By Jenny Ruth
Thursday 10th February 2011
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Industrial demand has become more stable over the last six months, leading to an increasing likelihood of a modest but steady stream of developments from Goodman Property Trust, says Buffy Gill, an analyst at Goldman Sachs & Partners.
"These developments are, however, becoming more marginal from an initial yield on cost perspective due to a higher capitalised interest cost base being held against the land," Gill says.
She expects keeping Goodman's loan-to-valuation ratio in its preferred range of 35% to 40% will likely mean underwriting of three quarterly dividend reinvestment plans (DRPs) over the next two years.
"Our near-term rental forecasts have increased 1% to 7% due to the incorporation of a development roll-out but our dividend per unit estimates have reduced by about 1% to 2% due to the dilution from the underwrites," Gill says.
A potential upside case would be if Goodman used asset sales to fund development instead of DRP underwrites. Selling Vector Centre, OnGas House and Air NZ House would keep gearing below 40% without DRP underwrites and would be earnings per unit neutral, she says.
At current levels, Goodman provides the second highest yield in the sector at 8.2% for the year ending March 2011. The sector average yield is 7.3%, Gill says.
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