MIRVAC gRoup AnnuAl RepoRt 2013 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 3 3 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 by mirvac MIRVAC gRoup AnnuAl RepoRt For the year ended 30 June 2013 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 10 Remuneration report 33 Auditor’s independence declaration 34 Corporate governance statement 44 Financial statements 108 Directors’ declaration 109 111 Securityholder information 113 Glossary of acronyms 114 Directory Independent auditor’s report to the members of Mirvac Limited Cover image: 8 Chifley, Sydney NSW Above image: Broadway Shopping Centre, Broadway 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 2013. 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 – Susan Lloyd-Hurwitz (appointed as a Director on 5 November 2012) – Nicholas Collishaw (resigned as a Director on 31 October 2012) – Marina Darling – Gregory Dyer (appointed as a Director on 4 September 2012 and resigned as a Director on 5 April 2013) – Peter Hawkins – James Millar AM – John Mulcahy – John Peters – 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 which comprises third party, listed and unlisted funds management; and the property asset management business, Mirvac Asset Management. DIVIDenDs/DIstRIbutIons Dividends/distributions paid to stapled securityholders during the year were as follows: June 2012 quarterly dividend/distribution paid on 27 July 2012 2.40 cents (2012: 2.20 cents) per stapled security September 2011 quarterly dividend/distribution paid on 28 October 2011 2.00 cents per stapled security December 2012 half yearly dividend/distribution paid on 25 January 2013 4.20 cents (2012: 2.00 cents) per stapled security March 2012 quarterly dividend/distribution paid on 27 April 2012 2.00 cents per stapled security total dividends/distributions paid 2013 $m 82.0 — 143.9 — 2012 $m 75.2 68.3 68.3 68.4 225.9 280.2 The June 2013 half yearly dividend/distribution of 4.50 cents per stapled security totalling $164.9m was paid on 26 July 2013. Dividends and distributions paid and payable by Mirvac for the year ended 30 June 2013 totalled $308.8m, being 8.70 cents per stapled security (2012: $287.0m – 8.40 cents per stapled security). The payments for the year ended 30 June 2013 and the previous year were distributions made by the Trust. net CuRRent Asset DefICIenCy As at 30 June 2013, the Group is in a net current liability position of $19.6m. This includes $172.1m related to bank borrowings due to mature in January 2014. On 3 July, the Group completed the extension and increase of its unsecured syndicated bank facility and it now has no current bank borrowings. Refer to note 20 for further details. Accordingly, the Directors expect that the Group will have sufficient cash flows to meet all financial obligations as and when they fall due. opeRAtIng AnD fInAnCIAl ReVIew The statutory profit after tax attributable to the stapled securityholders of Mirvac for the year ended 30 June 2013 was $139.9m (2012: $416.1m). Included in the statutory profit was a provision for loss on inventories totalling $242.9m (2012: $25.0m). The operating profit (profit before specific non-cash and significant items) was $377.6m 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 on page 02 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 2013, which have been subject to audit, refer to pages 109 to 110 for the auditor’s report on the financial statements. 01 mirvac group annual report 2013 Directors’ report opeRAtIng AnD fInAnCIAl ReVIew / ContInueD profit attributable to the stapled securityholders of Mirvac specific non-cash items Net gain on fair value of investment properties Net loss on fair value of investment properties under construction (“IPUC”) Net loss on fair value of derivative financial instruments and associated foreign exchange movements 2 Security based payment expense 3 Depreciation of owner-occupied investment properties 4 Straight-lining of lease revenue 5 Amortisation of lease fitout incentives 4 Net loss on fair value of investment properties, derivatives and other specific non-cash items included in share of net profit of associates and joint ventures 6 significant items Impairment of investments including associates and joint ventures Impairment of loans Provision for loss on inventories Net loss/(gain) from sale of non-aligned assets 7 tax effect Tax effect of non-cash and significant adjustments 8 Discontinued operations Specific non-cash items and significant items included in profit from discontinued operations (net of tax) 9 operating profit (profit before specific non-cash and significant items) 2013 $m 139.9 (54.0) 3.6 12.4 4.1 7.5 (17.3) 10.9 4.4 12.3 18.0 242.9 3.7 2012 1 $m 416.1 (148.7) 15.8 82.0 8.5 7.6 (15.9) 14.4 4.5 — 6.0 25.0 (0.8) (9.4) (44.4) (1.4) 377.6 (3.8) 366.3 The statutory and operating profit includes both continuing and discontinued operations; the tables below provide a breakdown of this information: profit attributable to the stapled securityholders of Mirvac Continuing operations Discontinued operations profit attributable to the stapled securityholders of Mirvac operating profit (profit before specific non-cash and significant items) Continuing operations Discontinued operations 10 operating profit (profit before specific non-cash and significant items) 2013 $m 138.5 1.4 139.9 377.6 — 377.6 2012 $m 384.5 31.6 416.1 338.5 27.8 366.3 1) Restated to show discontinued operations separately. 2) Total of (Loss)/gain on financial instruments and Foreign exchange loss in the SoCI. 3) Included within Employee benefits expenses in the SoCI. 4) Included within Depreciation and amortisation expenses in the SoCI. 5) Included within Investment properties rental revenue in the SoCI. 6) Included within Share of net profit of associates and joint ventures accounted for using the equity method in the SoCI. 7) Total of Net loss on sale of investments and Net loss on sale of investment properties in the SoCI. 8) Included in Income tax benefit in the SoCI. 9) Included within Profit from discontinued operations (net of tax) in the SoCI. 10) Discontinued operations in SoCI less specific non-cash items and significant items included in profit from discontinued operations (net of tax). 02 mirvac group annual report 2013 financial, capital management and operational highlights Key financial highlights for the year ended 30 June 2013: – profit attributable to the stapled securityholders of Mirvac Key operational highlights for the year ended 30 June 2013: – acquired a portfolio of office assets from GE Real Estate Investments Australia (“GE”) for $584.0m 5; of $139.9m (2012: $416.1m), a decrease of 66.4 per cent, and was impacted by the impairment of $273.2m (impairment of investments of $12.3m, impairment of loans of $18.0m and provision for loss on inventories of $242.9m) announced by Mirvac on 7 February 2013; – strengthened strategic relationships with high quality investment organisations with the sale of a 50.0 per cent interest in 200 George Street, Sydney to AMP Capital and a 50.0 per cent interest in the Treasury Building development in Perth to Keppel REIT; – operating profit after tax of $377.6m 1 (2012: $366.3m), – secured Ernst & Young as an anchor tenant at 200 representing 10.9 cents per stapled security (“cpss”), which was above the market guidance range of 10.7 to 10.8cpss; – operating profit (from continuing operations only) rose by $39.1m (11.6 per cent) to $377.6m; – equity, reserves and retained earnings for the Group rose by 4.5 per cent to $6,010.8m (2012: $5,754.7m) which was driven by the Institutional Placement and Security Purchase Plan undertaken during the year; George Street, Sydney with the professional services firm committing to approximately 74.0 per cent of the building’s net lettable area over a 10 year term; – executed an Agreement for Lease with AGL Energy for office space in a new A grade building, to be developed by Mirvac at 699 Bourke Street in Melbourne; – maintained strong portfolio occupancy of 97.9 per cent 6 within the MPT portfolio; – operating cash flow of $385.9m, an increase of 21.7 – leased 165,188 square metres (11.5 per cent of net lettable area) within the MPT portfolio; – achieved strong levels of residential exchanged contracts of $1,005.4m 7; – settled 1,809 residential lots ahead of the target of 1,600 to 1,700 lots; and – achieved a 4.6 Star National Australian Built Environment Rating System (“NABERS”) energy portfolio average rating in December 2012, exceeding the target of 4.5 Stars, and six months ahead of the June 2013 target date. Outlook 8 Whilst economic conditions remained challenging across the markets in which the Group operates, Mirvac remains well placed with its ongoing focus on building a strong and resilient business that is positioned to perform across the business cycle. The Group’s capital position continued to be robust. The Group remains focused on prudently managing its capital position by monitoring and accessing diversified sources of capital, including equity, domestic and international debt and wholesale capital. This focus will ensure Mirvac can continue to meet its strategic objectives without increasing its overall capital management risk profile. Mirvac will continue to enhance its capabilities as a world-class Australian property group concentrating on the secure income stream from the carefully structured Investment portfolio and improving the return on invested capital achieved by the Development business. per cent on the