction of performance and service conditions and may not ultimately vest). The table below, on the other hand, shows the LTI value based on the awards that actually vested and delivered value to eLT members. executive year Fixed remuneration $ STI 1 $ LTI 2 $ employee Termination benefits $ loans 3 $ other $ Total $ Nicholas Collishaw 2012 2011 1,500,000 1,875,000 1,080,000 735,000 1,058,378 — 773,283 600,523 — 24,735 4,436,396 3,237,988 — 27,465 Andrew Butler Brett Draffen Gary Flowers Justin Mitchell 2012 2011 2012 2011 2012 2011 2012 2011 618,000 604,815 308,876 205,800 — — 604,279 511,980 1,000,000 1,000,000 464,800 269,500 238,584 — 648,900 630,000 433,790 216,100 126,608 — 810,080 638,693 266,158 216,652 700,001 700,001 470,400 240,100 88,023 — 604,279 511,980 — — — — — — — — 8,918 11,414 1,540,073 1,334,009 15,231 2,528,695 1,925,322 17,129 8,962 10,211 11,403 11,374 1,484,418 1,072,963 1,874,106 1,463,455 1) STI values reflect payments to be made in September 2012 in recognition of performance during Fy12. 2) LTI amounts represent the value to the participant during Fy12 arising from performance rights whose performance period ended 30 June 2012. 3) Amount reported includes amounts forgiven during the year, imputed interest and related fringe benefits tax (“FBT”). 3 MiRvAc’s AppRoAch to eXecutive ReMuneRAtion Design the board and hRc are responsible for designing remuneration arrangements that support the business strategy. Remuneration arrangements are designed to enable Mirvac to derive maximum value from its remuneration spend, by attracting, motivating and retaining the individuals who are best equipped to successfully execute the business strategy. a) how remuneration decisions are made Board and HRC oversight and accountability The Board, with assistance from the hRC, is ultimately responsible for ensuring that remuneration at Mirvac is consistent with the business strategy and aligned with the creation of sustainable securityholder value. The hRC, consisting of five independent Non-executive Directors, has been delegated responsibility for reviewing the remuneration strategy annually and advises the Board on remuneration policies and practices generally. It also makes specific recommendations to the Board on remuneration packages, incentives and other terms of employment for Non-executive and executive Directors, including the Managing Director, and approves the remuneration packages, incentives and other terms of employment for other KMP. The hRC regularly reviews the at-risk components of executive remuneration (that is, the STI and LTI schemes) to ensure that executive remuneration continues to be appropriately aligned with securityholders’ interests, while also serving to attract, motivate and retain suitably qualified people. The hRC also reviews and approves the performance targets set for the STI and LTI schemes, as well as the assessment of Mirvac’s performance against those targets, which ultimately determines the size of the STI and LTI pools. expert input from management and external advisors To ensure it has the necessary information to make remuneration decisions, the hRC seeks advice and input from Mirvac’s Group General Manager, human Resources. In addition, the hRC has appointed ernst & young as its external remuneration advisor. ernst & young’s role in this regard is to provide both information on current market practice and independent input into key remuneration decisions. ernst & young’s terms of engagement include specific measures designed to protect its independence. The hRC recognises that, to effectively perform its role, it is necessary for ernst & young to interact with members of Mirvac management, particularly those in the human Resources team. however, to ensure ernst & young remains independent, members of Mirvac’s management are precluded from requesting services that would be considered to be a ‘remuneration recommendation’ as defined by the Corporations Amendment (Improving Accountability on Director and executive Remuneration) Act 2011. During the year ended 30 June 2012, ernst & young provided the hRC with: — guidance in the review and design of executive remuneration strategy; — assistance in drafting of remuneration disclosures; — relative TSR performance calculations; and — market remuneration information which was used as an input to the annual review of KMP and selected executives’ remuneration. No remuneration recommendations were provided by ernst & young or any other advisor during the year. b) Remuneration principles The Board and hRC have developed six remuneration principles to ensure remuneration continues to support Mirvac’s business strategy and create value for securityholders through all stages of the business cycle. These principles underpin remuneration decision making at Mirvac and provide a consistent framework to ensure maximum value is derived from remuneration decisions. Remuneration at Mirvac should: 1 align and contribute to Mirvac’s key strategic business objectives and desired business outcomes; 2 align the interests of employees with those of securityholders; 3 assist Mirvac in attracting and retaining the employees required to execute the business strategy; 4 support Mirvac’s desired performance based culture; 5 encompass the concept of pay parity and be fair and equitable; and 6 be simple and easily understood. 