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<br>FY21 Result&nbsp;— Good but Expensive</h2>
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<p><strong>UNDERPERFORM</strong></p>
<p>Goodman Property Trust (GMT) reported a solid FY21 result&nbsp;with cash earnings of NZ$89.1m, marginally ahead of expectations. Strong market demand has led to elevated pricing of industrial assets and large revaluations gains for GMT, but now weighs on its ability to deploy capital. Given the frothy environment,&nbsp;GMT has conservatively lowered its target gearing range and indicated that developments are its preferred destination for capital.&nbsp;While we believe this is sensible vs. competing on market for stabilised assets,&nbsp;brownfield&nbsp;<wbr>redevelopments mute&nbsp;near-term earnings growth and we see better value elsewhere in the sector given&nbsp;GMT's&nbsp;high earnings multiples and low distribution yield. UNDERPERFORM.&nbsp;</p>
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<h3>What's changed?&nbsp;</h3>
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<li><strong>Earnings</strong>:&nbsp;AFFO adjusted +2.3%/+0.9%/-0.3% in FY22/FY23/FY24 reflecting adjustments to our&nbsp;rent and capitalised interest assumptions associated with&nbsp;GMT's&nbsp;brownfield&nbsp;developments</li>
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<h3>Operations in check</h3>
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<p>GMT's&nbsp;result was +1.5% better than expected at the cash earnings line, reflecting higher top line rental income from acquisitions and completed developments. FY22 cash earnings and dividend guidance of 6.5cpu and 5.5cpu were provided, implying growth of +4%. Operationally, tenant demand remains strong. Occupancy has lifted to 99% post balance date following leasing activity at&nbsp;Penrose, new&nbsp;leases signed in the period were +5.3% above prior levels,&nbsp;and economic uncertainty is yet to weigh on demand for space with incentives remaining low.&nbsp;</p>
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<h3>Frothy market makes development the preferred capital destination</h3>
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<p>Structural tailwinds have sparked significant investor interest for industrial real estate, forcing asset prices higher and compressing yields. Given the competitive dynamic for quality assets and lack of vacant land, brownfield development is GMT's best option for capital deployment. Alongside the Roma Road redevelopment announced last year, GMT has announced the redevelopment of Favona Road, which is pre-leased to Mainfreight on a 15-year lease. Disclosure on development spend and returns is very limited, but a blended yield on cost of 5.6% was provided for its total NZ$250m of committed developments. While we view development as a sensible option, increasing land and constructions costs, as well as higher rents required for brownfield redevelopments, may pressure economic outcomes.</p>
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<h3>Good portfolio, expensive price</h3>
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<p>While GMT's implied cap rate of 4.5% is undemanding relative to recent transactions in the direct market, it is trading on a 34.8x AFFO multiple and a gross yield of 3.5%. We see better value elsewhere in the sector and retain our UNDERPERFORM rating.&nbsp;&nbsp;</p>
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<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>
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<div><strong>Ashton Olds, CFA</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>
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Goodman Property Trust FY21 Result&nbsp;— Good but Expensive

UNDERPERFORM
Goodman Property Trust (GMT) reported a solid FY21 result&nbsp;with cash earnings of NZ$89.1m, marginally ahead of expectations. Strong market demand has led to elevated pricing of industrial assets and large revaluations gains for GMT, but now weighs on its ability to deploy capital. Given the frothy environment,&nbsp;GMT has conservatively lowered its target gearing range and indicated that developments are its preferred destination for capital.&nbsp;While we believe this is sensible vs. competing on market for stabilised assets,&nbsp;brownfield&nbsp;redevelopments mute&nbsp;near-term earnings growth and we see better value elsewhere in the sector given&nbsp;GMT's&nbsp;high earnings multiples and low distribution yield. UNDERPERFORM.&nbsp;


What's changed?&nbsp;



Earnings:&nbsp;AFFO adjusted +2.3%/+0.9%/-0.3% in FY22/FY23/FY24 reflecting adjustments to our&nbsp;rent and capitalised interest assumptions associated with&nbsp;GMT's&nbsp;brownfield&nbsp;developments



Operations in check


GMT's&nbsp;result was +1.5% better than expected at the cash earnings line, reflecting higher top line rental income from acquisitions and completed developments. FY22 cash earnings and dividend guidance of 6.5cpu and 5.5cpu were provided, implying growth of +4%. Operationally, tenant demand remains strong. Occupancy has lifted to 99% post balance date following leasing activity at&nbsp;Penrose, new&nbsp;leases signed in the period were +5.3% above prior levels,&nbsp;and economic uncertainty is yet to weigh on demand for space with incentives remaining low.&nbsp;


Frothy market makes development the preferred capital destination


Structural tailwinds have sparked significant investor interest for industrial real estate, forcing asset prices higher and compressing yields. Given the competitive dynamic for quality assets and lack of vacant land, brownfield development is GMT's best option for capital deployment. Alongside the Roma Road redevelopment announced last year, GMT has announced the redevelopment of Favona Road, which is pre-leased to Mainfreight on a 15-year lease. Disclosure on development spend and returns is very limited, but a blended yield on cost of 5.6% was provided for its total NZ$250m of committed developments. While we view development as a sensible option, increasing land and constructions costs, as well as higher rents required for brownfield redevelopments, may pressure economic outcomes.


Good portfolio, expensive price


While GMT's implied cap rate of 4.5% is undemanding relative to recent transactions in the direct market, it is trading on a 34.8x AFFO multiple and a gross yield of 3.5%. We see better value elsewhere in the sector and retain our UNDERPERFORM rating.&nbsp;&nbsp;



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





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



Goodman Property Trust: FY21 Result — Good but Expensive