previous year, largely attributable to a reduction in borrowing costs, resulting from the proceeds of the sales of the Hotel Management business and related assets used to repay debt; refer to note 38 to the financial statements for more detail; – gearing increased to 23.6 per cent from 22.7 per cent at 30 June 2012; however, this remained within the Group’s target range of 20.0 to 30.0 per cent 2; – distributions of $308.8m, representing 8.70 cpss; and – net tangible assets (“NTA”) 3 per stapled security of $1.62 from $1.66 at 30 June 2012 which was impacted by the Institutional Placement and Security Purchase Plan, and distributions. Key capital management highlights for the year ended 30 June 2013: – completed a $403.7m (before costs) Institutional Placement and Security Purchase Plan to fund the acquisition of the portfolio of office assets from GE; – issued $150.0m of medium term notes which will mature in December 2017, further diversifying the Group’s sources of debt and increasing the weighted average debt maturity. Refer to note 20 to the financial statements for more details; – maintained strong liquidity with over $800m 4 of cash and undrawn committed bank facilities; – the weighted average debt maturity increased to 3.8 years 4; – reduced average borrowing costs to 5.9 per cent per annum as at 30 June 2013 (including margins and line fees) and reduced by a further 20 basis points when the renewed bank debt facilities became effective; – maintained the BBB credit rating from Standard & Poor’s with the outlook raised to positive; – continued to comfortably meet all debt covenants; – completed a $500.0m capital reallocation following approval by securityholders at the 2012 Annual General Meeting; and – as announced to the market on 3 July 2013, the Group extended the term and increased the size of its unsecured syndicated bank loans, ensuring the Group has no maturities until March 2015. 1) Excludes specific non-cash items, significant items and related taxation. 2) Net debt (at foreign exchanged hedged rate) excluding leases/(total tangible assets – cash). Pro forma as at 3 July 2013 post $1.7 billion syndicated loan transaction. 3) NTA per stapled security based on ordinary securities including Employee Incentive Scheme (“EIS”) securities. 4) Pro forma as at 3 July 2013 post $1.7 billion syndicated loan transaction. 5) Pre-acquisition costs. 6) By area, excluding assets under development, based on 100 per cent of building net lettable area. 7) Total exchanged pre-sales contracts as at 30 June 2013, adjusted for Mirvac’s share of joint ventures, associates and Mirvac’s managed funds. 8) These future looking statements should be read in conjunction with future releases to the Australian Securities Exchange (“ASX”). 03 mirvac group annual report 2013 Directors’ report Divisional highlights Investment At 30 June 2013, Investment (comprising MPT and a small number of assets held by the Company) had invested capital of $6,776.6m 1, with investments in 68 direct property assets, covering the office, retail and industrial sectors, as well as investments in car parks, a hotel and other funds managed by Mirvac. The asset allocation for MPT invested capital was as follows: – office: 60.4 per cent; – retail: 25.0 per cent; – industrial: 6.7 per cent; and – other: 7.9 per cent 2. For the 12 months to 30 June 2013, MPT’s statutory profit before tax was $464.3m and operating profit before tax was $418.8m, an increase of 3.7 per cent. This increase was driven primarily by the acquisition of seven office assets and reduced interest costs due to non-core asset sales and a decrease in the average interest rate. While the global economic climate remained challenging, the Trust’s earnings continued to be secured by a strong weighted average lease expiry (“WALE”) profile of 6.9 years 3, 96.2 per cent of financial year 2014 (“FY14”) rent reviews being fixed or linked to the Consumer Price Index (“CPI”), and 72.2 per cent of revenue being derived from multinational, ASX listed and government tenants. Key highlights for MPT for the year ended 30 June 2013: – achieved 3.5 per cent like-for-like net operating income growth; – maintained high occupancy at 97.9 per cent 3; – total investment property revaluations provided a net uplift of $50.4m (or 0.8 per cent) over the previous book value for the 12 months to 30 June 2013; – completed 362 leasing deals over 165,188 square metres of net lettable area (11.5 per cent of the portfolio), with major leasing commitments at: – 60 Margaret Street, Sydney NSW: lease to Cliftons (3,469 square metres) for a new five-year lease term; – Bay Centre, Pyrmont NSW: renewal of lease for five years to Veolia (3,097 square metres); – 101-103 Miller Street, North Sydney NSW: renewal of lease for five years to Genworth Financial Mortgage Insurance (5,898 square metres); – 38 Sydney Avenue, Forrest ACT: renewal of lease for five years to the Department of Broadband, Communications and the Digital Economy (8,975 square metres); – Riverside Quay, Southbank VIC: renewal of lease for 10 years to URS Australia (4,663 square metres); – Nexus Industrial Park (Building 3), Prestons NSW: new lease term to De-Longhi Australia (17,267 square metres); and – Moonee Ponds Central, Moonee Ponds VIC: new 10 year deal over 1,204 square metres with Aldi supermarket, and a 10 year option exercised for Coles across 4,000 square metres. – acquired a portfolio of seven office assets from GE for a value of $584.0 million 4 aligning with the “Create and Buy” office strategy. The acquisition comprised: – two A grade landmark assets (Allendale Square, 77 St Georges Terrace, Perth and 90 Collins Street, Melbourne) which increased Mirvac’s core portfolio exposure to the Perth and Melbourne CBDs; and – five Sydney CBD assets located in the strategically significant ‘Alfred, Pitt, Dalley and George Streets’ precinct, restocking Mirvac’s commercial development pipeline with assets that can be held for the long term; – established a second capital partnership with Keppel REIT via the sale of a 50.0 per cent interest in the Treasury Building, Perth on a fund through basis; – further strengthened strategic relationships with a high quality investment organisation, with the sale of a 50.0 per cent interest in 200 George Street, Sydney NSW to AMP Capital; – disposed of seven non-core assets including two office buildings, three industrial properties and two retail centres 5 realising $189.7m in gross sale proceeds; and – progressed with commercial developments as detailed in the Commercial highlights section in this Report and achieved the following: – 200 George Street, Sydney NSW: secured an anchor tenant with Ernst & Young agreeing to approximately 74.0 per cent of the building’s net lettable area for a 10 year term; – 8 Chifley, Sydney NSW: leased a further 2,800 square metres to QBE Insurance Group, and post 30 June, leased 2,594 square metres to Quantium, bringing the total area leased to 70.0 per cent. This development was delivered ahead of schedule and on budget by the Development business with practical completion achieved in July 2013; – 699 Bourke Street, Melbourne VIC: secured an anchor tenant with AGL Energy initially planning to occupy up to 15,000 square metres, or 79.0 per cent of the building’s net lettable area for a 10 year term; – Treasury Building, Perth WA: commenced construction on the 30,800 square metre office tower, that will house the WA Government which has pre-committed to a 25 year lease across 98.0 per cent of the tower; – Kawana Shoppingworld, Buddina QLD: commenced construction on Stage 4 which includes a new Aldi supermarket and additional specialty stores, expanding the centre by approximately 9,000 square metres. The project is currently 39.9 per cent leased 6; – Stanhope Village, Stanhope Gardens NSW: commenced construction on Stage 3 which includes the extension of the Kmart mall and a new Aldi supermarket. The project is 100.0 per cent leased 6 . Received development application approval for the Stage 4 extension which includes the creation of additional specialty stores and a food court; – Orion Springfield Town Centre, Springfield QLD (Pad Sites): commenced construction with initial tenants trading in December 2012. The Pad Sites will provide a total gross lettable area of 5,108 square metres. The project is 100.0 per cent leased 6; and – Orion Springfield Town Centre, Springfield QLD (Stage 2): received development application approval for the Stage 2 extension which includes an additional supermarket, specialty stores and commercial suites over approximately 13,000 square metres. 1) By book value, includes assets under development. 2) Includes assets under development, indirect property investments, car parks and a hotel. 3) By area, excluding assets under development, based on 100 per cent of building net lettable area. 4) Pre-acquisition costs. 5) Includes two disposals that occurred post 30 June 2013; Manning Mall, Taree NSW (settled 11 July 2013) and Logan Megacentre, Logan QLD (settled 9 August 2013). 6) By area, includes signed leases and heads of agreement. 