11 mirvac group annual report 2012 DIReCtoRs’ RepoRt 3 ouR AppRoAch to eXecutive ReMuneRAtion Design / continueD c) Market positioning Consistent with the principles outlined above, Mirvac has adopted a market positioning strategy designed to attract and retain talented employees, and to reward them for delivering strong performance. The market positioning strategy also supports fair and equitable outcomes between employees. Definition of market when determining the relevant market for each role, Mirvac considers the companies from which it sources talent, and to whom it could potentially lose talent. A distinction is made between the market for business roles and the market for corporate roles. For business roles: — the primary comparison group is the Australian Real estate Investment Trust (“A-ReIT”) sector, plus Lend Lease, FKP Property Group and Australand Property Group; and — the secondary comparison group is a general industry comparison group with a similar market capitalisation (50-200 per cent of Mirvac’s 12 month average market capitalisation). For corporate roles: — the primary comparison group is a general industry comparison group with a similar market capitalisation (50-200 per cent of Mirvac’s 12 month average market capitalisation) to reflect the greater transferability of skills. where disclosed data is unavailable, Mirvac relies on published remuneration surveys covering relevant industries and the broader market. targeted market positioning Fixed remuneration at Mirvac is positioned at the median (50th percentile), with the ability to work within a range around the median based on criteria such as: — the criticality of the role to successful execution of the business strategy; — assessment of employee performance/potential; and — the employee’s experience level. Target total remuneration at Mirvac is positioned at the median (50th percentile) with the opportunity to earn total remuneration up to the upper quartile (75th percentile) in the event that both the individual and the business achieve stretch targets. d) Remuneration mix Mirvac’s remuneration structures strive to fairly and responsibly reward employees, while complying with all relevant regulatory requirements. A significant portion of total remuneration for executives is variable or at risk if applicable performance criteria are not met or exceeded each year. The average remuneration mix at target for eLT members for the year ended 30 June 2012 was as follows: In order to reweight executives’ remuneration mix towards equity, Fy12 saw the introduction of Minimum Securityholding Guidelines for eLT members, as follows: Level Minimum securityholding Managing Director other eLT members 100% of fixed remuneration 50% of fixed remuneration This initiative will further align the interests of eLT members with the interests of securityholders. executives covered by the Minimum Securityholding Guidelines will have five years to build up their securityholding to the suggested level. Consistent with this approach, from Fy13 25 per cent of any STI allocation to an eLT member will be paid in equity (rather than cash), with the intention that executives will use those securities to build up part of their minimum securityholding. 4 ReMuneRAtion coMponents AnD outcoMes foR the elt At Mirvac, the three components of executive remuneration — fixed remuneration, sti grants and lti grants — are weighted so as to direct executives’ focus towards building long-term value for the group. to earn their at-risk components, executives must first create sustainable value for securityholders. a) fixed remuneration Fixed remuneration acts as a base-level reward for a competent level of performance in an executive’s particular role. It includes cash, compulsory superannuation and any salary-sacrifice items (including FBT). The following factors are taken into account when setting fixed remuneration levels at Mirvac: — the size and complexity of the role; — role accountabilities; — skills and experience of the