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GMT Delivering on Strategy

Wednesday, 12 November 2014

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 2014.

Additional revenue from completed development projects, a lift in portfolio occupancy and modest rental growth, together with fair value gains on certain property assets have been the main contributors to the Trust's strong financial performance.
Financial and operational highlights include:

+   A 4.9% increase in net rental and related income to $66.2 million.
+  Distributable earnings1 before tax of $55.5 million or 4.53 cents per unit on a weighted average issued unit basis, compared to 4.18 cents per unit recorded in the previous period.
+  Profit before tax of $65.3 million, compared to $70.1 million previously. The variance is mainly attributable to a decrease in the value of the Trust's interest rate swaps.
+  New development and infrastructure projects totalling $77.9 million.
+  An active sales programme with three asset sales, totalling $45.2 million sold during the period.
+  Gains of $18.0 million from asset sales and the revaluation of certain investment and development properties.
+  Net tangible assets of 102.1 cents per unit, compared to 100.4 cents per unit at 31 March 2014.

Keith Smith, Chairman and Independent Director of Goodman (NZ) Limited said, "The Board is extremely pleased with the progress that has been achieved in the first six months of the year. Pursuing a more active property strategy and refinements to the governance and management structures are business enhancements that reinforce GMT's position as New Zealand's leading industrial and business space provider."

A proven development capability has contributed to the growth of GMT into one of the country's largest listed entities, over the last 10 years.
A focus on development led growth, as the economy continues to expand, is realising the value in the Trust's strategic land investments and improving an already high quality property portfolio. 
John Dakin, Chief Executive Officer of Goodman (NZ) Limited said, "A successful asset sales programme is funding an increasing volume of development activity. It is delivering strong profits and sustainable earnings growth for GMT." 

Converting the Trust's land holdings into income producing assets is an important business objective that is contributing to the growth in GMT's distributable earnings. 

Distributable earnings2 before tax have increased in-line with earlier guidance to 4.53 cents per unit on a weighted average issued unit basis. The 8.4% increase from the 4.18 cents per unit recorded in the previous period reflects greater net rental income and lower cash expenses following refinements to the management fee structure. 
Unitholders voted overwhelmingly in support of a revised fee structure at the annual meeting in August. The new base fee arrangement features;

+  a rebate equivalent to the fee incurred on development land; and
+  the issue of GMT units as consideration for the payment of the fund fee, for a period of up to five years.

Further information on the financial result, including the reconciliation between profit and distributable earnings, is provided in the appendix of this announcement. 

The financial statements for the six months ended 30 September 2014 are presented in the Trust's interim report. The report was released today and can be viewed at http://interim.goodmanreport.co.nz/

Portfolio overview

A growing economy is continuing to have a positive impact on customer demand with increasing levels of development activity and positive leasing outcomes supporting the Trust's strong operating result.
Summary highlights include:

+  New development and infrastructure projects adding over 35,000 sqm of rentable area and 600 covered car parks to the portfolio. These projects are expected to generate $6.2 million of annual income once completed.
+  A successful asset recycling programme with $45.2 million of sales contributing $4.3 million of gains to the interim result.
+  Leasing transactions securing 71,000 sqm of office and industrial space on new or revised terms.
+  Portfolio occupancy of 97% and a weighted average lease term of 5.5 years across the portfolio.
John Dakin said, "We've refined the strategy of GMT to take advantage of current market conditions. A focus on organic growth is enhancing the quality of the portfolio and delivering strong investment returns for the Trust." 
The value of GMT's development activity is reflected in the fair value gains of $14.5 million recorded at 30 September 2014. The gains, which result from the valuation of certain development projects, have contributed to the 1.7% uplift in net tangible assets since 31 March 2014. 
John Dakin, said "Advancing the development programme and growing cash earnings has been a real focus over the last 18-24 months. The benefit of this effort is reflected in the increased volume of projects currently underway and the valuation gains that this activity is generating." 
With continuing demand from new business customers it is expected that GMT will commence more than $100 million of new development projects this financial year.

Asset recycling

A buoyant investment market, as local and offshore investors compete for prime stock, has resulted in asset sales being the preferred source of funding for new development projects.

GMT has taken advantage of the strong demand by selling three assets, for a total of $45.2 million, during the period. A further $18.9 million of unconditional sales were contracted shortly after the Trust's interim balance date.
John Dakin, said "Financing new development and investment activity through asset recycling is facilitating the Trust's business growth while preserving its balance sheet capacity."
GMT's loan to value ratio was 36.5% 3 at 30 September 2014, well within the Board's targeted band of 35% to 40%.

New investment initiative

A more active strategy has been further demonstrated with the announcement on 3 November 2014 that GMT is partnering with GIC, a leading global investment firm which manages Singapore's reserves, to co-invest in Auckland's rapidly developing Viaduct Quarter. 