04 mirvac group annual report 2013 Divisional highlights / continued The Group’s focus on corporate responsibility and sustainability continued to deliver results within the Trust’s portfolio, with key achievements: – 6.0 Star Green Star Office Design v2 rating for 8 Chifley, Sydney NSW; – 4.6 Star NABERS energy portfolio average rating in December 2012, exceeding the target of 4.5 Stars, and six months ahead of the June 2013 target date; – 3.4 Star NABERS water portfolio average target six months ahead of schedule, and reached 3.5 Stars in June 2013; – 5.5 Star NABERS energy rating for 1 Darling Island, Pyrmont NSW, representing MPT’s second asset to achieve a 5.5 Star rating; and – 5.0 Star NABERS energy rating for 339 Coronation Drive, Brisbane QLD. Energy intensity was reduced by 39.0 per cent and greenhouse emissions by 974 tonnes CO2 per annum from 2010. Outlook 1 Uncertainties surrounding US monetary policy, Chinese economic growth, a softening in white collar employment and the domestic economy transitioning away from mining investment make for a challenging environment. Nonetheless, an improvement in both economic and political stability should result in continued interest for quality products from both domestic and international investors. The office portfolio, with low vacancy rates, high average fixed rent increases, quality tenant profile, manageable expiry profile and long weighted average lease term, continues to be well positioned to deliver strong returns. In the retail sector, greater consumer caution and a slowing in household income growth have continued to increase pressure on discretionary spending. MPT’s retail portfolio is strongly biased towards non-discretionary spending, such as food. This area of spending continues to be far more resilient and, as a consequence, the Group’s retail assets, located in core locations, should continue to perform strongly. Overall, the Trust 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 creating new development product; – extracting the benefit of the Group’s demonstrated competitive advantages in remaining strategically overweight in the office sector; and – focusing on prime sub-regional, neighbourhood and CBD shopping centres located in growth markets. Investment Management Mirvac 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 2013, MIM recorded a statutory loss before tax of $13.7m and an operating loss before tax of $11.9m. MIM’s result was impacted by a decline in management fee income following the exit of funds under management, and a reduction in income from the continued exit of non-core investments and loans. At 30 June 2013, MIM remained responsible for the management of four wholesale funds: Mirvac Wholesale Residential Development Partnership; Tucker Box Hotel Group; JF Infrastructure Yield Fund; and Australian Sustainable Forestry Investors. MIM also manages the ASX listed Mirvac Industrial Trust and two unlisted residential development funds. In line with MIM’s continued focus on the rationalisation of its non-core activities, the Group’s equity interest in the US based funds manager, Quadrant Real Estate Advisors, was disposed of on 3 June 2013. Mirvac Asset Management (“MAM”) provides asset management services primarily for the MPT portfolio. MAM currently manages 68 properties inclusive of the seven recently acquired properties as part of the GE office portfolio acquisition. Outlook 1 MIM will continue to seek to exit its non-core responsible entity, trustee and investment manager responsibilities as well as the underlying assets as opportunities arise. MAM will seek to continue to expand its asset management services in line with growth in the Investment Division’s portfolio and assets owned by third parties where there are common interests. Development Mirvac’s Development business unit operates across national product lines consisting of Residential (comprising Apartments and Masterplanned Communities) and Commercial. At 30 June 2013, Development had $1,482.5m of invested capital. For the year ended 30 June 2013, Development’s statutory loss before tax was $236.1m and operating profit before tax was $37.1m. The statutory result was impacted by the provisions announced on 7 February 2013. As part of the regular review of all Development project assumptions, the assessment as at 31 December 2012 provided evidence that specific micro markets had not recovered as previously expected which resulted in a $273.2m reduction in carrying value, made up of provision for loss on inventories ($242.9m), impairment of investments ($12.3m) and impairment of loans ($18.0m). The majority of projects impacted are in QLD representing 72.0 per cent of the provisions and in WA representing 27.0 per cent of the provisions 2. Residential In the Group’s core metropolitan markets, the business unit continued to deliver quality residential product, with new release projects targeted at the right price points and right locations. Key highlights across Apartments and Masterplanned Communities were: Apartments: – Harold Park, Glebe NSW: achieved strong sales with 93.6 per cent of Precinct 1 and 78.8 per cent of Precinct 2 sold (279 and 145 exchanged contracts respectively). The next stage is scheduled for release in the second half of 2013; – Rhodes Waterside, Rhodes NSW: progressed with construction on the final apartment building at the Rhodes precinct with 94.8 per cent sold (221 exchanged contracts); 1) These future looking statements should be read in conjunction with future releases to the ASX. 2) The remaining 1.0 per cent relates to projects outside of Queensland and Western Australia. 05 mirvac group annual report 2013 Directors’ report Divisional highlights / continued – Yarra’s Edge, Docklands VIC: completed construction at Yarra Point with 86.6 per cent of the apartment tower sold (174 settled and exchanged contracts). Construction commenced on Mirvac’s seventh tower, Array, with 64.9 per cent sold (133 exchanged contracts). Array is expected to be completed in 2015; and – ERA, Chatswood NSW: construction progressed ahead of schedule and strong sales were achieved with 99.0 per cent sold (291 exchanged contracts). Masterplanned Communities: – Googong NSW: continued strong sales with 60.3 per cent of the first release sold (307 exchanged contracts); – Elizabeth Hills NSW: continued strong sales with 77.0 per cent sold (318 settled and exchanged contracts); and – Enclave VIC: released the first stage of the project in April 2013 with 81 lots exchanged of the 83 lots released to date. For the year ended 30 June 2013, Development’s residential pipeline totalled 30,942 lots which was supplemented by the acquisition of a number of key projects that will contribute significantly to Development’s FY15 and beyond pipeline, including: – Dallas Brooks Centre, East Melbourne VIC: reached an agreement with the Masonic Centre of Victoria for the rights to redevelop the Dallas Brooks Centre for predominately residential uses, subject to approvals; – Alex Avenue NSW: secured 298 lots at the Alex Avenue precinct at Schofield. In May 2013, Mirvac released the first stage and achieved strong sales with 42 exchanged contracts; and – Enclave VIC: completed the acquisition of a 50.0 per cent interest in Enclave. On completion, this project will comprise in excess of 200 land lots and built form product. As at 30 June 2013, Development settled 1,809 residential lots and secured future income of $1,005.4m 1 through residential exchange pre-sales contracts. State based lot settlements by product for the year ended 30 June 2013 were as follows: State NSW QLD VIC WA total Apartments Masterplanned Communities 14 80 170 68 332 765 200 216 296 1,477 Total 779 280 386 364 1,809 Commercial Mirvac’s commercial development activities include office, retail and industrial projects. For the year ended 30 June 2013, Mirvac’s commercial pipeline totalled $2,166.8m. Key operational highlights for Commercial for the year ended 30 June 2013 were outlined in the MPT highlights section of this Report. Key development milestones and sustainability highlights were: – 200 George Street, Sydney NSW: commenced construction during the year with completion due in early 2016. The office tower is expected to achieve a 5.0 Star NABERS energy rating and 5.0 Star Green Star rating; – 699 Bourke Street, Melbourne VIC: commenced construction in August 2013 with completion expected in 2015. The A grade office building with premium grade services is designed to achieve a 5.0 Star NABERS and 5.0 Star Green Star rating; – Treasury Building, Perth WA: remained on track with construction for a new A grade commercial building located on the landmark site of the Old Treasury in Perth. The office tower is scheduled for completion in early 2015 and is expected to achieve a 4.5 Star NABERS energy rating and 5.0 Star Green Star rating; – 8 Chifley, Sydney NSW: demonstrating the benefits of Mirvac’s integrated model, Development successfully delivered this premium grade asset to the joint owners (MPT and Keppel REIT). The premium office tower achieved a 6.0 Star Green Star Office Design V2 rating and is expected to achieve a 5.0 Star NABERS energy rating. Practical completion was achieved in July 2013; – Stanhope Village, Stanhope NSW: commenced construction on Stage 3 which includes the extension of the Kmart mall and a new Aldi supermarket; – Kawana Shopping Centre, Buddina QLD: commenced construction on Stage 4 which includes a new Aldi supermarket and additional specialty stores, expanding the centre by approximately 9,000 square metres; and – Orion Springfield Shopping Centre, Springfield QLD (Pad Sites): commenced construction with initial tenants trading in December 2012. The remaining Pad Sites are on track for completion by December 2013. The Pad Sites will provide a gross lettable area of 5,108 square metres. Outlook 2 The outlook for capital city residential markets remains mixed by location. Whilst there has not been a material uplift in demand to date and purchasers maintain a cautious position, the stronger fundamentals should result in a further improvement in the residential property market over time, with the trend towards medium density living continuing, particularly in the south eastern states. The Division remains on track towards achieving its 2014 recovery, with key areas of focus including: – continuing 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); – strategically restocking the development pipeline; and – improving the strong levels of pre-sales to mitigate future earning risks. 