Why Property Stocks need attention: Lens on Goodman Property Trust

  • Jul 23, 2020 NZST
  • Team Kalkine
Why Property Stocks need attention: Lens on Goodman Property Trust

Summary

  • New Zealand was declared a COVID-19 free country in June and has lifted lockdown restrictions to resume business activities and ensure the economy recovers. Though there are some active cases at present, the pandemic seems under control.
  • While housing prices have defied expectations and been on the rise post the pandemic, experts believe the prices will fall and are anticipating a recovery in H2 2021.
  • Goodman Property Trust delivered a robust operating performance in the previous year with sustained customer requirement being reflected in positive leasing outcomes and new development commitments.
  • The Trust is well-capitalised with a healthy business that will continue to be managed cautiously.

New Zealand has weathered the storm of COVID-19, and as on 23 July 2020 (9:00 AM NZST), there have been no new local COVID-19 cases from an unknown source in the last 83 days. With five recoveries, the total number of active cases in New Zealand stands at 27. The country has already lifted lockdown restrictions and is on the path of economic recovery.

The property market in New Zealand has been performing better than anticipated with market experts indicating an increase in housing prices. While low interest rates and expatriates returning to their home country has benefitted the property industry, things might not remain the same.

Several economists and real estate agents believe the property prices will fall in 2020 and into the first half of 2021. Some experts believe the fall in prices could be up to 10% and maybe even more. They predict the market will start picking up in H2 2021. However, continued low interest rates, government aid and the general buoyancy of the financial system might mitigate the anticipated fall.

DO READ: NZ Property Market Under Scanner: Emerging Trends

With this backdrop, we are highlighting one NZX-listed property stock- Goodman Property Trust

Goodman Property Trust (NZX:GMT)

New Zealand-based unit trust Goodman Property Trust invests in industrial and business space property. Goodman Property is a business space provider engaged in leasing industrial as well as office facilities at its estates in Christchurch and Auckland. The portfolio of Trust comprises estates and properties that offer more than 1 million square meters of rentable area, accommodating nearly 280 customers.

FY20 Financial Highlights, Reported NZ$261.9 million Profit After Tax

Goodman Property Trust delivered a robust operating performance in the previous year with sustained customer requirement being reflected in positive leasing outcomes and new development commitments.

Moreover, asset sales in prior years, and the recent equity raise, have offered the balance sheet capacity to fund these new projects. They have also permitted GMT to make strategic acquisitions, including Mt Wellington-based T&G Global facility.

The additional income from new developments and acquisitions has offset the decline in income from balance sheet deleveraging, with net rental income of approximately NZ$145.3 million being a new record for the Trust.

Although these operating findings contribute to the financial performance of GMT, it is the revaluation of the property portfolio of GMT that has had the most significant effect, providing nearly NZ$165.8 million of fair value gains to NZ$261.9 million after-tax profit of GMT.

Additionally, the 5.7% surge in asset values to NZ$3.1 billion signifies the quality of the portfolio, higher market rentals and positive investor sentiment towards the Auckland industrial property.

Source: GMT Annual Report

The Trust mentioned that fair value gains are not distributed. However, they add to net tangible asset backing of GMT which has risen 10%, to NZ$1.72 per unit as of 31 March 2020.

The broad sales program that has repositioned the Trust and deleveraged the balance sheet was concluded during the year, with the last of the asset sales being completed. With more than NZ$1.2 billion of disposals since 2014, it has been a successful strategy realising substantial profits and offering the balance sheet capacity to fund the development program.

GMT disclosed that over NZ$800 million had been reinvested into new development projects during the same timeframe. The addition of 300,000 sqm of new industrial space has substantially increased the composition as well as the quality of the portfolio, with GMT now becoming the largest listed property investor in New Zealand by market capitalisation.

GMT delivered a robust operating performance with significant growth in asset values

The financial year of GMT ended on 31 March 2020, just at the beginning of COVID-19 to disrupt the New Zealand economy. Due to the timing, the turmoil only had a limited impact on the financials of 2020.  

GMT delivered another strong operating performance in the year, with significant growth in asset values, positive leasing outcomes, new development projects and strategic acquisitions all contributing to a statutory profit of NZ$284.4 million, before tax.

Business Strength

The investment-grade credit rating indicates the strength of the balance sheet and the ongoing success of GMT investment strategy.  Although the emergence of COVID-19 pandemic could not have been foreseen when the Trust started planning its business earlier this year, it is pleased with the resilience of the Trust over the last four months.

GMT showed it is a substantial and mature property business able to withstand market disruptions. By continuing to act cautiously and restricting new investment to the most compelling prospects, GMT ensures that it remains well-capitalised with a robust business.

COVID-19 impacts

GMT stated that the health and safety of its staff, customers and contractors have been the priority of the Board and Manager since the beginning of COVID-19 to impact New Zealand.

The plans of business continuity were implemented, with development sites and management offices closed under the Government’s Alert Level restrictions.

Business outlook

  • COVID-19 is constraining economic growth across the globe, and GMT’s investment strategy is focused on urban logistics property in Auckland.
  • Additionally, the Trust is uniquely placed to benefit from the increasing demand for distribution facilities close to consumers.
  • The Trust mentioned that market fundamentals remain resilient with sturdy levels of customer demand.
  • GMT is well capitalised and has a robust business that will continue to be managed cautiously.

Stock Information: On 23 July 2020, GMT stock ended the day’s trade NZ$2.200, up 0.46%. The market capitalisation of GMT stood at NZ$3.061 million.

 


Disclaimer
The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. The above article is NOT a solicitation or recommendation to buy, sell or hold the stock of the company (or companies) under discussion. Kalkine does not in any way endorse or recommend individuals, products or services that may be discussed on this site.

 

   
x
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK