Goodman Property Trust's first-half net profit nearly quadrupled, largely reflecting unrealised valuation gains. Cash earnings fell slightly.
Net profit for the six months ended September rose to $224.3 million from $59.3m in the same six months last year. Capital gains contributed $172.4m, up from $16.8m the previous year.
Managing director John Dakin told investors and analysts on a conference call that they'd had strong messages from valuers that capitalisation rates had shrunk significantly. When those rates contract, the value of buildings rises.
Cash earnings eased to $41.1m from $47m and the property manager is giving guidance that the annual outcome will be consistent with last year.
The cash figure for the year-earlier six months was dragged down by $4.7m because the manager, which is owned by Goodman Group Australia, had been required to use its base management fees to subscribe to new units, an arrangement that expired in March this year.
The valuation gains raised the portfolio's value by 6.3 per cent to $2.88 billion while partly completed developments and land, as well as the value of a property contracted for sale, lifted the total to $3.03b.
Including acquisitions, disposals, developments and the $150m equity placement completed in September, net tangible asset backing per unit rose by 15.8 cents to $1.728 between March and September. Goodman has since raised a further $25m from retail investors after balance date.
Goodman units are trading at $2.085, up 1.5 cents from yesterday, and are up 36.7 per cent from a year ago. The benchmark S&P/NZX 50 Index has gained 23 per cent over the same period.
Goodman chair Keith Smith says the trust's strategy of focusing investment on the supply-constrained Auckland industrial property market is successful and is delivering "high-quality property solutions for customers and strong returns for investors."
The trust is experiencing sustained demand for warehouse and logistics space.
During the latest six months, more than 67,500 square-metres of space was secured on new or revised terms, taking occupancy to 99.5 per cent from 98 per cent in March.
He says the demand that has underpinned Goodman's recent leasing success has also continued to drive its development programme.
The manager announced two new projects today, the expansion of Mainstream at Savill Link and of Ingram Micro at the M20 Business Park, adding 5,972 sqm to the $48.4m of projects under way, which include previously announced further development at Highbrook.
The capital raising took the trust's gearing down to 17.9 per cent at balance date, or 20.6 per cent including committed developments, well below the board's 25-to-35 per cent target range.
Dakin says property valuations currently are "extended" and "we don't think at this point it makes sense to be heavily leveraged."
Having low gearing gives the trust the ability to "absorb any shocks that come along" and to take advantage of any opportunities that arise. He admitted this was being cautious:
"We've got low interest rates for a reason" he said, but noted that although demand had slowed in the middle of this year, it has strengthened since and the trust has expansions for five existing tenants currently underway.
"The Auckland industrial market is at capacity. Businesses that require additional space have very few options. GMT's own portfolio is almost full and, with no large warehouse spaces available, these build-to-lease projects provide much-needed new supply."
The Reserve Bank left its official cash rate unchanged at its record low of 1 per cent yesterday but has cut the OCR from 1.75 per cent since May and has signaled it will cut further if necessary.
Goodman refinanced its banking facility in the latest six months, increasing it by $100m to $400m, none of which is currently drawn, to provide additional capacity for further development and investment.
The current facility will mature in three tranches between 2022 and 2024.
Chief financial officer Andy Eakin says pricing improved on the refinancing and while views on the outlook varied between the four banks providing the facility, "ultimately we got them all to the same position."
While the banks have varying views on the likely impact of the RBNZ's capital proposals – final decisions on how much additional capital banks will have to find are scheduled to be announced next month – they don't expect they will have a material impact in the next year or two, Eakin says.
The trust will pay a second-quarter distribution on December 12 of 1.6625 cents per unit with 0.302096 of imputation credits to unitholders on the register on November 28.