1) Total exchanged pre-sales contracts as at 30 June 2013, adjusted for Mirvac’s share of joint ventures, associates and Mirvac’s managed funds. 2) These future looking statements should be read in conjunction with future releases to the ASX. 06 mirvac group annual report 2013 Risk As a property group involved in real estate investment, residential and commercial development and investment management, Mirvac faces a number of risks throughout the business cycle which have the potential to affect the Group’s achievement of its targeted financial outcomes. The Group’s objective is to ensure those risks are identified and appropriate strategies are implemented to control or otherwise manage the impact of those risks. Mirvac’s risk management framework is integrated with its day-to-day business processes and is supported by a dedicated Group Risk function. Further information on the Group’s risk management framework is detailed in the Corporate Governance Statement in this Annual Report. group risks For the year ended 30 June 2013, the Group continued to review both internal and external risks which have the potential to affect the Group’s targeted financial outcomes and to implement strategies to minimise their impact. As announced on 9 May 2013, as part of Mirvac’s annual strategic review of each business unit, the Group established clear and targeted directional mandates for all areas of operation. Further information on the material risks identified for each of the Investment and Development divisions is outlined below. The Group also introduced a consolidated Group-wide robust capital allocation process that encourages decision making with a focus on Group outcomes rather than divisional outcomes. At a Group level, Mirvac faces certain risks to the achievement of its financial outcomes, these risks are types of risks that are typical for a property group. These may include debt refinancing and compliance with debt covenants as well as compliance with HSE regulations. Divisional risks At a divisional level, the key risks faced by Investment and Development which have the potential to affect the achievement of the financial prospects for the Group include: – office: as detailed in the outlook section for Investment, the demand for office space remains challenging across markets in which the Group operates. This has the potential to impact on the Group’s performance given that office assets represent 60.4 per cent of the MPT portfolio. MPT’s office portfolio metrics comprising a long WALE of 5.2 years, high occupancy of 96.8 per cent, strong like-for- like rent growth of 3.9 per cent, along with the portfolio’s outperformance against the IPD index over three and five years, demonstrate Mirvac’s ability to maintain a strong and robust portfolio through the cycles of demand. The Group seeks to manage uncertainty around commercial office demand in a number of ways including substantial pre-letting of commercial development in advance of construction (for example, the Ernst & Young pre- commitment of 74.0 per cent of the lettable area at 200 George Street, Sydney, announced in January 2013) and by partially selling-down commercial developments in advance of completion (for example, Treasury Building, Perth and 200 George Street, Sydney); – retail: as detailed in the outlook section for Investment, the current low retail sales growth environment continues to place pressure on retailers. With 25.0 per cent of MPT’s portfolio represented by retail assets, Mirvac is focused on continually refreshing its retail assets (via refurbishment, redevelopment or remixing) to adapt to changing market dynamics. Furthermore, Mirvac maintains a focus on non-discretionary offerings, and a diversified tenancy mix, where no single specialty retailer contributes greater than 1.2 per cent of the total portfolio’s gross rent; and – residential: as detailed in the outlook section for Development, Australia’s residential market varies from state to state (and within states) with some markets expected to continue to strengthen over the next three years, while activity over the medium term is expected to slow in states with a heavier reliance on resource investment. The Development division is focused on the right product in the right location with diversification of risk across residential sub-markets, across Australia and between asset classes (Apartments and Masterplanned Communities). Weighting to key growth markets such as NSW, which is currently at 51.8 per cent of the portfolio, further mitigates this risk, as do pre-sales. enVIRonMentAl RegulAtIons Mirvac and its business operations are subject to compliance with both Federal and State environment protection legislation, and the Board is satisfied that adequate systems are in place for Mirvac’s compliance with the applicable legislation. Within Mirvac’s health, safety and environment performance reporting systems, including internal and external audits and inspections, Mirvac has not experienced any incidents that have resulted in any significant harm to the environment. There were three infringement notices issued for minor environmental incidents at housing development sites due to the potential for uncontrolled sediment run off. Immediate action was undertaken to rectify all three of these minor environmental infringements. A key initiative to reduce greenhouse gas emissions was a commitment to achieve an average 4.5 Star NABERS Energy rating on applicable office buildings by June 2013. The Investment Division achieved this target in December 2012, six months ahead of schedule. This has resulted in reduced operating costs, improved environmental performance, demonstrating excellent energy operational and management practices, and high efficiency systems and equipment. Mirvac is required under National Greenhouse and Energy Reporting Act 2007 (“NGER”) to report annually on greenhouse gas emissions, reductions, removals and offsets, and energy consumption and production figures. Following the divestment of the Hotel Management business Mirvac no longer triggers the Energy Efficiency Opportunities Act 2006 (“EEO”) threshold and was not required to participate in the year ended 30 June 2013. Mirvac deregistered from EEO on December 2012. 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. The Federal Government introduced price on carbon pollution which became effective 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. 07 mirvac group annual report 2013 Directors’ report James MacKenzie Susan Lloyd-Hurwitz Marina Darling Peter Hawkins InfoRMAtIon on DIReCtoRs Directors’ experience and areas of special responsibilities The members of the Mirvac Board and their qualifications, experience and responsibilities are set out below: James MacKenzie BBus, FCA, FAICD – Chair – 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 on 7 January 2005 and assumed the role of Chair in November 2005. James was re-elected as a Director and Chair of Mirvac Limited on 15 November 2012. James has served as a director of a number of public companies listed on both Australian and international stock exchanges. James was a Partner in both the Melbourne and Hong Kong offices of an international accounting firm now part of Deloitte. Subsequently, James led the transformation of the Victorian Government’s Personal Injury Schemes initially as Chief Executive Officer of the Transport Accident Commission (TAC) and later as Chairman of TAC and the Victorian WorkCover Authority (WorkSafe Victoria). James was appointed as a member of the Australian B20 Group in February 2013 and is currently Co-Vice Chairman of ASX listed Yancoal Australia Ltd. susan lloyd-Hurwitz BA(Hons), MBA (Dist) – Chief Executive Officer & Managing Director – Executive Susan Lloyd-Hurwitz was appointed Chief Executive Officer (“CEO”) & Managing Director on 15 August 2012 and a Director of Mirvac Board on 5 November 2012. Prior to this appointment, Susan was Managing Director at LaSalle Investment Management, where she was responsible for the core investment accounts and funds business lines in the European region, as well as the operation of the business. Susan has also held senior executive positions at MGPA, Macquarie Group and Lend Lease Corporation, working in Australia, the US and Europe. Susan has been involved in the real estate funds management industry for over 23 years, with extensive experience in fund and portfolio management in both the direct and indirect markets, fund development, mergers and acquisitions, dispositions, research and business strategy. Susan is also a member of the UWS Foundation Council which supports the University of Western Sydney in its development and contribution to Greater Western Sydney. Marina Darling BA (Hons), LLB, FAICD – Independent Non-Executive Member of the Human Resources Committee Marina Darling was appointed to the Mirvac Board on 23 January 2012. 