New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Goodman Property Trust / Equity Bottom-Up

<h2>Goodman Property Trust</h2>
1H20 result — In Their Prime
Goodman Property Trust (GMT) delivered an operating result close to expectations and announced a +6% interim revaluation gain which lifted NTA to NZ$1.73. Also as expected, GMT confirmed its flat earnings and dividend outlook for FY20 and we have not changed our forecasts.&nbsp;GMT is trading materially ahead of the sector with a ~31x PE, 3.2% cash yield, 3.0% AFFO yield and 1.21x P/NTA. Our rating remains UNDERPERFORM.
What’s changed?
<ul>
<li>Target Price: Our NAV has lifted slightly on the back of the revaluation and our DCF has drifted up given time value of money change. This has resulted in our target price lifting from NZ$1.83 to NZ$1.92.&nbsp;&nbsp;</li>
</ul>
Broadly in line numbers and flat guidance reiterated
The underlying GMT numbers were slightly below our expectations of a small decline in distributable profit per unit as a result of the dilutionary effect from asset sales. Cash earnings (AFFO) per unit was 3.1cpu, down -4% and in line with our 3.21cpu forecast. GMT’s flat EPU and DPU guidance has been maintained (DPU has been flat since FY16). The 1H20 dividend of 3.33cpu is 106% pay-out of cash earnings. The 2Q20 dividend is 1.66cpu with a record date of 28 November, and payment on 12 December. Following the revaluation and recent equity issue, committed gearing is a low 20.6% and current gearing is 17.9%.
Large interim revaluation lifting NTA +10%
Of most interest in the result was the full interim revaluation which is rare for the LPV sector, but not totally unexpected this round given strength in industrial/office assets. The revaluation highlights the strength in the Auckland prime industrial market (to which GMT is 100% weighted) both in terms of market rental growth (one third of the uplift) and cap rate compression (two thirds of the uplift). The portfolio valuation was up +6% with the average cap rate 5.3%. Recent acquisitions and developments now have sub 5% cap rates. The NTA is up +10% to NZ$1.73.
Portfolio strength
The portfolio remains full at 99.5% occupancy, with a 5.5 year WALT and lease expiry outlook that is well under control. GMT has a very well positioned and unique portfolio centred on the prime Auckland industrial market. Tenants remain with few options and rental growth is as strong as it has ever been. GMT indicated underlying like-for-like net rental growth was a strong +3.4%, and this, combined with new income from completed developments, largely offset the dilution from asset disposals. GMT has nine new industrial projects under development. Additionally, 15 build to lease warehouses were completed over the last 12 months and all are fully leased.&nbsp;
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Investment View
GMT is executing well on its recycling and brownfield development strategy, with its portfolio now weighted ~100% to Auckland industrial. Auckland industrial remains the top performing property sector, with strong occupier demand and record low vacancy. However, these positive drivers are reflected in GMT’s share price which has materially outperformed peers. We maintain our UNDERPERFORM rating which reflects our view on GMT’s valuation relative to other listed property vehicles.
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Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Goodman Property Trust
1H20 result — In Their Prime
Goodman Property Trust (GMT) delivered an operating result close to expectations and announced a +6% interim revaluation gain which lifted NTA to NZ$1.73. Also as expected, GMT confirmed its flat earnings and dividend outlook for FY20 and we have not changed our forecasts.&nbsp;GMT is trading materially ahead of the sector with a ~31x PE, 3.2% cash yield, 3.0% AFFO yield and 1.21x P/NTA. Our rating remains UNDERPERFORM.
What’s changed?

Target Price: Our NAV has lifted slightly on the back of the revaluation and our DCF has drifted up given time value of money change. This has resulted in our target price lifting from NZ$1.83 to NZ$1.92.&nbsp;&nbsp;

Broadly in line numbers and flat guidance reiterated
The underlying GMT numbers were slightly below our expectations of a small decline in distributable profit per unit as a result of the dilutionary effect from asset sales. Cash earnings (AFFO) per unit was 3.1cpu, down -4% and in line with our 3.21cpu forecast. GMT’s flat EPU and DPU guidance has been maintained (DPU has been flat since FY16). The 1H20 dividend of 3.33cpu is 106% pay-out of cash earnings. The 2Q20 dividend is 1.66cpu with a record date of 28 November, and payment on 12 December. Following the revaluation and recent equity issue, committed gearing is a low 20.6% and current gearing is 17.9%.
Large interim revaluation lifting NTA +10%
Of most interest in the result was the full interim revaluation which is rare for the LPV sector, but not totally unexpected this round given strength in industrial/office assets. The revaluation highlights the strength in the Auckland prime industrial market (to which GMT is 100% weighted) both in terms of market rental growth (one third of the uplift) and cap rate compression (two thirds of the uplift). The portfolio valuation was up +6% with the average cap rate 5.3%. Recent acquisitions and developments now have sub 5% cap rates. The NTA is up +10% to NZ$1.73.
Portfolio strength
The portfolio remains full at 99.5% occupancy, with a 5.5 year WALT and lease expiry outlook that is well under control. GMT has a very well positioned and unique portfolio centred on the prime Auckland industrial market. Tenants remain with few options and rental growth is as strong as it has ever been. GMT indicated underlying like-for-like net rental growth was a strong +3.4%, and this, combined with new income from completed developments, largely offset the dilution from asset disposals. GMT has nine new industrial projects under development. Additionally, 15 build to lease warehouses were completed over the last 12 months and all are fully leased.&nbsp;

Investment View
GMT is executing well on its recycling and brownfield development strategy, with its portfolio now weighted ~100% to Auckland industrial. Auckland industrial remains the top performing property sector, with strong occupier demand and record low vacancy. However, these positive drivers are reflected in GMT’s share price which has materially outperformed peers. We maintain our UNDERPERFORM rating which reflects our view on GMT’s valuation relative to other listed property vehicles.

Jeremy Simpson, CFA jeremy.simpson@forsythbarr.co.nz +64 9 368 0022

Goodman Property Trust: 1H20 Result — In Their Prime