individual; and — market pay levels for comparable roles. The opportunity value for the at-risk components of remuneration is determined by reference to fixed remuneration, so Mirvac is conscious that any adjustments to fixed remuneration have a flow-on impact on the executive’s potential STI and LTI awards. Mirvac regularly considers benchmarking information and, having regard to its market positioning strategy and the desired remuneration mix, decides whether to adjust fixed remuneration for each executive. Following a review conducted during Fy12, the fixed remuneration levels for some eLT members will be reduced effective 1 July 2012. To recognise their acceptance of reduced fixed remuneration, the affected executives will receive increased LTI awards in the Fy13 and Fy14 grants. The additional awards will be “at risk” to the executive and subject to applicable performance hurdles and service conditions. Specific details of the adjustments will be included in the Fy13 remuneration disclosures. 31% 23% 46% 37% 26% 37% Managing Director Other ELT members Fixed remuneration Target short-term incentives Target long-term incentives 12 mirvac group annual report 2012 4 ReMuneRAtion coMponents AnD outcoMes foR the elt / continueD b) the sti component — how does it work? The purpose of STI is to motivate and reward employees for contributing to the delivery of annual business performance as assessed against a balanced scorecard of measures. STI is an annual incentive based on Group, divisional and individual performance. Mirvac’s STI plan has been structured as follows: eligibility — executives and managers at Mirvac are eligible to participate in the STI plan based on their payment form responsibility for achieving annual objectives. — other employees are eligible for a discretionary bonus where management recognises that exceptional individual performance has been achieved. — STI awards with respect to the year ended 30 June 2012 were paid in cash. — Commencing Fy13, 25 per cent of any STI award for an eLT member will be delivered in the form of Mirvac securities, with the remaining 75 per cent delivered in cash. eLT members will be expected to retain the securities they receive as part of their STI award until they satisfy the Minimum Securityholding Guidelines. sti pool formation — A gateway requirement of Group operating earnings being at least 90 per cent of target must be achieved before any STI payments are made. — If the Group operating earnings gateway is satisfied, the size of the STI pool (from which all STI payments are made) is determined based on Group performance against a balanced scorecard of measures linked to Mirvac’s strategic drivers. sti individual allocation — An individual’s STI target opportunity is the amount earned for ‘on target’ Group and individual performance. — STI awards can range from zero to double the STI target opportunity. — once the Group STI gateway has been met, actual STI awards are scaled up or down from the individual’s STI target based on Group and individual performance. For employees other than the Managing Director and Chief Financial officer, divisional performance is also taken into account when determining the final STI award. termination/forfeiture — STI awards are forfeited if the executive terminates for any reason prior to the payment date. stI performance measures Group and divisional STI performance measures are directly linked to Mirvac’s strategic drivers, as shown in the diagram in section 2. A description of each measure, its weighting and the rationale behind its inclusion in the Group’s balanced scorecard is presented in the following table: strategic driver Aligned sti measure(s) explanation of measure weighting % Rationale for using operating earnings Financial performance and capital efficiency Return on assets Customer and investor satisfaction Improvment in investment community confidence operating earnings reflect how much revenue the business has generated, less its operating costs. RoA is a measure of how profitable a company is relative to its total assets. It is calculated by dividing the company’s annual earnings by its total assets. Measures Mirvac’s year- on-year improvement against an independant external benchmark of investment community confidence. 50 Reflects the underlying performance of Mirvac’s normal core business operations and represents a key driver of securityholder value. 20 Reflects how efficiently Mirvac is using its assets to generate earnings. 10 Represents how well Mirvac is meeting the expectations of key external stakeholders. 