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), Argo Investments and Southern Hydro Limited. Marina is a Non-Executive Director of Southern Cross Media Group Limited (appointed September 2011). 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 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. Peter was also a Director of BHP (NZ) Steel Limited from 1990 to 1991 and Visa Inc. from 2008 to 2011. Peter is currently a Non-Executive Director of Westpac Banking Corporation (appointed December 2008). 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. He was also 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 in Australia. James is a Non-Executive Director and Chair (appointed May 2012) of Fantastic Holdings Limited and a Non-Executive Director of Fairfax Media Limited (appointed July 2012) and Jetset Travelworld Limited (appointed September 2010). 08 mirvac group annual report 2013 James Millar AM John Mulcahy John Peters Elana Rubin 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. John is currently a Non-Executive Director of ALS Limited (formerly Campbell Brothers Limited) (appointed February 2012), Coffey International Limited (appointed September 2009) and GWA Group Limited (appointed November 2010). John peters B Arch, Adv Dip BCM, ARAIA, 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 and was re-elected as a Director on 15 November 2012. 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 Corporation for 14 years, where he was Queensland Manager Lend Lease Development, and Director, Lend Lease Commercial. elana Rubin BA (Hons), MA, FFin, FAICD, FAIM, – Independent Non-Executive 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, was re-elected as a Director on 15 November 2012 and has extensive experience in property and financial services. Elana is the former Executive Director – Investments of the Australian Retirement Fund, and was a Director (2006 to 2013) and Chair (July 2007 to April 2013) of AustralianSuper, one of Australia’s leading superannuation funds. Elana was previously a Non-Executive Director of TAL (November 2007 to April 2013). She has also been a Director on a number of listed companies and other entities including Tower Australia Ltd and Bravura Solutions Ltd. She is also a member of the Victorian Council of the Australian Institute of Company Directors. gregory Dyer BEc, LLB, ACA – Finance Director – Executive (resigned 5 April 2013) Gregory Dyer was appointed a Director of Mirvac Board on 4 September 2012 and resigned on 5 April 2013. Prior to this appointment, he was the Chief Financial Officer and a Director at Mulpha Australia Limited (“Mulpha”). He also served as a Non-Executive Director at FKP Property Group (in which Mulpha has a 26 per cent interest) from 4 May 2009 to 30 July 2012. Prior to his role at Mulpha, Gregory was Chief Financial Officer of APN News & Media Limited. nicholas Collishaw SAFin, AAPI, FRICS – Managing Director – Executive (resigned 31 October 2012) 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 resigned as a Director of Mirvac Limited on 31 October 2012. Company Secretary natalie Allen BEc, LLB Natalie Allen was appointed Company Secretary on 21 January 2013. Natalie joined Mirvac as Group General Counsel in August 2012, and has more than 14 years of legal experience in real estate and equity capital markets. Prior to joining Mirvac, Natalie was the Group General Counsel and Company Secretary at Charter Hall Group, and before this, was General Counsel and Company Secretary for a number of listed and unlisted entities within Macquarie’s Real Estate Funds Division. Natalie is a solicitor of the Supreme Court of NSW and a member of the State Bar of California. Margaret Mezrani LLB, FCIS, FCSA (resigned 21 January 2013) 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. Margaret resigned as Company Secretary on 21 January 2013. 09 mirvac group annual report 2013 Directors’ report MeetIngs of DIReCtoRs The number of meetings of the Board of Directors and of each standing Board committee of which the relevant Director was a member held during the year ended 30 June 2013 and the number of meetings attended by each Director are detailed below: Directors James MacKenzie Susan Lloyd-Hurwitz 4 Nicholas Collishaw 2 Marina Darling Gregory Dyer 3 Peter Hawkins James Millar AM John Mulcahy John Peters Elana Rubin Board B A 15 12 1 15 9 15 15 15 15 15 15 12 3 15 9 15 15 15 15 15 Audit, Risk and Compliance Committee (“ARCC”) B A B Board Committee 1 A 2 2 2 2 — — — — 3 3 1 1 2 2 2 2 2 2 — — 6 6 — — — — — — — — 6 6 6 6 6 6 6 6 6 6 Human Resources Committee (“HRC”) B A 5 6 — — — — 6 6 — — 6 6 6 6 6 6 — — — — Nomination Committee B A 2 2 — — — — — — — — 2 2 — — 2 2 — — 2 2 1) Committees of the Board established to deal with particular purposes during the year. 2) Resigned as a Director on 31 October 2012. 3) Appointed as a Director on 4 September 2012 and resigned as a Director on 5 April 2013. 4) Appointed as a Director on 5 November 2012. A) Indicates the 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 2013 2) Alignment of remuneration strategy and business strategy 3) Mirvac’s approach to executive remuneration design 4) Remuneration components and outcomes for the Senior Executives 5) Five year snapshot of business and executive remuneration outcomes 6) Service agreements for the Senior Executives 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. Mirvac has previously considered all members of the Executive Leadership Team (“ELT”) to be KMP. However, during the year ended 30 June 2013 (“FY13”) the composition of ELT expanded significantly to include new business heads, as well as heads of support functions. Under the expanded structure, the new ELT members who head business functions are considered KMP, while the heads of support functions are not considered to be KMP. For Mirvac, the KMP during FY13 were therefore: – the CEO & Managing Director, Finance Director and members of the ELT who head a business (“Senior Executives”); and – Non-Executive Directors. For the year ended 30 June 2013, the Senior Executives were: Position Term as KMP senior executives Susan Lloyd-Hurwitz Andrew Butler Brett Draffen Gregory Dyer 1 Gary Flowers 2 Jonathan Hannam Bevan Towning 3 former senior executives Nicholas Collishaw Justin Mitchell CEO & Managing Director (appointed 5 November 2012) Chief Executive Officer, Investment Chief Executive Officer, Development and Group Strategy Finance Director (appointed 4 September 2012) Chief Operating Officer (until 21 January 2013) Group Executive, Business Initiatives (from 22 January 2013) Group Executive, Capital (appointed 9 January 2013) Chief Executive Officer, Capital Partnerships (from 9 July 2012) Managing Director (ceased employment on 31 October 2012) Chief Financial Officer (ceased employment on 1 October 2012) 1) Ceasing employment with Mirvac on 5 September 2013. 2) Ceasing employment with Mirvac on 1 October 2013. 3) Ceasing employment with Mirvac on 20 September 2013. Part Year Full Year Full Year Part Year Full Year Part Year Part Year Part Year Part Year The information provided in this remuneration report has been audited as required by section 308(3C) of the Corporations Act 2001. 10 mirvac group annual report 2013 1 HIgHlIgHts foR tHe yeAR enDeD 30 June 2013 (“fy13”) fixed remuneration 1) In accordance with its market positioning strategy, Mirvac assesses the remuneration levels and mix for Senior Executives to identify where adjustments are appropriate based on market benchmarking. As a result, no Senior Executives received an increase to their fixed remuneration during FY13, while two Senior Executives had 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 2013. 3) The FY13 STI pool was smaller than the STI pool in the year ended 30 June 2012 (“FY12”). This was largely due to Mirvac not meeting threshold performance levels on the Return on Assets (“ROA”) measure as a result of the impairments announced during FY13. 4) Consistent with the intention stated in the FY12 Remuneration Report, 25 per cent of FY13 STI awards for ELT members will be delivered in the form of Mirvac securities, with the remainder paid in cash. 5) For FY14 the ROA measure will continue to be calculated in the same manner, but will be relabelled as Return on Invested Capital (“ROIC”). This change in terminology will ensure consistency between the terms used in Mirvac’s remuneration arrangements and those used in Mirvac’s business strategy and external market communications. 6) Effective FY14, the ROIC weighting in the balanced scorecard will increase from 20 per cent to 35 percent, while the weighting for operating earnings will reduce from 50 per cent to 35 per cent. This change reflects the increased emphasis in Mirvac’s strategy on generating returns on the assets it manages. Introduction of stI deferral 7) Commencing from FY14, 25 per cent of STI awards for ELT members will be long-term incentives (“ltI”) Introduction of incentive clawback arrangements deferred into rights over Mirvac securities. Half of these deferred rights will vest after 12 months, with the balance vesting after 24 months. No dividends will be payable on these deferred rights. The deferred rights are subject to service conditions. 