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).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

Goodman Property Trust / Equity Bottom-Up

<h2>Goodman Property Trust<br>1H22 Result&nbsp;— In its Prime</h2>
<div></div>
<p><strong>UNDERPERFORM</strong></p>
<p>Goodman Property Trust (GMT) has reported a solid 1H22 result, with cash earnings +8.7% yoy to NZ$46.0m. Earnings came in ahead of our expectations largely due to lower maintenance capex. Portfolio metrics remain solid and low market vacancy (&lt;1%) coupled with strong occupier demand has seen market rents lift materially over the past six months. GMT also announced further tenant led developments at Highbrook and leasing up of the remaining uncommitted space at Favona Rd and M20. While the operating environment is clearly buoyant this has not been lost on the share price with GMT trading materially ahead of the sector with a c.35x P/E and a cash yield of 2.3%. UNDERPERFORM.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/241/271/original/image_35774101641636680454766.png?1636680453" class="editor-image img-responsive" data-smartkarma-image-id="241271"></figure>
<div>
<h3>What's changed?&nbsp;</h3>
</div>
<div id="m_-2665218159015417566iwrmo3">
<ul>
<li><strong>Earnings</strong>:&nbsp;FY22–24E DPS +0.4%/+0.9%/+0.6%</li>
<li><strong>Target price</strong>:&nbsp;+5cps to NZ$2.30/share</li>
</ul>
</div>
<div>
<h3>Healthy industrial market rent growth</h3>
</div>
<div id="m_-2665218159015417566igl9g">
<p>GMT reported +5.1% like-for-like underlying rent growth and +9.7% rent growth on leasing deals, highlighting strong occupier demand for industrial space. GMT believes its portfolio is now 9% under-rented (or annual rent of NZ$16.3m).&nbsp;The lease up of vacancy lifted occupancy to 99.5% with a weighted average lease term of&nbsp;5.8 years including pre-leased developments. There was no change to FY22 guidance of&nbsp;cash earnings per share of 6.5cps and DPS of 5.5cps&nbsp;with higher management fees likely offsetting the&nbsp;more positive operating backdrop.</p>
</div>
<div>
<h3>Development remains the capital destination of choice</h3>
</div>
<div id="m_-2665218159015417566ivi5i">
<p>GMT currently has NZ$354m of developments in progress that are 79% pre-leased and expected to deliver a 5.5% yield on cost. NZ$104m of new developments were added to the pipeline in 1H22 with a yield on cost of 5.1%. This includes a higher yielding office building at Highbrook as well as two sheds with &lt;5% yield on cost. While development yields remain attractive vs. GMT's portfolio cap rate of 4.2% and recent transaction yields at c.3.5%, rising build costs (up 10–20% over the last six months) are clearly pressuring project economics. With low market vacancy this is helping to force up rents in new developments.</p>
</div>
<div>
<h3>Good industrial but still expensive</h3>
</div>
<div id="m_-2665218159015417566idd01">
<p>GMT is now trading below its NTA&nbsp;but asset values have lifted by c.33% over the last 12 months. This is unlikely to continue given rising interest rates. On an earnings yield basis&nbsp;GMT's&nbsp;spread to 10 year bond yields is at its lowest since 2008 and while industrial demand and rent growth remains strong&nbsp;GMT's&nbsp;valuation remains more elevated than peers. We see better value elsewhere in the sector and retain our UNDERPERFORM rating.</p>
</div>

Goodman Property Trust 1H22 Result&nbsp;— In its Prime

UNDERPERFORM
Goodman Property Trust (GMT) has reported a solid 1H22 result, with cash earnings +8.7% yoy to NZ$46.0m. Earnings came in ahead of our expectations largely due to lower maintenance capex. Portfolio metrics remain solid and low market vacancy (&lt;1%) coupled with strong occupier demand has seen market rents lift materially over the past six months. GMT also announced further tenant led developments at Highbrook and leasing up of the remaining uncommitted space at Favona Rd and M20. While the operating environment is clearly buoyant this has not been lost on the share price with GMT trading materially ahead of the sector with a c.35x P/E and a cash yield of 2.3%. UNDERPERFORM.


What's changed?&nbsp;



Earnings:&nbsp;FY22–24E DPS +0.4%/+0.9%/+0.6%
Target price:&nbsp;+5cps to NZ$2.30/share



Healthy industrial market rent growth


GMT reported +5.1% like-for-like underlying rent growth and +9.7% rent growth on leasing deals, highlighting strong occupier demand for industrial space. GMT believes its portfolio is now 9% under-rented (or annual rent of NZ$16.3m).&nbsp;The lease up of vacancy lifted occupancy to 99.5% with a weighted average lease term of&nbsp;5.8 years including pre-leased developments. There was no change to FY22 guidance of&nbsp;cash earnings per share of 6.5cps and DPS of 5.5cps&nbsp;with higher management fees likely offsetting the&nbsp;more positive operating backdrop.


Development remains the capital destination of choice


GMT currently has NZ$354m of developments in progress that are 79% pre-leased and expected to deliver a 5.5% yield on cost. NZ$104m of new developments were added to the pipeline in 1H22 with a yield on cost of 5.1%. This includes a higher yielding office building at Highbrook as well as two sheds with &lt;5% yield on cost. While development yields remain attractive vs. GMT's portfolio cap rate of 4.2% and recent transaction yields at c.3.5%, rising build costs (up 10–20% over the last six months) are clearly pressuring project economics. With low market vacancy this is helping to force up rents in new developments.


Good industrial but still expensive


GMT is now trading below its NTA&nbsp;but asset values have lifted by c.33% over the last 12 months. This is unlikely to continue given rising interest rates. On an earnings yield basis&nbsp;GMT's&nbsp;spread to 10 year bond yields is at its lowest since 2008 and while industrial demand and rent growth remains strong&nbsp;GMT's&nbsp;valuation remains more elevated than peers. We see better value elsewhere in the sector and retain our UNDERPERFORM rating.


Goodman Property Trust: 1H22 Result — In Its Prime