Keith Smith, said "Partnering with a sovereign wealth fund to broaden the Trust's investment strategy in the Viaduct signals an important new direction for GMT. It endorses the quality of the portfolio while increasing the range of capital options available for future investment opportunities." 
The joint venture, which includes GMT's existing Viaduct property interests, will own a portfolio of assets valued at $313 million with a mandate to grow to around $500 million over time. To facilitate the transaction the Trust is selling a 49% interest in two of its existing Viaduct assets:

+  The Air New Zealand Building, which was originally acquired by GMT in 2006 for $55.0 million, is being sold into the joint venture at its March 2014 valuation of $64.0 million.
+  The Fonterra Building, which was acquired ahead of its completion by GMT for $92.6 million, is being sold into the joint venture for $93.2 million.
GMT's current joint venture partner is also selling its 50% interest in the Vodafone, KPMG, Microsoft and HP buildings at its March 2014 valuation of $156.2 million.
GMT will have a 51% interest in the expanded joint venture which will continue the Trust's strategy in the Viaduct, investing in high quality, campus style office properties, occupied by major customers on long term leases.
The new partnership is expected to provide a range of benefits for GMT including,

+  Capacity to reinvest in a growing market segment
+  Access to new office stock in a progressive location
+  Increased asset and customer diversity
+  Greater mix of ownership tenures in an expanded portfolio

John Dakin, said "The introduction of a strongly aligned capital partner will enable GMT to extend and diversify its Viaduct portfolio, maintaining a long term investment of around $250 million." 

Outlook and guidance

A growing economy is continuing to generate strong customer demand for high quality, well located business space. With a stable economic outlook, the market expectation is that current levels of activity will be maintained and that the strong property market fundamentals will continue. 

Keith Smith said, "We have refined our business and implemented new initiatives that have enhanced the Trust. We have also adapted our business strategy, adopting a more active operational approach that is focused on delivering strong profits and sustainable long-term earnings growth." 
The Board has reiterated its distributable earnings guidance for the 2015 financial year of around 9.1 cents per unit before tax. Cash distributions totalling 6.45 cents per unit are expected to be paid. 

For further information please contact:

John Dakin

Chief Executive Officer
Goodman (NZ) Limited
(09) 375 6063
(021) 321 541

Andy Eakin
Chief Financial Officer
Goodman (NZ) Limited
(09) 375 6077
(021) 305 316

Keith Smith
Chairman
Goodman (NZ) Limited
(021) 920 659

Attachments provided to NZX:

  • NZX Appendix 1
  • Investor Presentation
  • GMT and GMT Bond Issuer Interim Report 2014

About Goodman Property Trust:
GMT is an externally managed unit trust, listed on the NZX. It has a market capitalisation of around $1.3 billion, ranking it in the top 15 of all listed investment vehicles. The Manager of the Trust is a subsidiary of the ASX listed Goodman Group, Goodman Group are also the Trust's largest investor with a cornerstone unitholding of 17.6%.

GMT is New Zealand's leading industrial and business space provider. It has a substantial property portfolio with a value in excess of $2.1 billion that accommodates around 260 customers. The Trust holds an investment grade credit rating of BBB from Standard & Poor's.

Appendix: Distributable Earnings Reconciliation 
The following tables are extracted from note 6 to the consolidated financial statements of Goodman Property Trust for the six months 30 September 2014.

6 months 6 months

30 Sep 14
30 Sep 13
$ million     
Profit used in calculating distributable earnings per unit 

 
Profit after income tax used in calculating basic and diluted earnings per unit
60.2 65.4
Gain on disposal of investment property
(4.3)  
Unrealised movement in fair value of property investments
(13.7) (6.1)
Realised movement in fair value on disposal of property investments
   
Movement in fair value of derivative financial instruments
4.2 (14.1)
Fund management fee to be settled in GMT units
3.1  
Changes in cash flow hedge reserve
  1.1
Interest on deferred vendor settlements
0.1 0.3
Non-distributable items included in share of profit arising from joint ventures
0.3 (1.2)
Income tax expense included in share of profit arising from joint ventures
0.5 0.2
Income tax expense
5.1 4.7
(a)  Profit used in calculating distributable earnings before tax per unit
55.5 50.3
Tax items included in share of profit arising from joint ventures
(6.1) (7.4)
Depreciation recovered on disposal of investment property
  0.4
Current tax expense funded through brought forward tax losses
(0.4) (0.1)
(b)  Profit used in calculating distributable earnings after tax per unit
0.8  
  6 months 6 months 
Thousands
30 Sep 14
30 Sep 13 
Weighted average number of units used in calculating basic earnings per unit and distributable earnings per unit
1,224,733 1,204,611
Weighted average number of units used in calculating diluted earnings per unit and distributable earnings per unit
 1,262,068 1,241,946
In part consideration for the acquisition of Highbrook Development Limited on 14 December 2012, the Group has agreed to issue 37,335,625 units in GMT no later than 14 December 2015. The number of these units is the only difference between the basic weighted average number of units and the diluted weighted average number of units.
   
  6 months
6 months
  30 Sep 14
30 Sep 13 
Cents
Basic earnings after tax per unit
4.91 5.43
Diluted earnings after tax per unit
4.77 5.26
Basic distributable earnings before tax per unit (a) 4.53 4.18
Diluted distributable earnings before tax per unit (a)
4.40 4.05
Basic distributable earnings after tax per unit (b)
4.28 3.78
Diluted distributable earnings after tax per unit (b)
4.15 3.67

1 Distributable earnings is an alternative performance measure used to assist investors in assessing the Trust's underlying operating performance. Refer to the appendix of this announcement for details on how this measure is calculated.

2 Distributable earnings is an alternative performance measure used to assist investors in assessing the Trust's underlying operating performance. Refer to the appendix of this announcement for details on how this measure is calculated.

3 Net of cash, unamortised bond issue costs and after adjusting for unconditional sales at 30 September 2014. Also includes GMT's share of joint venture debt facility and property assets.