8) The three year performance period for the LTI grants made during the year ended 30 June 2011 finished on 30 June 2013. None of the performance rights from this grant vested as the relative total shareholder return (“TSR”) performance hurdle was not met. 9) Consistent with the approach used for the FY12 LTI grants, two performance measures will again be applied to the LTI grants made during FY13: 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. 10) To ensure that executives are only rewarded when performance hurdles have been achieved at the end of the performance period, Mirvac continued with its policy of not paying dividends on unvested LTI awards. 11) For FY14, ROIC will replace ROE as an LTI hurdle. The rationale behind this is to ensure improved alignment between Mirvac’s business strategy, incentive scheme measures, and external market communications. 12) In order to further strengthen Mirvac’s remuneration governance framework, Mirvac has introduced a clawback policy for ELT members and other executives capable of influencing the results of the Group. The policy gives the HRC the ability to clawback incentives in the event of a material financial misstatement. The clawback provisions will apply to future unvested STI and LTI awards. Changes to remuneration mix 13) In order to facilitate the introduction of STI deferrals, effective FY14, the STI targets for non-executive Director fees ELT members (other than the Managing Director) will increase by 10 per cent of fixed remuneration, while the LTI targets will reduce by 10 per cent of fixed remuneration. The STI and LTI targets for the Managing Director will remain unchanged. 14) The maximum aggregate Non-Executive Director remuneration for FY13 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 FY14. 11 mirvac group annual report 2013 Directors’ report 2 AlIgnMent of ReMuneRAtIon stRAtegy wItH 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 setting the standard as a world-class Australian property group that attracts the best. 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) high performing people and culture; and 4) health, safety, environment and sustainability (“HSE&S”) leadership. The at-risk components of executive reward (i.e. Mirvac’s STI and LTI schemes) 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. ouR stRAtegIC DRIVeRs... ARe RefleCteD In stI peRfoRMAnCe MeAusRes... AnD ltI peRfoRMAnCe MeAsuRes... so MIRVAC’s ACtuAl peRfoRMAnCe... DIReCtly AffeCts wHAt eXeCutIVes ARe pAID. Relative tsR Measures the performance of Mirvac securities over time, relative to other entities in a comparison group. Roe Measures Mirvac’s profitability relative to securityholders’ investment in the Group. Effective FY14 ROIC will replace ROE as the LTI measure. from fy11 – fy13: – Mirvac’s TSR was ranked at the 44th percentile relative to its comparison group. In fy13: – Operating earnings were $377.6m, up 3% from $366.3m in FY12. – FY13 ROA result was down from FY12 largely due to the impact of the impairments. In fy13: – Mirvac improved against the external investment community confidence benchmark relative to FY12 results. In fy13: – Mirvac achieved target on 5 out of 6 of the key people measures including a 12% improvement on the employee engagement score from FY12. In fy13: – 83% of the measures on the HSE&S scorecard were assessed as ‘green’. CEO & Managing Director STI outcome in FY13 = 98% of target. Average STI in FY13 for other eligible Senior Executives = 75% of target. LTI vesting outcome in FY13 = 0% of target. Capital efficiency and financial performance Deliver top 3 AREIT returns. Customer and investor satisfaction Provide customers and investors an experience that delivers excellence, consistently exceeds expectations and engenders loyalty. High performing people and culture Have an engaged and motivated workforce with superior skills and capabilities. operating earnings Reflects how much revenue the business has generated for the year, less operating costs. RoA Measures Mirvac’s profitability relative to its total assets. It is calculated by dividing the company’s annual earnings by its total assets. Effective FY14, ROA will be relabelled as ROIC. year-on-year improvement in Consumer Confidence index (“CCI”) An external measure of a variety of attributes that contribute to the confidence that institutional investors have in Mirvac. people “scorecard” The balanced scorecard includes measures such as talent turnover, diversity targets and employee engagement. Performance is assessed based on the proportion of those measures where targets were met. Hse&s leadership Be recognised as a leader in sustainability. Provide workplaces free from harm and supported by a culture where safety remains an absolute priority. Hse&s leadership “scorecard” The HSE&S priorities are graded using a traffic light system. Mirvac looks at what proportion of those measures are rated ‘green’. 12 mirvac group annual report 2013 2 AlIgnMent of ReMuneRAtIon stRAtegy wItH busIness stRAtegy / ContInueD The following table sets out the actual value of the remuneration receivable by the Senior Executives during the year. The figures in this table are different from those shown in the accounting table in section 4(h). The main difference between the two tables is that the accounting table in section 4(h) includes an apportioned accounting value for all unvested LTI grants 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 Senior Executives. Fixed remuneration $ Year STI 1 $ LTI 2 $ Employee Termination benefits $ loans 3 $ Other $ Total $ senior executives Susan Lloyd-Hurwitz 4 2013 990,134 724,035 Andrew Butler Brett Draffen 2013 2012 2013 2012 618,000 618,000 900,000 1,000,000 401,929 308,876 549,423 464,800 — — — — 238,584 650,071 604,279 943,311 810,080 Gregory Dyer 6 2013 583,230 — — — Gary Flowers 2013 2012 585,000 648,900 319,410 433,790 — 126,608 290,723 266,158 Jonathan Hannam 7 2013 258,619 141,206 Bevan Towning 9 2013 588,948 163,800 — — — — — — 592,716 5 2,306,885 — — — — — — — — — 8,727 8,918 1,678,727 1,540,073 14,403 15,231 2,407,137 2,528,695 8,899 592,129 9,106 8,962 1,204,239 1,484,418 8,213 8 408,038 9,725 762,473 former senior executives Nicholas Collishaw Justin Mitchell 2013 2012 2013 2012 502,745 1,500,000 — 1,080,000 — 1,058,378 895,508 773,283 1,188,462 — 174,956 700,001 — 470,400 — 88,023 650,071 604,279 687,580 — 1,280 24,735 3,738 11,403 2,587,995 4,436,396 1,516,345 1,874,106 1) STI values reflect payments to be made in September 2013 in recognition of performance during FY13. 2) LTI amounts represent the value to the participant during FY13 arising from performance rights whose performance period ended 30 June 2013. 3) Amount reported includes amounts forgiven during the year, imputed interest and related fringe benefits tax (“FBT”). 4) Commenced employment with Mirvac on 5 November 2012. 5) Includes relocation expenses and a payment of $530,000 as part compensation for the STI and LTI entitlements the Managing Director forfeited on resigning from her previous employer. 6) Commenced employment with Mirvac on 4 September 2012. 7) Commenced employment with Mirvac on 9 January 2013. 8) Includes relocation expenses. 9) Commenced employment with Mirvac on 9 July 2012. 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 the remuneration approach 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. The HRC 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. More detailed information on the role and responsibilities of the HRC can be found in section 9 of the Corporate Governance Statement, while information on each of the HRC members can be found on page 8 and 9 of the Annual Report. The HRC regularly reviews the at-risk components of executive remuneration (that is the STI and LTI schemes) to ensure that the executive remuneration approach 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 STI and LTI outcomes. 13 mirvac group annual report 2013 Directors’ report 3 MIRVAC’s AppRoACH to eXeCutIVe ReMuneRAtIon DesIgn / ContInueD 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 Executive, Services. In addition, the HRC has appointed Ernst & Young as its external remuneration adviser. 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 2013, 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. c) Market positioning Consistent with these principles, 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 pay 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 remuneration is comprised of fixed remuneration, STI and LTI. 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 targets are not met or exceeded each year. As described further in section 4(b), commencing FY14, 25 per cent of STI awards to ELT members will be deferred into rights over Mirvac securities. This change was introduced to support the introduction of the incentive clawback policy, and to further align pay outcomes with Mirvac’s longer term security price performance. 14 mirvac group annual report 2013 3 MIRVAC’s AppRoACH to eXeCutIVe ReMuneRAtIon DesIgn / ContInueD In order to facilitate the introduction of STI deferrals, effective FY14, the STI targets for ELT members (other than the Managing Director) will increase by 10 per cent of fixed remuneration, while the LTI targets will reduce by 10 per cent of fixed remuneration. The STI and LTI targets for the Managing Director will remain unchanged. The following graphs compare the remuneration mix at target for the Managing Director and other Senior Executives during FY13 with the mix after the introduction of STI deferral in FY14. Existing Target Pay Mix New Target Pay Mix 46% 23% 31% 37% 26% 37% 46% 6% 17% 31% 33% 8% 22% 37% Managing Director Other Senior Executives Managing Director Other Senior Executives Fixed remuneration Target short-term incentive Long-term incentive Fixed remuneration Target short-term incentive Cash Target short-term incentive Deferred Long-term incentive The introduction of STI deferral in FY14 will also serve to ensure executives are rewarded for sustained performance over the longer term. FY14 FY15 FY16 Fixed Remuneration Short Term Incentive – Cash Short Term Incentive Deferred (12 months) Short Term Incentive Deferred (24 months) Long Term Incentive The remuneration mix for Senior Executives has a significant weighting towards equity-based remuneration to ensure strong alignment with securityholder interests. The following graph illustrates the cash versus equity remuneration mix for the Managing Director and other Senior Executives following the introduction of STI deferrals in FY14. Mix of cash vs equity 52% 48% 41% 59% Managing Director Other Senior Executives Cash Equity 15 mirvac group annual report 2013 Directors’ report 3 MIRVAC’s AppRoACH to eXeCutIVe ReMuneRAtIon DesIgn / ContInueD Minimum Securityholding Guidelines for ELT members were introduced in FY12 in order to further weight executives’ remuneration mix towards equity. Under the Guidelines, ELT members are expected to establish and maintain a securityholding to the value of: Level CEO & Managing Director Other ELT members Minimum securityholding 100% of fixed remuneration 50% of fixed remuneration Executives covered by the Minimum Securityholding Guidelines have five years to build up their securityholding to the suggested level. As at 30 June 2013, progress towards the Minimum Securityholding Guidelines for each continuing Senior Executive was as follows: Senior Executives Susan Lloyd-Hurwitz Andrew Butler Brett Draffen Jonathan Hannam Date securityholding to be attained Value of securityholdings Minimum securityholding guideline ($) as at 30 June 2013 ($) November 2017 July 2017 July 2017 January 2018 — 139,796 473,606 — 1,500,000 309,000 450,000 270,000 4 ReMuneRAtIon CoMponents AnD outCoMes foR tHe senIoR eXeCutIVes At Mirvac, the three components of executive remuneration – fixed remuneration, STI and LTI – 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 market remuneration 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 two Senior Executive members were reduced effective 1 July 2012. To recognise their acceptance of reduced fixed remuneration, the affected executives received increased LTI awards in the FY13 grants, and will similarly receive an increased award in the FY14 grants. The additional awards will be “at risk” to the executive and subject to applicable performance hurdles and service conditions. 16 mirvac group annual report 2013 4 ReMuneRAtIon CoMponents AnD outCoMes foR tHe senIoR eXeCutIVes / 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 responsibility for achieving annual objectives. – Other employees are eligible for a discretionary bonus where management recognises that exceptional individual performance has been achieved. Commencing FY14, all permanent Mirvac employees will participate in the STI plan and discretionary bonuses will no longer apply. 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. – For FY14, the ROA measure will continue to be calculated in the same manner, but will be relabelled as ROIC. This change will ensure consistency between the terminology used in remuneration arrangements and that used when reporting on Mirvac’s performance. – Effective FY14, the weighting on the balanced scorecard for the ROIC measure will increase from 20 to 35 per cent, while the weighting for the operating earnings measure will reduce from 50 to 35 per cent. This change reflects the increased emphasis in Mirvac’s strategy on generating returns on the assets it manages. The gateway operating earnings requirement willcontinue to apply. 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. – FY13 STI targets were 75 per cent of fixed remuneration for the CEO & Managing Director and 70 per cent for other Senior Executives. In order to facilitate the introduction of STI deferrals, effective FY14, the STI targets for ELT members other than the Manager Director will increase by 10 per cent of fixed remuneration. The STI target for the Managing Director will remain unchanged. – 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 Finance Director, divisional performance is also taken into account when determining the final STI award. – Effective FY14, all STI awards will be calculated with reference to only Group and individual performance (that is, divisional performance will no longer form part of the calculation of STI awards). payment form – For STI awards made to ELT members with respect to FY13, 25 per cent of the award will be stI deferral termination/ forfeiture paid in the form of Mirvac securities, with the balance paid as 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. – Commencing FY14, the 25 per cent of any STI award previously paid as securities will instead be deferred into rights over Mirvac securities, with the balance paid as cash. Half of these rights will vest 12 months after award, with the balance vesting after 24 months. – No dividends will be payable on the deferred rights. – If the deferred rights vest, entitlements will be satisfied by the purchase of existing securities on-market that are then transferred to the participant. – To be eligible for an STI award the executive must be employed on the award date. – From FY14, the deferred portion of an STI award will be forfeited in the event that an employee resigns or is dismissed for performance reasons prior to the vesting date. Unvested deferred STI awards may be retained if an employee leaves due to circumstances such as retirement, redundancy, total and permanent disablement or death. 17 mirvac group annual report 2013 Directors’ report 4 ReMuneRAtIon CoMponents AnD outCoMes foR tHe senIoR eXeCutIVes / ContInueD 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 FY13 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 financial performance and capital efficiency Operating earnings Operating earnings reflect how much revenue the business has generated, less its operating costs. Return on assets Customer and investor satisfaction Improvement in Investment community confidence High performing people and culture Balanced scorecard of people measures Hse&s leadership Balanced scorecard of HSE&S measures 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. Effective FY14, the ROA measure will continue to be calculated in the same manner, but will be relabelled as ROIC. Measures Mirvac’s year-on- year improvement against an independent external benchmark of Investment community confidence. The balanced scorecard includes measures such as talent turnover, diversity targets, and employee engagement. Performance is assessed based on the proportion of those measures where targets were met. The ‘balanced scorecard’ of HSE&S grades a suite of measures using a traffic light system. Measures include lost time injury frequency rate and proportion of waste reused or recycled. Mirvac looked at what proportion of those measures were rated ‘green’, which corresponds to an industry leading level of performance. 50 20 10 10 Reflects the underlying performance of Mirvac’s core business operations and represents a key driver of securityholder value. Reflects how efficiently Mirvac is using its assets to generate earnings. Represents how well Mirvac is meeting the expectations of key external stakeholders. 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, plan and stretch goal is set at the start of the financial year. The STI score for each performance level is calculated according to the following schedule: Performance level < Threshold Threshold Plan Stretch > Stretch A sliding scale operates between threshold and plan, and between plan and stretch. STI score (% Target) 0 75 100 150 150 18 mirvac group annual report 2013 4 ReMuneRAtIon CoMponents AnD outCoMes foR tHe senIoR eXeCutIVes / ContInueD Group and Divisional STI scores The process for determining the FY13 Group STI and Divisional STI scores was as follows: Operating earnings gateway Requirement for operating earnings to be at least 90 per cent of target before STI is payable. Calculation of STI scores for each balanced scorecard measure Operating earnings ROA Customer & Investor Satisfaction People scorecard HSE&S scorecard Raw Group STI score is a number between 0 and 150 based on weighted average of STI scores for each measure on the balanced scorecard. Calculation of raw Group STI score HRC can exercise informed judgement to adjust the raw Group STI score up or down in order to ensure payments are consistent with Mirvac’c renumeration strategy, and appropriately align with performance outcomes. HRC determines final Group STI score Divisonal STI scores determined STI scores are also assigned to divisions, based on an assessment of their relative contribution to the Group result. Individual STI score Each participant is awarded an individual STI score 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. Calculation of STI awards Once the Group, Divisional and Individual STI scores are determined, an individual’s STI award is calculated as follows: Fixed remuneration Individual STI target Group/ Divisional STI score Individual STI score Individual STI award c) the stI component: how was reward linked to performance this year? STI pool in FY13 The Group operating