Mirvac reported positive results for the 2016 financial year as operating EBIT increased by 7% to $640 million. The greatest contributor to operating EBIT is the group’s assets in the Office & Industrial segment as it makes up 56% of the Group’s EBIT. Mirvac’s portfolio in this segment has a 93% exposure to prime grade assets with 81% of the portfolio being assets which are in Melbourne or Sydney. The real driver of the EBIT growth however is Mirvac’s residential property segment which experienced EBIT growth of 51% due to strong conditions in Melbourne and Sydney residential property markets over the period.   The development business (93% residential) is subject to ongoing settlement risk (driven by lending restrictions) but we are confident that management will manage this exposure prudently given their track record of low default rates. This is supported by the group’s passive high quality investment portfolio (which is delivering stable returns) and third party funds management strategy (in its early stages).   Over the period, net debt decreased by 6% to $2.3 billion. This resulted in a gearing ratio of 21.9% (down from 24.3%) which at the low end group’s gearing policy range of 20 – 30%. These metrics are expected to deteriorate modestly in 2017 as Mirvac ramps up residential developments but on-balance sheet exposure will be restricted to $2 billion.   Click here for updated research.