INVESTOR BRIEFING. Goodman Property Trust 2018

Transcription

1 INVESTOR BRIEFING Goodman Property Trust 2018

2 CONTENTS 12 MARCH 2018 Presenters: John Dakin Chief Executive Officer James Spence Director - Investment Management Michael Gimblett General Manager Development Kimberley Richards Director - Investment Management & Capital Transactions Andy Eakin Chief Financial Officer Goodman Overview 3 Global Trends 11 GMT Investment Strategy 17 Development Programme 32 VXV Precinct 44 Balance Sheet Strength 51 Summary 58 02

3 BUSINESS MODEL Goodman s success is founded on: The quality and integrity of our people. The long-term relationships we build with our customers. Our unrivalled knowledge of the industrial property markets in which we operate. Goodman is a global industrial property group. It owns, develops and manages industrial real estate, including logistics facilities, warehouses and business parks, in 16 countries. 03

4 GOODMAN STRATEGY global footprint Goodman has a global footprint with investments and managed funds in Asia, Australia, Europe, NZ, UK, the US and Brazil established investment partnerships with international investors managed fund structure preferred by these partners investment focus major urban centres within growing consumer markets capitalising on growth in e-commerce and technological change strategic land holdings provide development pipeline and urban regeneration opportunities low debt level provides balance sheet strength 04

5 INVESTMENT MANAGEMENT PHILOSOPHY structure long-term strategic partners have invested across a range of structures including partnerships, JV s and clubs focus on maximising real estate returns by region manages competing interests portfolio approach leverages market position for all stakeholders Goodman cornerstone typically 20-25% corporate governance Goodman works with its partners to establish an optimal governance structure vehicles typically have an Investment Committee to make key decisions and monitor vehicle strategy / budget detailed reporting framework where appropriate vehicles have majority independent boards 05

6 INVESTMENT PARTNERS 16 geographic funds investing in high quality real estate AUD$34.6 billion assets under management (US$27.0 billion) remuneration linked to fund performance 06

7 GLOBAL RELATIONSHIPS wide customer base 07

8 ALIGNMENT OF INTERESTS highly aligned Manager Goodman Group holds a 21.2% cornerstone in Goodman Property Trust ( GMT ), consistent with its global fund platform strategy Board maintains a majority of independent directors, who are required to hold the equivalent of two years fees in GMT units fee structure requires that: - fund management fees are used to subscribe for new units 1 - any performance fee earned is also used to subscribe for new units 2 highly aligned people New Zealand staff remuneration includes a long term incentive component that is paid by the Manager in GMT units performance rights in GMT, awarded to staff but not yet vested, total 15.2 million units 08 1 Until FY19 and at the discretion of the independent directors. 2 At the discretion of the independent directors.

9 GMT FEE STRUCTURE competitive basis GMT s fee structure has led the market for externally managed vehicles, key features include: - tiered fund management fee - a performance fee component based on relative total return with carry forward of any under / over performance - property service fees and development service fees external review service fees are periodically reviewed by the Independent Directors through an industry benchmarking exercise undertaken by external consultants the management expense ratio for the Trust was 0.44% of average property assets in FY17, well below the market average 09

10 BUSINESS FUNCTIONS inhouse management core business functions are kept in house to maintain direct customer relationships and to ensure high quality service delivery approximately 60 FTE staff work in the city and satellite offices, the average tenure is 5.6 years specific roles portfolio, asset, property and building managers development managers, project managers, co-ordinators and engineers accountants, finance managers, treasury and lease administration funds management, capital transactions, forecasting and modelling, IR, legal, marketing and business administration 10

11 GLOBAL TRENDS CourierPost, Highbrook Business Park 11

12 GATEWAY CITIES four billion people live in cities, this is expected to surpass six billion by 2045 feature main port, rail and air transport infrastructure attract people, capital and innovation consumers in large cities are expected to account for 81% of global consumption and generate >90% of global consumption growth Locations where Goodman is focusing its investment 12

