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Goodman profit drops as trust repositions to Auckland industrial property, anticipating growth from online shopping

Monday 28th May 2018

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Goodman Property Trust, the NZX-listed commercial and industrial property investor, saw profit fall in 2018 as it focused on pivoting to the Auckland industrial market, due largely to smaller revaluation gains in the latest year.

Net profit was $194 million in the year ended March 31, from $213.8 million a year earlier, due largely to a smaller fair value gain in the property portfolio of $83.8 million, compared to $114.7 million a year earlier. The company's preferred measure of pre-tax operating earnings was $119.1 million, or 9.25 cents per unit, from $121.7 million a year earlier. That means the company exceeded its expectation for annual pre-tax operating earnings of around 9.1 cents per unit, though that's still down from 9.51 cents in 2017.

Goodman's total property portfolio was worth $2.7 billion as of March 31 from $2.46 billion a year earlier, including $238.6 million worth of property contracted for sale and $114.3 million in joint ventures. Post balance date, the trust agreed to sell a further $323.9 million of its assets, via divesting its 51 percent interest in the VXV Portfolio, owned within its Wynyard Precinct joint venture, to US private equity firm Blackstone for $635 million. That deal is still dependent on approval from the Overseas Investment Office and the freehold landowner.

Assuming that sale goes ahead, 99 percent of the trust's assets will be in industrial land and buildings in Auckland, and its portfolio will be worth $2.2 billion. It says it expects industrial property to benefit from e-commerce and immigration trends and its assets are in key locations close to consumers. The company has increased its exposure to logistics firms with a focus on storage and distribution, with its top 10 customers including New Zealand Post, DHL and Fliway Transport.

To get to that point, Goodman has sold almost $1.2 billion in assets over the past five years, with 73 percent of that coming from selling Auckland office space and 19 percent from assets in Christchurch.

"We’re divesting our remaining office assets and developing high-quality estates such as Highbrook Business Park in East Tamaki. It is a deliberate strategy that reflects the positive investment characteristics of this type of property and the strong growth profile of the country’s largest city," said chief executive officer John Dakin. "The trust’s position as the largest owner and developer of industrial property in New Zealand means it is uniquely placed to benefit from these trends."

The trust announced $165 million of developments in 2018, and another $54 million since balance date. It says it will have strong liquidity after selling its Wynyard Precinct stake, meaning it can further invest in Auckland industrial assets through development pipeline and potential acquisitions.

Goodman has 22 hectares of land left to develop, which would cost about $290 million to develop but have a yield between 8 and 9 percent, and 82 percent of that land is in its Highbrook business park. It noted that new land opportunities are "tightly held and difficult to secure".  

The trust had a look-through loan-to-value ratio of 25 percent compared to 30.6 percent in the previous period, but said this gearing would drop to 20 percent once the VXW sale is completed. It issued two $100 million retail bonds during the year, and repaid $45 million of wholesale bonds in September 2017.

The company will distribute 6.65 cents per unit, as forecast, and the board said it expects cash earnings around 7 cents per unit in 2019.

The units last traded at $1.43, and have gained 14 percent in the past 12 months.


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