GMT Achieves Distributable Earnings Target
14 May 2009
GMT Achieves Distributable Earnings Target
Goodman Property Trust (“GMT” or “Trust”) announces its annual result for the year ended 31 March 2009.
After tax distributable profit of $83.8 million.
Annual cash distribution of 10.0 cents per unit is consistent with guidance and 1.0% ahead of previous year.
10.3% decline in portfolio value contributed to after tax loss of $74.1 million; NTA now $1.06 per unit.
Secure cashflows and strong balance sheet.
Current gearing of 35.3% and Interest Cover Ratio of 3.2 times.
$902 million of new debt financing completed (including $220 million in available liquidity) with no significant maturity until October 2011.
Asset sales of $50.6 million were achieved with a further $57.0 million under conditional contract.
5.4% increase on market rental reviews and 157,847 sqm of new lease transactions resulting in 96% occupancy and 5.9 year average lease term.
The Trust has continued to achieve its operational targets and has delivered an after tax distributable profit of $83.8 million. The increase from $68.7 million in the previous corresponding period includes the full year impact of GMT’s investment in Highbrook Development Limited, ongoing leasing success and further development commitments and completions.
Cash distributions, on a weighted per unit basis, have increased 1.0% to 10.0 cents per unit. The increase is consistent with the guidance provided in November 2008 and will result in a final quarter cash distribution of 2.47916 cents per unit. Imputation credits of 0.1556162 cents per unit will also be attached.
The record date for the distribution is 4 June 2009 with payment to be made on 18 June 2009. Unitholders are reminded that the distribution reinvestment plan continues to operate with a 2% discount and that any changes to their election are required by 5:00pm on the record date of 4 June 2009.
While distributable earnings targets have been achieved the financial performance of the Trust has been impacted by a 10.3% write down in the carrying value of the investment and development assets to $1.5 billion. The $172.8 million devaluation is a non-cash item and contributes to a net loss of $74.1 million for the year, compared to a net profit of $99.3 million in 2008.
Jim McLay, Chairman of Goodman (NZ) Limited (“GNZ”) said, “The Board is pleased with the operational performance of the Trust but disappointed with the valuation outcome and its impact on the Trust’s result.”
While the devaluation has no impact on distributable profit, it contributes to the reduction in net tangible assets to $1.06 per unit.
Net tangible assets have also been reduced by an unrealised reduction in the market value of GMT’s interest rate swaps, from an asset of $12.8 million to a liability of $38.4 million.
Balance Sheet Remains Strong
GMT’s strong balance sheet position is supported by secure cashflows from its high quality property portfolio. These cashflows are underpinned by long term leases to leading local and international companies including, Toll Logistics, NZ Post, Air New Zealand, DHL, Linfox Logistics and Fletcher Building. GMTs interest cover ratio of 3.2 times provides significant headroom against its banking covenants of 2.25 times.
As at 31 March 2009, net borrowings less pending settlements make up 35.3% of property assets compared to banking covenants on GMT’s main debt facility of 45.0%.
During the period, GMT successfully refinanced all its existing debt facilities. These facilities total $902 million and provide approximately $220 million of additional liquidity. The extended facility terms ensure that GMT has no unfunded refinancing until October 2011.
Jim McLay said “Mitigating the risks around debt refinancing and prudent capital management have been a key focus of 2009. This emphasis has ensured GMT has maintained a strong financial position at a time when corporate balance sheets are under pressure and access to debt funding is more restricted than in the past.”
GNZ Chief Executive Officer, John Dakin said “The Board and Management were proactive in their response to a changing credit market and acted early to ensure GMT maintained its secure financial position. The commitment of the major trading banks to the new three year facilities reflects the strength of GMT’s business and investment strategy.”
In addition to its debt refinancing GMT has successfully implemented a number of direct capital management initiatives. These have included:
• The sale of non-core assets.
• Selectively allocating capital to development activity by:
· Lifting the investment thresholds on new developments.
· Suspending uncommitted developments.
Strategic disposals remain a key component of the capital management programme with the Trust securing $50.6 million of asset sales during the year. GMT has a further $57.0 million of property currently under conditional contract.
Underpinning the pleasing operational result has been the consistent performance of the property portfolio. Active management and high standards of customer service have contributed to strong leasing results and have helped ensure revenue targets were achieved.
Portfolio highlights include:
• Leasing 157,847 sqm of rentable space to new and existing customers.
• Achieving annualised rental growth of 5.4% pa on market and inflation linked rent reviews.
• An occupancy rate of 96% and a weighted average lease term of 5.9 years.
While the stabilised portfolio has performed strongly, the attraction of the Trust’s development portfolio has continued to draw enquiry from customers seeking purpose built property solutions. In a competitive development market new commitments totalling 46,285sqm have been secured at the Highbrook Business Park and Savill Link estates for customers Blackwoods Paykel, Corporate Express, CSR Viridian, Schneider Electric, Steel and Tube Holdings and Toll Logistics.
With structured rent reviews and a weighted average lease term of 10 years these new developments provide regular rental growth and enhance the existing portfolio with improvements to portfolio quality, average lease term and customer diversity.
The Board of GMT acknowledges the current dislocation in global financial and investment markets, from which New Zealand is not immune. This has resulted in a significant decline in the number of property transactions, worldwide, and in limited property transactional evidence of a “willing buyer and willing seller” nature, which is a key component of the property valuation process. The Board acknowledges that investor risk appetites have decreased over the preceding 12 months.
However, the Board is concerned that should the current dislocation continue, leading to limited appropriate transactional evidence, an alternative valuation methodology may need to be considered. To this end the Board has commenced a process engaging with key stakeholders to address these concerns and will update the market in due course.
The result of the independent valuations of the investment and development assets is a devaluation of $172.8 million, compared to a valuation gain of $28.9 million in the previous corresponding period.
The 10.3% decline comprises a 9.2% reduction in the value of the investment portfolio and an 18.2% reduction in the value of development land. The average capitalisation rate across the investment portfolio has increased from 8.0% in March 2008 to 8.73% in March 2009.
Outlook and Guidance
Strengthening GMT’s financial position and delivering a strong operational result were the key objectives of 2009. Achieving these goals in a more challenging financial environment, make this year’s result particularly notable.
Initiatives undertaken to strengthen the Trust’s financial position have ensured that GMT remains well capitalised and has secure debt funding facilities available. Active management and GMT’s premium property offering should continue to attract customers and will help mitigate the impact of any prolonged recession.
GMT’s strong capital base and high quality portfolio give the Board confidence that the Trust has the scale and liquidity appropriate in today’s uncertain market.
While the debt refinancing and balance sheet strengthening initiatives have proven to be very prudent, they do have a cost. Operational earnings for 2010 are expected to be in line with broker forecasts of 9.0 to 9.5 cents per unit, reflecting the impact of increased interest costs, asset disposals and lower growth and development assumptions. The forecast assumes that earnings are not unexpectedly impacted by deterioration in market conditions or a material customer default.
John Dakin, said, “With a proven management capability, a moderate level of debt, secure funding and a high quality property portfolio, the Trust has the right foundations for the year ahead.”