13 mirvac group annual report 2012 DIReCtoRs’ RepoRt 4 ReMuneRAtion coMponents AnD outcoMes foR the elt / continueD strategic driver Aligned sti measure(s) explanation of measure weighting % Rationale for using employee engagement employee engagement survey outcomes hSe&S excellence Balanced scorecard of hSe&S excellence employee engagement is a measure of employees’ intellectual and emotional commitment to their organisation and its success. It has been shown to be linked to an organisation’s financial performance. Aon hewitt conducted an anonymous survey of Mirvac’s employees, and reported back to Mirvac with a score for the Group out of 100. The ‘balanced scorecard’ of hSe&S grades a suite of measures, such as lost time injury frequency rate and proportion of waste reused or recycled using a traffic light system. Mirvac looked at what proportion of those measures were rated ‘green’, which corresponds to an industry leading level of performance. 10 There is a strong correlation between high levels of employee engagement and total securityholder return. 10 Mirvac is committed to providing a safe workplace for all of its employees and to ensuring its activities do not have an adverse impact on the environment. For each performance measure on the STI scorecard: — a threshold, target and stretch goal is set at the start c) the sti component: how was reward linked to performance this year? of the financial year; — 75 per cent of the target opportunity is awarded for achieving threshold performance; — 100 per cent of the target opportunity is awarded for achieving target performance; — 150 per cent of the target opportunity is awarded for achieving stretch performance; and — a sliding scale operates between threshold and target, and between target and stretch. Following an assessment of Group performance: — the operating earnings result is assessed to determine whether the gateway performance level has been achieved; — if the operating earnings gateway has been achieved, each performance measure is assigned an STI score ranging from zero per cent (for performance below threshold) to 150 per cent (for performance at or above stretch) of target; — the STI scores for each component are then converted into an overall STI score for Group performance; — the hRC then has an opportunity to exercise discretion to adjust the Group STI score up or down in order to ensure payments are consistent with Mirvac’s remuneration strategy, and to prevent any anomalous remuneration outcomes; — the STI score is used to determine the STI pool; and — STI scores are also assigned to divisions, based on an assessment their contribution to the Group result. To calculate an individual’s STI award: — each participant is awarded an individual STI score of between zero and 150 per cent of their STI target based on an assessment of their personal performance for the year against objectives linked to Mirvac’s strategic drivers; and — the final STI outcomes are then calculated by scaling each individual’s STI score up or down based on the overall STI score for Group performance, adjusted, as appropriate, for divisional performance scores. 2 1 Y F r o f e c n a m r o f r e p p u o r G 14 stI pool in fy12 The Group operating earnings gateway was achieved in Fy12 which meant that an STI pool was formed. The STI pool in Fy12 was larger than the STI pool in Fy11. This was largely due to Mirvac exceeding threshold performance levels on the RoA and customer and investor satisfaction measures in Fy12. The following graph summarises Mirvac’s performance against each of the measures on the balanced scorecard for the year ended 30 June 2012: Stretch Target Threshold % 0 1 : g n i t h g e W i % 0 1 1 = d e d r a w a t e g r a t f o % % 0 5 : g n i t h g e W i % 2 0 1 = d e d r a w a t e g r a t f o % % 0 2 : g n i t h g e W i % 4 8 = d e d r a w a t e g r a t f o % % 0 1 : g n i t h g e W i % 2 8 = d e d r a w a t e g r a t f o % % 0 1 : g n i t h g e W i % 2 9 = d e d r a w a t e g r a t f o % Financial performnace (Operating earnings) Capital efficiency (ROA%) Customer and investor satisfaction (Improvement against external benchmark) Employee engagement (Aon Hewitt engagement score) HSE&S excellence (HSE&S scorecard) In light of Mirvac’s performance against these five measures for the year ended 30 June 2012, the Board approved an STI pool equivalent to 96 per cent of target, compared to a maximum potential pool of 150 per cent of target. mirvac group annual report 2012 4 ReMuneRAtion coMponents AnD outcoMes foR the elt / continueD fy12 stI awards for the elt The following table shows the actual STI outcomes for each of the eLT members for the year ended 30 June 2012. Note that the STI maximum for an individual represents double his or her STI target. As noted previously, each