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Goodman trust spec builds warehouses in constrained market

By Jenny Ruth

Sept. 18 (BusinessDesk) - Goodman Property Trust's up to $175 million capital raising will place it below targeted gearing in a market where demand, property valuations and rents are rising but supply is constrained.

With the trust's own completed portfolio practically fully leased, and a 1.9 percent vacancy rate across all Auckland industrial property, Goodman's manager is responding by building five new warehouses on a build-and-they-will come basis.

Goodman has a track record of success with such spec building; the 15 warehouses built on this basis in the year ended March are 100 percent leased.

Two of the new warehouses are at its Highbrook Business Park in East Tamaki, on top of a number of other projects already underway at Highbrook, which will take the park to being 91 percent complete and a valuation above $1.5 billion.

Another of the new projects is at the M20 Business Park in Manukau and the other two at the Westney Industry Park in Mangere.

Excluding these new projects, 50 percent of the 44,000 square metres currently under development has been leased at an average $136 per sqm and incentives of 4.6 percent. The average time to completion is six months.

"Historically low vacancy levels and a lack of appropriately zoned development land means the Auckland industrial market is supply-constrained," says the manager's chief executive John Dakin.

"Businesses are at capacity and those that require additional warehouse and logistics space have very few options," he says.

Over the past five years, the manager has repositioned the trust to focus solely on industrial property in Auckland by selling $1.2 billion of mostly office properties and properties outside Auckland.

Goodman has bought two new sites, the $65 million site at Mt Wellington with a two-year leaseback to Turners & Growers and the $29 million Favona Road purchase, both of which are expected to settle this month.

Together with existing older properties with low site coverage within the portfolio, these acquisitions take the trust's sites providing a holding yield of about 5 percent but which have redevelopment potential to about 12 percent of the portfolio.

Dakin says these two new sites are typical of the investments Goodman is looking for.

For example, the T&G site currently has 31 percent coverage of the 57,579sqm site in a location with direct access to the Mt Wellington Highway and State Highway 1 and access to a population of 830,000 within 20 minutes.

He estimates there's about 200,000sqm of prime industrial space within the portfolio that will cost more than $500 million to develop.

Alongside the capital raising and new developments, Goodman's manager has also announced a 6 percent, or $170 million, revaluation gain since March, taking the trust's existing portfolio to more than $2.8 billion and adding about 13 cents per unit to $1.57 net tangible asset backing.

Goodman units, which are in a trading halt to allow the $150 million placement to be completed, last traded at $2.195 and the new units in both the placement and the up to $25 million retail offer are priced at $2.10 per unit.

Goodman units have risen more than 42 percent in the last 12 months compared to the benchmark S&P/NZX 50 Index's 17 percent gain.

The revaluation takes the capitalisation rate across the portfolio down to 5.4 percent from 5.7 percent in March – the lower the cap rate, the higher the property's value.

Goodman says prime industrial rents rose 5.6 percent in the year ended June but its own increase in contracted face rents across leasing and market reviews between April 1 and Aug. 31 this year is 6.8 percent.

The capital raising will take the trust's committed gearing, including another $75 million of developments announced today, to 21.2 percent, below the manager's 25-35 percent target range.

Including existing developments, the new projects will take the current construction pipeline to $215 million.

Goodman reaffirmed its current guidance that it expects to pay cash distributions of 6.65 cents per unit, including on the new capital, in the year ending March 2020.

The trust is 21.6 percent-owned by Australia-based Goodman Group which is participating in the placement for its pro-rate equivalent.


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