earnings gateway was achieved in FY13 which meant that an STI pool was formed. The following graph summarises Mirvac’s performance against each of the measures on the balanced scorecard for the year ended 30 June 2013: 3 1 Y F r o f e c n a m r o f r e p p u o r G Weighting: 50% % of Plan awarded = 105% Weighting: 20% % of Plan awarded = 0% Financial (Operating earnings) Capital efficiency (ROA%) Weighting: 10% % of Plan awarded = 76% Weighting: 10% % of Plan awarded = 100% Weighting: 10% % of Plan awarded = 83% Customer and investor satisfaction (% Improvement on CCI score) High performance people & culture (People scorecard) Health, Safety, Environment & Sustainability (HSE&S scorecard) Stretch Plan Threshold 19 mirvac group annual report 2013 Directors’ report 4 ReMuneRAtIon CoMponents AnD outCoMes foR tHe senIoR eXeCutIVes / ContInueD In light of Mirvac’s performance against these five measures for the year ended 30 June 2013, the HRC approved an STI pool equivalent to 78 per cent of target, compared to a maximum potential pool of 150 per cent of target. The resulting STI pool for FY13 was $11.2m which represented 3 per cent of Mirvac’s operating profit. The STI pool in FY13 was smaller than the STI pool in FY12. This was largely due to Mirvac failing to meet the threshold performance levels on the ROA measure in FY13 as a result of the impairments announced during the year. FY13 STI awards for the Senior Executives The following table shows the actual STI outcomes for each of the Senior Executives for FY13. 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. senior executives Susan Lloyd-Hurwitz Andrew Butler Brett Draffen Gregory Dyer Gary Flowers Jonathan Hannam Bevan Towning former senior executives Nicholas Collishaw Justin Mitchell STI max % of fixed remuneration Actual STI % max STI forfeited % max Actual STI (total) $ 150 140 140 140 140 140 140 150 140 49 46 44 — 39 39 20 — — 51 54 56 100 61 61 80 100 100 724,035 401,929 549,423 — 319,410 141,206 163,800 — — d) the ltI component: how does it work? 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. Key details of the LTP plan are set out in the table below. – LTP grants are generally restricted to those 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 dividends are paid on unvested LTI awards. This ensures that executives are only rewarded when performance hurdles have been achieved at the end of the performance period. – No loans are made to participants under this plan. – The maximum LTI opportunities during the year ended 30 June 2013 were equivalent to 150 per cent of fixed remuneration for the CEO & Managing Director, and 100 per cent of fixed remuneration for other Senior Executives. – Effective 1 July 2013, the maximum LTI opportunity for Senior Executives other than the Managing Director will be reduced to 90 per cent of fixed remuneration, with a commensurate increase in STI opportunity to facilitate the introduction of STI deferral. These reductions form part of the adjustments to remuneration mix for ELT members made to facilitate the introduction of STI deferrals. – 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 (“ERP”), 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 value to the individual associated with their ERP participation. – A table included later in this section sets out full details of the performance rights granted to Senior Executives under the LTP during FY13. eligibility Instrument grant value 20 mirvac group annual report 2013 4 ReMuneRAtIon CoMponents AnD outCoMes foR tHe senIoR eXeCutIVes / ContInueD performance hurdles – The HRC reviews the performance conditions annually to determine the appropriate hurdles based on Mirvac’s strategy and prevailing market practice. Consistent with the approach used for the FY12 LTI grants, two performance measures apply to the LTI grants made during FY13: 50 per cent of the LTI allocation will be tested against a relative TSR hurdle and 50 per cent against a ROE hurdle. – 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 below. – ROE is used as the second performance condition because it is aligned to Mirvac’s strategic drivers, in particular financial performance and capital efficiency. ROE measures how well management has used securityholder funds and reinvested earnings to generate additional earnings for securityholders. – For FY14, ROIC will replace ROE as an LTI hurdle. The rationale behind this is to ensure improved alignment between Mirvac’s business strategy, incentive scheme measures and external market communications. Following this change, 50 per cent of the LTI allocation will be tested against a relative TSR hurdle and 50 per cent against a ROIC hurdle. – 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. – ELT members will be expected to retain the securities they receive as a result of the vesting of performance rights until they satisfy the Minimum Securityholding Guidelines. – If an employee resigns or is dismissed, all their unvested performance 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. – 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. Vesting/delivery termination/forfeiture Hedging – Consistent with the Corporations Act 2001, participants are prohibited from hedging their unvested performance rights or options. Relative TSR performance hurdle For the grant made during FY13, the vesting outcome for half of the award 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 following vesting schedule: Performance levelAMP Life Limited J P Morgan Nominees Limited Citicorp Nominees Pty Limited Westpac Custodian Nominees Limited Equity Trustees Limited RBC Investor Services Australia Nominees Pty Limited Bond Street Custodians Limited Aust Executor Trustees SA Limited UBS Wealth Management Australia Nominees Pty Limited HSBC Custody Nominees (Australia) Limited RBC Investor Services Australia Nominees Pty Limited HSBC Custody Nominees (Australia) Limited QIC Limited Suncorp Custodian Services Pty Limited Argo Investments Limited Total for 20 largest securityholders Total other securityholders total stapled securities on issue Number of securityholders holding less than a marketable parcel: 2,219. 1,259,005,928 699,694,244 550,152,862 312,347,604 142,958,763 76,207,117 66,838,725 56,609,693 37,966,248 19,834,654 12,461,273 11,421,755 11,401,011 10,981,552 9,931,360 7,724,639 6,872,917 6,453,541 5,589,373 5,000,551 3,309,453,810 355,484,868 3,664,938,678 34.4% 19.1% 15.0% 8.5% 3.9% 2.1% 1.8% 1.5% 1.0% 0.5% 0.3% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2% 90.3% 9.7% 100.0% 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. 112 mirvac group annual report 2013 glossAry oF Acronyms AAS AASB AFS AGM ANZ APES ARCC A-REIT ARSN ASIC ASX CBD CCI CEO CGU CMBS CPI CPSS CR DCF DRP EEO EEP EIP EIS ELT EPS ERP FBT FTE FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 GST HRC HSE&S IAS IASB IFRS IPUC ISO JFG KMP KPI LLC LSL LTI LTIP LTP MAM MIM MGR MPT MTN NABERS NCI NGER NPV NRV NTA OOP PPE PwC ROA ROE ROIC SBP SoCI SoFP SPP SPV STI TAC TSR WALE WOT Australian Accounting Standards Australian Accounting Standards Board 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 Australian Registered Scheme Number Australian Securities and Investments Commission Australian Securities Exchange Central business district Consumer Confidence Index Chief Executive Officer Cash generating unit Commercial mortgage backed securities Consumer Price Index Cents per stapled security 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 stapled security Executive Retention Plan Fringe benefits tax Full time equivalent 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 ended 30 June 2013 Year ending 30 June 2014 Year ending 30 June 2015 Goods and services tax Human Resources Committee Health, safety, environment and sustainability 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 (and ASX code) Mirvac Property Trust Medium term note National Australian Built Environment Rating System Non-controlling interest National Greenhouse and Energy Reporting Act 2007 Net present value Net realisable value Net tangible assets Owner-occupied properties Property, plant and equipment PricewaterhouseCoopers Return on assets Return on equity Return on invested capital Share based payments Statement of comprehensive income Statement of financial position Security purchase plan Special Purpose Vehicle Short term incentives Transport Accident Commission Total securityholder return Weighted average lease expiry Westpac Office Trust 113 mirvac group annual report 2013 Directory Registered office/principal office Mirvac Group (comprising Mirvac Limited ABN 92 003 280 699 and Mirvac Funds Limited ABN 70 002 561 640, AFSL 233 121 as responsible entity of Mirvac Property Trust ARSN 086 780 645) 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) Susan Lloyd-Hurwitz (CEO & Managing Director) Marina Darling Peter Hawkins James Millar AM John Mulcahy John Peters Elana Rubin Company secretary Natalie Allen stapled security registry Link Market Services Limited Level 12 680 George Street Sydney NSW 2000 Telephone 1800 356 444 securityholder enquiries Telephone + 61 1800 356 444 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 Annual general/general Meeting Mirvac’s 2013 AGM will be held at 10.00 am (Australian Eastern Daylight Time) on Thursday, 14 November 2013, RACV Club, Level 17, 501 Bourke Street, Melbourne, 3000 VIC. 114 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. mirvac group annual report 2013