13 e-commerce TRENDS global retail spending is expected to grow 27% to US$28.9 trillion by Global E-Commerce Sales Forecast Excludes travel and event tickets / US$ trillions $5.0tn 50% e-commerce sales are expected to grow by more than 70%, to US$4.5 trillion over the same timeframe $4.5tn $4.0tn $3.5tn $3.0tn 45% 40% 35% 30% $2.5tn 25% $2.0tn 20% $1.5tn 15% $1.0tn 10% $0.5tn 5% $0.0tn % retail e-commerce sales % change % of total retail sales Source: emarketer

14 e-commerce property trends growth in online sales increasing demand for distribution space supply chain pressures with faster and cheaper deliveries required, shorter product life cycles, increased transportation costs highlights the importance of locations close to the consumer modern warehousing provides operational efficiencies, driving customer demand more labour intensive than traditional warehouse distribution operations mature e-commerce operators taking fulfilment logistics in-house 14

15 INDUSTRIAL PROPERTY TRENDS multi-storey industrial Goodman Qingpu Centre, Shanghai Goodman Business Park, Tokyo 15

16 INDUSTRIAL PROPERTY TRENDS robotics and automation 16 Amazon Fulfilment Centre, Colorado

17 GMT INVESTMENT STRATEGY Highbrook Business Park 17

18 GMT OVERVIEW GMT predominantly invested in Auckland industrial locations Auckland $2.6bn 1 total property portfolio 98.2% property occupancy high quality portfolio asset sales have provided significant balance sheet capacity ~99% 1m sqm Net lettable area $1.7bn 2 market capitalisation Christchurch 6.2 years WALT 200 customers ~1% 6.5% weighted average capitalisation rate 32.4% 3 Loan to value ratio (look through basis) 1 Total property portfolio includes GMT s proportionate share in the properties owned by its Viaduct joint venture Market capitalisation of Goodman Property Trust Ordinary Units as at 8 March On a proportionately consolidated basis including GMT s interests in its Viaduct joint venture.

19 STRATEGIC FOCUS property portfolio high quality portfolio situated in key industrial locations close to consumers and benefitting from new infrastructure assets actively managed to maximise earnings, value and balance sheet strength rental reversion potential assessed at 2.5%, market review structures incorporated into new leases value adding opportunities with a number of estates held significantly below replacement cost development led growth development programme improving asset quality and growth profile of GMT balance sheet capacity expected to support build out of remaining land holdings new land opportunities difficult to secure with cyclically high values targeting increased growth in rental cashflows and cash earnings the completion of the current development programme creation of a lower capex portfolio resilient portfolio with the balance sheet capacity to be opportunistic should markets turn 19

20 AUCKLAND LOCATIONS greatest population and commercial heart of the country geographically constrained largest property market demographic forecasts show differential growth over the next 30 years major infrastructure projects underway 20

21 WHY INDUSTRIAL? Unique characteristics include: flexibility of design suitable for range of uses growing logistics sector, due to urbanisation and consumer trends lower lifecycle costs high land component industrial occupiers more resilient through economic cycles smaller asset sizes means more liquid investment market NZ property yields by sector % Source: CBRE 21

22 INDUSTRIAL BUILDING LIFECYCLE CASE STUDY Spicers, Highbrook Business Park customer has occupied the 16,973 sqm unit at Highbrook since 2006 initial yield on cost of 8.8% average capex of 1 bp pa, 13 bps pa including full refurbishment of the property Local consumer population (within a 20 minute truck drive radius 668,609 the building has been re-leased Total purchasing power and will incur no downtime $18.4bn FY06 FY18 FY19 Development Leased Upgrade New customer 12 year lease Capex: 1 bp pa $575, % of asset value 10 year lease 2.2% rental increase Total average capex including refurbishment: 13 bps pa 22

23 INDUSTRIAL BUILDING LIFECYCLE CASE STUDY Prepared Produce, Savill Link customer has occupied the 1,486 sqm unit at Savill Link since 2006 initial yield on cost of 7.7% average capex of 10 bps pa, 28 bps pa including full refurbishment of the property Local consumer population (within a 20 minute truck drive radius 668,609 the building has been vacated Total purchasing power and re-leased with one month downtime $18.4bn FY06 Development Leased FY18 Vacant Upgrade FY19 New customer 12 year lease Capex: 10 bps pa 1 month $84, % of asset value 6 year lease 15.6% rental increase Total average capex including refurbishment: 28 bps pa 23

24 ASSET RECYCLING 4 YEARS disposals 1 $784 million yielding 7.3% developments 2 $375 million yielding 9.1% Gateway Units artists impression, Highbrook Business Park asset sales providing funding capacity for the development programme divesting Greenlane and Christchurch assets 24 1 Including contracted sales yet to settle. 2 Yield on additional spend. 7 Show Place, Show Place Office Park, Addington Central Park Corporate Centre, Greenlane

25 PORTFOLIO TRANSFORMATION Key metrics Feb-18 1 Mar-13 disposals, development activity and strategic investments have transformed GMT portfolio now predominately Auckland industrial office investment is focused in the VXV Precinct improving quality reflected in the portfolio metrics Portfolio value ($m) 2,358 1,931 Net lettable area (sqm) 1,031,658 1,000,418 Customers Auckland weighting (%) Portfolio occupancy (%) Weighted average cap rate (%) Weighted average lease term (years) Development commitments ($m) Relative property return (%) (0.2) 1 Portfolio adjusted for contracted sales yet to settle 2 MSCI NZ all universe index year ended 31 March 2017 GMT s direct property return of 13.8% in FY17, 3.2% better than the MSCI benchmark Asset diversity 2018 Development Land 4.7% Office Park 10.7% Asset diversity 2013 Office Park 28.0% Industrial 60.0% Industrial 84.5% Development Land 12.0% 25 Note: Asset diversity shows portfolio on completion of pending sales and commenced developments.

26 PORTFOLIO MATRIX strategic decision to focus investment in key locations within the Auckland industrial market 93% of core assets have been developed by Goodman The Tamaki Estate Connect Industrial Penrose Industrial M20 The Concourse The Gate VXV Portfolio Highbrook Savill Link 84% of assets sold have been office value add estates offer future opportunity Preferred location 614 Great South Road Westney Christchurch Office 26 Higher quality Core assets Value-add Sold properties Future disposals

27 8.5 The Concourse CONSUMER PURCHASING POWER ($ bn) Example The Gate 18.4 The Gate 14.5 Savill Link 17.2 Penrose & Connect 11.9 Tamaki 11.2 Highbrook Local consumer population (within a 20 minute truck drive radius) Total purchasing power 668,609 $18.4bn MAP KEY GMT estates 10.1 Westney 10.9 M20 27 Source: Esri Demographics dataset 2016

28 AUCKLAND INDUSTRIAL MARKET economic growth fuelling occupier demand low vacancy and rising market rents a feature of most suburbs expectations market rents will grow 3-4% p.a. over the next three years yield compression slowing but rental growth driving asset values further industrial land values now being driven by offshore demand and residential conversion factors vacancy Vacant Stock (sqm) 600, , , , , ,000 0 Historic vacant stock yield & value ($/sqm) 2,750 2,250 1,750 1, Historic vacancy % 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% rentals $/sqm/annum land values $/sqm Prime Secondary Historic value Historic yield Source: CBRE 28

29 GMT PORTFOLIO-METRICS portfolio occupancy occupancy was 98.2% and WALT was 6.2 years at February 2018 high occupancy supporting build to lease programme 100% 98% 96% 94% 92% 97% 96% 97% 98% 98% 90% Mar-14 Mar-15 Mar-16 Mar-17 Feb % of portfolio income due to expire in FY18-FY20 limited expiries also supporting development initiatives lease expiry profile 35% 30% 25% 20% 15% 10% 5% 0% Vacant FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 >FY26 Vacant Expiring Income Terms Agreed Note: Portfolio occupancy and lease expiry profile is presented on a portfolio income basis

30 RENTAL REVERSION passing rents have increased by an average 5.3% pa when reviewed to market lease structure impacts timing of reversion Rent reviews by next review type CPI 23% Market Review 29% Estate Review type sqm Annualised increase Highbrook Business Park Renewal 31, % Highbrook Business Park Market review 6, % Highbrook Business Park New Lease 2, % Penrose Industrial Estate Renewal 1, % Penrose Industrial Estate New Lease 1, % Savill Link New Lease 1, % The Gate Industry Park Renewal 4, % The Gate Industry Park Market Review 3, % Fixed 48% 44.5% of portfolio to revert to market within next three years 30

