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Forsyth Barr

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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>
<p><strong>FY20 Result – Great Expectations</strong></p>
<p><strong>UNDERPERFORM</strong></p>
<p>Goodman Property Trust (GMT) reported a steady FY20 result, in-line with expectations. The key driver of yesterday's -4.4% downward share price movement was GMT's revised distribution policy, which reduced FY21 DPS guidance to 5.30cps or down -20% from 6.65cps in FY20. While we believe high quality industrial assets will navigate the uncertain economic environment ahead relatively well, this is more than factored into GMT's share price with the stock trading on lofty valuation metrics especially when compared to the NZ LPV sector. GMT is currently trading on a cash yield of 2.4%, a forward Adjusted Funds From Operations (AFFO) multiple of 35.3x, and a 27% premium to its net tangible assets (NTA) backing vs. peers on a 4.2% average cash yield, a forward AFFO multiple of 23.9x, and slightly below NTA. This valuation disparity leaves little room for relative upside and we downgrade our rating to UNDERPERFORM.&nbsp;</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/136/694/original/image_15620741621590711260092.png?1590711261" class="editor-image img-responsive" data-smartkarma-image-id="136694"></figure>
<p><strong>What's changed?</strong></p>
<div id="m_2487317538208278387in9wv-2-2-2-2-2-2">
<ul>
<li><strong>Distributions</strong>:&nbsp;FY21/22/23&nbsp;DPS&nbsp;+2%/-9%/-12%</li>
<li><strong>Target price</strong>:&nbsp;Down 2cps to NZ$1.90</li>
<li><strong>Rating</strong>:&nbsp;Downgrade to&nbsp;UNDERPERFORM</li>
</ul>
</div>
<p><strong>Flat cash earnings guidance and revised payout reduces FY21&nbsp;DPS&nbsp;20%&nbsp;yoy</strong></p>
<div id="m_2487317538208278387igu9j-2-2-2-2-2-2">
<p>GMT guided to flat cash earnings of 6.2cps and updated their dividend policy to better cover cash distributions. FY21 DPS guidance is for 5.3cps (down -20% yoy) based on the midpoint of GMT's revised 80–90% cash earnings payout range. Including all capex on GMT's stabilised portfolio, this equates to a c.100% cash payout. Furthermore, GMT's version of cash earnings does not adjust for performance fees which are paid in units and totalled NZ$11.2m in FY20. Continuation of large performance fees are likely over the medium term given GMT's significant FY20 outperformance vs. the NZ LPV sector, which has resulted in an accrued carry forward performance fee balance of NZ$89.5m (or 6.4cps).&nbsp;</p>
</div>
<p><strong>Portfolio well positioned but not immune to&nbsp;COVID-19 aftermath</strong></p>
<div id="m_2487317538208278387ieb0y-2-2-2-2-2-2">
<p>GMT's portfolio proved resilient over lockdown (90% rent collection over April/May). While we expect high quality industrial assets to fare better than retail and office sub-sectors it will still be impacted by the broader economic slowdown. Lower tenant demand will increase vacancy, pressure rents, and reduce development lead earnings growth. GMT has already put some developments on hold until a tenant commitment can be secured. We have lowered our FY21/22/23 NPAT by -1.6%/-5.0%/-7.1% largely driven by lower development activity impacting top-line growth and GMT's ability to capitalise interest. GMT does have some shock absorbers with its portfolio 7–8% underrented vs. pre COVID-19 market rents and gearing of 18.9% below its medium term target of 25–35%, providing some headroom for inorganic growth. ​​​​​​​</p>
</div>
<div>
<div>
<div><strong>Rohan Koreman-Smit CFA</strong></div>
<div><a href="mailto:rohan.koreman-smit@forsythbarr.co.nz" target="_blank" rel="noopener">rohan.koreman-smit@<wbr>forsythbarr.co.nz</a></div>
<div>+64 9 368 0085</div>
<div></div>
</div>
</div>
<div>
<div>
<div><strong>Ashton Olds</strong></div>
<div><a href="mailto:ashton.olds@forsythbarr.co.nz" target="_blank" rel="noopener">ashton.olds@forsythbarr.co.nz</a></div>
<div>+64 9 368 0127</div>
</div>
</div>

Goodman Property Trust
FY20 Result – Great Expectations
UNDERPERFORM
Goodman Property Trust (GMT) reported a steady FY20 result, in-line with expectations. The key driver of yesterday's -4.4% downward share price movement was GMT's revised distribution policy, which reduced FY21 DPS guidance to 5.30cps or down -20% from 6.65cps in FY20. While we believe high quality industrial assets will navigate the uncertain economic environment ahead relatively well, this is more than factored into GMT's share price with the stock trading on lofty valuation metrics especially when compared to the NZ LPV sector. GMT is currently trading on a cash yield of 2.4%, a forward Adjusted Funds From Operations (AFFO) multiple of 35.3x, and a 27% premium to its net tangible assets (NTA) backing vs. peers on a 4.2% average cash yield, a forward AFFO multiple of 23.9x, and slightly below NTA. This valuation disparity leaves little room for relative upside and we downgrade our rating to UNDERPERFORM.&nbsp;

What's changed?


Distributions:&nbsp;FY21/22/23&nbsp;DPS&nbsp;+2%/-9%/-12%
Target price:&nbsp;Down 2cps to NZ$1.90
Rating:&nbsp;Downgrade to&nbsp;UNDERPERFORM


Flat cash earnings guidance and revised payout reduces FY21&nbsp;DPS&nbsp;20%&nbsp;yoy

GMT guided to flat cash earnings of 6.2cps and updated their dividend policy to better cover cash distributions. FY21 DPS guidance is for 5.3cps (down -20% yoy) based on the midpoint of GMT's revised 80–90% cash earnings payout range. Including all capex on GMT's stabilised portfolio, this equates to a c.100% cash payout. Furthermore, GMT's version of cash earnings does not adjust for performance fees which are paid in units and totalled NZ$11.2m in FY20. Continuation of large performance fees are likely over the medium term given GMT's significant FY20 outperformance vs. the NZ LPV sector, which has resulted in an accrued carry forward performance fee balance of NZ$89.5m (or 6.4cps).&nbsp;

Portfolio well positioned but not immune to&nbsp;COVID-19 aftermath

GMT's portfolio proved resilient over lockdown (90% rent collection over April/May). While we expect high quality industrial assets to fare better than retail and office sub-sectors it will still be impacted by the broader economic slowdown. Lower tenant demand will increase vacancy, pressure rents, and reduce development lead earnings growth. GMT has already put some developments on hold until a tenant commitment can be secured. We have lowered our FY21/22/23 NPAT by -1.6%/-5.0%/-7.1% largely driven by lower development activity impacting top-line growth and GMT's ability to capitalise interest. GMT does have some shock absorbers with its portfolio 7–8% underrented vs. pre COVID-19 market rents and gearing of 18.9% below its medium term target of 25–35%, providing some headroom for inorganic growth. ​​​​​​​



Rohan Koreman-Smit CFA
rohan.koreman-smit@forsythbarr.co.nz
+64 9 368 0085





Ashton Olds
ashton.olds@forsythbarr.co.nz
+64 9 368 0127



Goodman Property Trust: FY20 Result – Great Expectations