individual’s actual STI is based on the Group’s balanced scorecard, adjusted, as appropriate, for divisional and individual performance. Nicholas Collishaw Andrew Butler Brett Draffen Gary Flowers Justin Mitchell STI max % of fixed remuneration Actual STI % max STI forfeited % max Actual STI (total) $ 150 140 140 140 140 48 36 33 48 48 52 64 67 52 52 1,080,000 308,876 464,800 433,790 470,400 d) the lti component: how does it work? Mirvac’s LTI plans facilitate executive security ownership for those employees who have the largest strategic impact on the long term success of Mirvac. The purpose of LTI at Mirvac is to: — assist in attracting and retaining the required executive talent; — focus executive attention on driving sustainable long term growth; and — align the interests of executives with those of securityholders. Mirvac’s LTI plans have changed over time to align with market practice. A summary of previous plans is in section 8. Mirvac’s current LTI plan, the Long Term Performance (“LTP”) plan, was originally introduced in the year ended 30 June 2008 following approval by securityholders at the 2007 AGM. Securityholders approved an update to the LTP plan at the 2010 AGM. The purpose of the LTP plan is to drive performance, retain executives and facilitate executive security ownership. Key details of the LTP plan are set out in the table below. eligibility instrument — LTP grants are generally restricted to those senior executives who are most able to influence securityholder value. Non-executive Directors are not eligible to participate in the LTP plan. — Awards under this plan are made in the form of performance rights. Awards of options have also been made under this plan in previous years. A performance right is a right to acquire one fully paid Mirvac security provided a specified performance hurdle is met. — No loans are made to participants under this plan. grant value — The maximum annual LTI opportunity is 150 per cent of fixed remuneration for the Managing Director and 100 per cent of fixed remuneration for other eLT members. performance hurdles — In determining the value of the performance rights to grant to eLT members, the hRC takes into account the annual retention value associated with participation in the executive Retention Plan (a legacy LTI plan described in section 8). The fair value of rights granted under the LTP equates to the eLT member’s maximum annual LTI opportunity, less the annual retention value associated with their eRP participation. — A table included later in this section sets out full details of the performance rights granted to eLT members under the LTP during Fy12. — The hRC reviews the performance conditions annually to determine the appropriate hurdles based on Mirvac’s strategy and prevailing market practice. Consistent with the intention stated in the 2011 Remuneration Report, two performance measures apply to the LTI grants made in the year ended 30 June 2012: 50 per cent of the LTI allocation will be tested against a Relative TSR hurdle and 50 per cent against a Roe hurdle. These two measures will be retained for the Fy13 LTP grants. — Relative TSR is used because it is an objective measure of securityholder value creation and is widely understood and accepted by the various key stakeholders. The entities against which Mirvac’s TSR performance is compared are shown on the following page. — Roe is used as the second performance condition because it is aligned to Mirvac’s strategic drivers, in particular financial performance and capital efficiency, and to take into account investor feedback that has been received on the LTP plan. Roe measures how well management has used securityholder funds and reinvested earnings to generate additional earnings for securityholders. 15 mirvac group annual report 2012 DIReCtoRs’ RepoRt 4 ReMuneRAtion coMponents AnD outcoMes foR the elt / continueD vesting/delivery termination/ forfeiture — The performance rights offered under the scheme can only be exercised if and when the performance conditions are achieved over a three year period. If the performance rights vest, entitlements will be satisfied by, at the Board’s discretion, either an allotment of new securities to participants or by the purchase of existing securities on-market that are then transferred to the participant. — At the end of the three year performance period, all performance rights that vest are automatically converted to Mirvac securities. however, if the performance rights do not vest at the end of the three year performance period, they will lapse. There are no further tests of the performance conditions. Directors have also indicated that there is no intention to retest