Criticism builds of Goodman Viaduct sale

Singapore's Government Investment Corporation has bought a 49 per cent stake in Auckland's Viaduct Quarter.

A third institutional investor has criticised Goodman Property Trust's sale to Singapore's Government Investment Corporation of a 49 per cent stake in Auckland's Viaduct Quarter.

Chris Gaskin of Devon Funds Management is the latest to speak out against the deal announced last week after Shane Solly, Auckland-based director, portfolio manager and research analyst with institutional investor Harbour Asset Management, and Matt Goodson, Salt Funds Management managing director, raised issues about the value of the deal for investors in the NZX-listed trust.

"For a start, the sale price is bewildering," said Gaskin. "The sale of the two assets to GIC were at historic book values. This is hard to understand because since March, bond yields have fallen by a further 60bps, yields have been firming as evidenced by Precinct Properties' full year result and the market rent outlook for Auckland office is as good as it has been for a long time"

"In a presentation to overseas investors in September, Kiwi Income Property described the Auckland office market as 'one with reducing vacancy and increasing rent forecasts for prime grades with stable supply and positive absorption, firming yields and strong investment demand.' Three days later, ASX-listed Scentre Group announced they have sold a 49 per cent interest in their New Zealand shopping malls to GIC for a 4 per cent premium to the book value as at June 2014."

"Another aspect that is hard to fathom is that Goodman Property Trust only recently acquired one of the assets - the Fonterra building. Goodman announced in November last year that it had acquired the Fonterra building for $92.6 million, reflecting an initial yield of 8 per cent," said Gaskin.

"Fonterra had taken a 15 year lease on the building with two eight-year rights of renewal. Goodman have just sold 49 per cent of the Fonterra building for $45.7 million or a profit of $296,000 on the 49 per cent share. Unfortunately, Goodman has to pay a fee to the external manager (Goodman Group who own 17.5 per cent of the trust) of $456,700. Unfortunately there is a further fee is payable to Goodman Group for the sale of the other asset (the Air NZ building) of a further $313,600."

"As it seems that the external manager Goodman Group is the only winner here, it is fortunate that Goodman Property Trust managed to obtain a waiver from NZX Regulation to proceed with the transaction without obtaining unit holder approval," Gaskin said.

John Dakin, trust chief executive, has defended the deal and reiterated the positive aspects.

"The introduction of a like-minded partner gives the trust the capacity to expand its investment in the Viaduct Quarter without the requirement for any significant new funding," Dakin said.

"This sets a really clear strategy for our investments in this part of town - this is something our investors have been looking for clarity on.

"On a year to date basis we have realised almost $100 million of sales that we are looking to reinvest into our development programme where we are experiencing strong demand across the portfolio," he said.

The deal was negotiated at March 31 book values but values were above those of last March, so the trust had captured market upside, Dakin claimed.

See the Goodman -Singapore GIC deal announcement here: