GMT interim profit up 47% to $66.4 million before tax

Goodman (NZ) Limited, the manager of Goodman Property Trust (“GMT” or “Trust”) is pleased to announce the Trust’s interim result for the six months ended 30 September 2018.

Major property transactions and the rapid progression of the Trust’s development programme, supported by strong customer demand, is concentrating the portfolio and focusing investment in the Auckland industrial market.

Financial and operational highlights include:

• Statutory profit of $66.4 million before tax, 46.6% higher than the $45.3 million recorded in the previous corresponding period. Fair value gains of $16.8 million on certain investment properties was the main variance.

Adjusted operating earnings[1] of $51.7 million after tax or 4.0 cents per unit on a weighted average unit basis, compared to $51.4 million and 4.0 cents per unit previously.

Cash distributions of 3.325 cents per unit, relating to the first six months, representing around 92% of cash earnings[2].

Strong operating results with portfolio occupancy of 98.4% and a weighted average lease term of 5.5 years.

$209.6 million of development work in progress, with a further $75 million - $100 million of new projects expected to commence this financial year.

The conditional sale of GMT’s 51% share in the joint venture that owns the VXV Portfolio for a gross sale price of $323.9 million.

Substantial balance sheet capacity with a loan to value ratio of 17.5% at 30 September 2018, after contracted sales, and committed gearing of just 25.8%.

Strategic focus

Keith Smith, Chairman of Goodman (NZ) Limited said, “The year to date has seen asset sales, new development projects, positive leasing results and a strategic acquisition add to the positive momentum of the last three years.”

With more than 99% of the Trust’s $2.3 billion property portfolio located in the country’s largest city, GMT’s investment strategy is now almost exclusively focused on the Auckland industrial market.

Keith Smith said, “The focus on Auckland industrial property is contributing to strong financial results and positioning the Trust for sustainable growth over the long-term.”

Detailed information is provided in GMT’s interim report. The report was released today and is available on the Trust’s website at: www.goodman.com/nz.

Portfolio refinement

John Dakin, Chief Executive Officer of Goodman (NZ) said, “Underlying economic drivers remain strong and customer demand for high-quality industrial property continues to exceed supply.”

GMT’s development programme is well advanced with almost $210 million of development projects scheduled for completion over the next eight months.

John Dakin continued, “It’s a substantial level of activity and recent leasing success means these development projects are more than 50% committed. This will increase to around 70% committed as deals that are well progressed are successfully concluded.”

“To ensure GMT can meet future customer requirements we expect to commence another $75 million - $100 million of new development projects this financial year.”

The positive market dynamics that are supporting the intensification of the Trust’s development programme are also being reflected in its portfolio metrics.

At 30 September 2018, the investment portfolio was 98.4% occupied and had a weighted average lease term of 5.5 years. Sustained customer demand and low vacancy were factors also driving strong rental increases on leases subject to market reviews.

Balance sheet capacity

The balance sheet capacity to fund the Trust’s development programme has come through asset disposals.

The conditional sale of the VXV Portfolio in May 2018 largely completes a five-year disposal programme that will have realised over $1.2 billion of capital when it settles. GMT’s 51% share in the joint venture that owns the VXV office assets had a gross sale price of $323.9 million.

John Dakin, said, “The scale of the VXV transaction makes it one of the largest real estate sales in New Zealand. It signals the end of a portfolio rebalancing process that has consolidated the Trust and reinforced its position as New Zealand’s leading provider of high-quality industrial space.”

The Trust has also announced the disposal of 614-616 Great South Road, Greenlane for $11.6 million. The unconditional sale is due to settle later this month.

Taking account of the proceeds from all contracted sales, the Trust’s loan to value ratio as at 30 September 2018 would reduce to just 17.5% of total assets.

John Dakin, said, “Reducing gearing to an historically low level provides the Trust with greater financial flexibility. The priority is to reinvest in the portfolio, completing the development of GMT’s remaining land holdings.”

With just 22 hectares of land remaining, the Trust is also looking to replenish its development pipeline with acquisitions that offer longer-term opportunity through intensification of use or redevelopment.

The purchase of the Foodstuffs Distribution Centre at Roma Road in Mt Roskill is a recent example of this strategic focus. Acquired after the interim balance date for $93 million, the property is leased to the grocery distributor until 2021. The under-utilised site, with older style facilities, offers considerable future potential.

Located at the northern end of SH20 close to the Waterview Tunnel, the property provides quick access to the motorway systems north, south and west.

John Dakin said, “The population within a 20-minute delivery truck radius is estimated to be almost 700,000 people. With warehouse space already supply constrained, the surrounding consumer catchment makes this an ideal location for fulfilment and logistics companies.”

GMT’s committed gearing, including all developments and acquisitions, is 25.8%. It represents around half the level of borrowings permitted under the Trust’s debt covenants.

Guidance and outlook

With a strongly performing portfolio and a stable business outlook, the Trust is expected to deliver a full year result consistent with earlier guidance.

Cash earnings of around 7.0 cents per unit are forecast for the year, with cash distributions of 6.65 cents per unit expected to be paid.

John Dakin said, “We have positioned our business to capitalise on the growth of Auckland, the expansion of e-commerce and rising consumerism. Taking advantage of the positive operating environment and intensifying the development programme with an appropriate mix of design-build and build-to-lease projects remains a key objective.”

“It’s the continuation of a successful strategy that has refined and extended the portfolio since 2014.”

[1] Adjusted operating earnings is a non-GAAP financial measure included to provide an assessment of the performance of GMT’s principal operating activities. Calculation of adjusted operating earnings is as set out in note 4.2 of GMT’s financial statements.

2 Cash earnings is a non-GAAP financial measure that assesses free cash flow, on a per unit basis, after adjusting for borrowing costs capitalised to land and expenditure related to building maintenance. The calculation is set out on slide 7 in the accompanying presentation.

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