the performance conditions in the future. — If an employee resigns or is dismissed, all their unvested rights are forfeited. If an employee leaves due to retirement, redundancy, total and permanent disablement or death, the hRC determines the number of rights which will lapse or are retained, subject to both the original performance period and hurdles. Consistent with the recent amendments to the Corporations Act 2001, participants are prohibited from hedging their unvested performance rights or options. — If a change of control event occurs, the hRC determines the number of performance rights that vest, if any, taking into account the performance from the date of grant to the event. Relative tsR performance hurdle For the grant made during the year ended 30 June 2012, the vesting outcome at the end of the performance period will depend on Mirvac’s TSR performance relative to the constituents of the comparison group. To ensure that performance is measured objectively, the hRC receives the relative TSR data from an independent external consultant. The hRC then determines the number of performance rights that will vest, if any, by applying the TSR data to the vesting schedule. For the grant made during the year ended 30 June 2012, the vesting outcome at the end of the three year performance period for the portion of the grant for which TSR is the performance measure will be based on the following schedule: Performance levelwestpac Custodian Nominees Limited Cogent Nominees Pty Ltd AMP Life Limited RBC Dexia Investor Services Australia Nominees Pty Limited Cogent Nominees Pty Limited Cogent Nominees Pty Limited equity Trustees Limited JP Morgan Nominees Australia Limited queensland Investment Corporation Bond Street Custodians Limited RBC Dexia Investor Services Australia Nominees Pty Limited hSBC Custody Nominees (Australia) Limited uBS wealth Management Australia Nominees Pty Ltd Share Direct Nominees Pty Ltd <10026 A/C> Bond Street Custodians Limited Total for 20 largest securityholders Total other securityholders total stapled securities on issue Number of securityholders holding less than a marketable parcel: 2,669. Number of stapled securities Percentage of issued equity 1,057,635,826 688,456,531 533,227,553 257,237,677 102,708,234 67,620,588 66,274,607 53,314,883 33,522,060 32,795,140 25,570,151 24,053,888 20,046,625 19,195,397 15,185,049 14,906,139 12,550,167 10,520,635 6,025,000 5,865,782 3,046,711,932 375,439,937 3,422,151,869 30.90% 20.11% 15.58% 7.51% 3.00% 1.98% 1.94% 1.56% 0.98% 0.96% 0.75% 0.70% 0.59% 0.56% 0.44% 0.44% 0.37% 0.31% 0.18% 0.17% 89.03% 10.97% 100.00% voting rights Subject to the Constitutions of Mirvac Limited and of MPT and to any rights or restrictions for the time being attached to any class or classes of shares, units or stapled securities: — on a show of hands, each Member present in person or by proxy, attorney, or representative has one vote; and — on a poll, each Member has: — in the case of a resolution of Mirvac Limited, one vote for each share in Mirvac Limited held; and — in the case of a resolution of MPT, one vote for each whole $1.00 of unit value in MPT held. instalment receipt voting rights Instalment receipt holders have beneficial ownership of stapled securities and their rights as owners of the stapled securities are evidenced by the issue to instalment receipt holders of one instalment receipt for each stapled security. The only change to instalment receipt holders’ normal rights as an owner of stapled securities is that registration of their stapled securities is recorded in the name of westpac Custodian Nominees Limited, the security trustee, until the final instalment is paid. The Security Trust Deed passes through to instalment receipt holders the rights as if the holders were a registered stapled securityholder. These rights include the entitlement to receive notices and attend meetings of Mirvac and exercise voting rights on securityholder resolutions put forward. In accordance with the Security Trust Deed, the security trustee has appointed each eligible instalment receipt holder (or their nominee) as its attorney to exercise the proportionate number of votes that attaches to the stapled securities in Mirvac reflecting their holding of instalment receipts. 110 mirvac group annual report 2012 glossARy of ACRonyMs AAS AASB AFL AFS AGM ANZ APeS ARCC A-ReIT ARS ASIC ASX CCI CGu CMBS CPI CR DCF DRP eeo eeP eIP eIS eLT ePS eRP FBT FTe GST hRC hSe&S Fy08 Fy09 Fy10 Fy11 Fy12 Fy13 Fy14 Fy15 IAS IASB IFRS IPuC ISo JFG KMP KPI LLC LSL LTI LTIP LTP MAM MIM MGR MPT MReIT MTN NABeRS NCI NGeR NPv NRoT NRv NTA PwC RoA Roe RoIC SoCI SoFP SPv STI TAC TSR woP woT Australian Accounting Standards Australian Accounting Standards Board Available for lease Australian financial services Annual General Meeting/General Meeting Australia and New Zealand Banking Group Limited Accounting Professional & ethical Standards Audit, risk and compliance committee Australian Real estate Investment Trust Assessment and Reporting Schedule Australian Securities and Investmens Commission Australian Securities exchange Consumer Confidence Index Cash generating unit Commercial mortgage backed securities Consumer Price Index Capitalisation rate Discounted cash flow Dividend/distribution reinvestment plan energy efficiency opportunities Act 2006 employee exemption Plan executive Incentive Program employee Incentive Scheme executive Leadership Team earnings per security executive Retention Plan Fringe benefits tax Full time equivalent Goods and services tax human resources committee health, safety, environment and sustainability year ended 30 June 2008 year ended 30 June 2009 year ended 30 June 2010 year ended 30 June 2011 year ended 30 June 2012 year ending 30 June 2013 year ending 30 June 2014 year ending 30 June 2015 International Accounting Standards International Accounting Standards Board International Financial Reporting Standards Investment properties under construction International organization for Standardization James Fielding Group Key management personnel Key performance indicators Limited Liability Company Long service leave Long term incentives Long Term Incentive Plan Long Term Performance Plan Mirvac Asset Management Mirvac Investment Management Mirvac Group Mirvac Property Trust Mirvac Real estate Investment Trust Medium term note National Australian Built environment Rating System Non-controlling interest National Greenhouse and energy Reporting Act 2007 Net present value North Ryde office Trust Net realisable value Net tangible assets PricewaterhouseCoopers Return on assets Return on equity Return on invested capital Statement of comprehensive income Statement of financial position Special Purpose vehicle Short term incentives Transport Accident Commission Total securityholder return westpac office portfolio westpac office Trust 111 mirvac group annual report 2012 RECYCLED Paper made from recycled material environmentally Responsible paper This report is printed on ecoStar, an environmentally responsible paper made carbon neutral and manufactured from Forest Stewardship Council (“FSC”) certified 100 per cent post consumer recycled paper, in a process chlorine free environment under the ISo 14001 environmental management system. The greenhouse gas emissions of the manufacturing process, including transportation of the finished product to the paper suppliers warehouse, have been measured by the edinburgh Centre for Carbon Management and offset by the CarbonNeutral Company. electronic version of Annual Report An electronic version of this report is available on Mirvac’s website at www.mirvac.com. Securityholders who do not require a printed Annual Report, or who receive more than one copy due to multiple holdings, can help reduce the number of copies printed by advising the registry in writing of changes to their report mailing preferences. Securityholders who choose not to receive printed reports will continue to receive all other securityholder information, including Notices of Meetings. DIReCtoRy Registered office/principal office Mirvac Group (comprising Mirvac Limited and Mirvac Funds Limited as responsible entity of Mirvac Property Trust) Level 26 60 Margaret Street Sydney NSw 2000 Telephone +61 2 9080 8000 Facsimile +61 2 9080 8111 www.mirvac.com securities exchange listing Mirvac Group is listed on the Australian Securities exchange (ASX code: MGR) Directors James MacKenzie (Chairman) Nicholas Collishaw (Managing Director) Marina Darling Peter hawkins James Millar AM John Mulcahy John Peters elana Rubin company secretary Margaret Mezrani stapled security registry Link Market Services Limited Level 12 680 George Street Sydney NSw 2000 securityholder enquiries Telephone 1800 356 444 (within Australia) or outside Australia + 61 2 8280 7107 (outside Australia) www.linkmarketservices.com.au correspondence should be sent to: Mirvac Group C/- Link Market Services Limited Locked Bag 14 Sydney South NSw 1235 Further investor information can be located in the Investor Information tab on Mirvac’s website at www.mirvac.com. Auditor PricewaterhouseCoopers 201 Sussex Street Sydney NSw 2000 AgM Mirvac’s 2012 AGM will be held at 10.00 am (Australian eastern Daylight Time) on Thursday, 15 November 2012, in the wentworth Ballroom, the Sofitel Sydney wentworth, 61-101 Phillip Street, Sydney NSw. 112 mirvac group annual report 2012