31 AUSTRALIAN COMPARISON Auckland more land constrained than Australian markets tight rental range across the Auckland market indicates no differential being paid for location in contrast to Sydney and Melbourne opportunity to drive market rentals Estate Auckland Sydney Melbourne Brisbane Prime industrial stock (m) sqm Industrial land supply ha 1,136 3,583 6,874 3,173 Prime warehouse rental ($) Prime capitalisation rate (%) Forecast rental growth (%) pa Prime vacancy (%) Source: Colliers & Goodman 31

32 DEVELOPMENT GMT PROGRAMME STRATEGY CSR, The Gate Industry Park 32

33 DEVELOPMENT STRATEGY development programme continually improving the portfolio, creating assets of a quality and scale that can t be replicated or readily acquired West Auckland Penrose Glen Innes activity focused in key Auckland locations where supply is constrained increased emphasis on proximity to consumers MAP KEY GMT Assets Otahuhu Wiri East Tamaki Unitary Plan Zoning Business Heavy Industry Zone Business Light Industry Zone 33 Future Urban Zone Source: Auckland Unitary Plan

34 PROVEN TRACK RECORD- over 850,000 sqm of current portfolio developed by Goodman build to lease programme maximising the efficiency and value of remaining sites programme supported by low vacancy rate Goodman development programme (NLA sqm) 120, ,000 80,000 60,000 8% 7% 6% 5% 4% 40,000 20,000 3% 2% 1% Goodman design build Goodman build to lease Auckland industrial vacancy 0% 34 Source: JLL & Goodman

35 COMPLETED PROJECTS CSR, The Gate Industry Park The Hill, Highbrook Business Park ACCO, Highbrook Business Park COMPLETION May 2017 VALUE $11.0m NLA 4,937 sqm COMPLETION June 2017 VALUE $17.8m NLA 7,503 sqm COMPLETION Aug 2017 VALUE $16.9m NLA 6,402 sqm 35

36 COMPLETED PROJECTS Coda Stage 2, Savill Link AB Equipment, Highbrook Business Park Showroom Units, Highbrook Business Park COMPLETION Nov 2017 NLA 7,410 sqm COMPLETION Dec 2017 NLA 2,929 sqm COMPLETION Dec 2017 NLA 1,730 sqm 36

37 FY18 DEVELOPMENTS seven developments announced YTD, $164.8 million total project cost $118.4 million of additional spend, yielding 8.3% 13.1 ha of development land utilised 63,468 sqm of NLA Development Location Additional spend ($m) NLA sqm Completion date Spicers Highbrook Business Park ,800 Mar-18 Fliway expansion Westney Industry Park 2.7 1,895 Feb-18 Gateway units Highbrook Business Park ,470 Dec-18 Parade units Highbrook Business Park ,770 Jul-18 Selwood units The Concourse ,933 Dec-18 Savill Link warehouse Savill Link ,500 Nov-18 Plytech warehouse Highbrook Business Park ,100 Nov-18 Parade units Artist Impression Gateway units Artist Impression 37

38 HIGHBROOK WORK IN PROGRESS active development projects include 16 new warehouses additional spend of $151.9 million 8.3% yield on additional spend

39 CONSTRUCTION COSTS costs escalating but offset by yield compression and rising rents quality of base build specification also rising Warehouse rate $1,000 $850 developments typically recording gains of 15-20% when valued on completion Construction Cost $/m² $700 $550 $400 $

40 DEVELOPMENT PIPELINE GMT land supply 27.1 ha supports a further 134,800 sqm of industrial and commercial development yield on additional spend expected to range between 8-9% Remaining land (ha) Developable NLA (sqm) Additional spend ($M) 40 Highbrook Business Park , Savill Link , M20 Business Park 1.9 9, ,

41 VALUE ADD OPPORTUNITY Penrose Industrial Estate 8.8 ha 35% site coverage $681 sqm land and building value yielding 6.8% held circa 40% below replacement cost 41

42 VALUE ADD OPPORTUNITY Connect Industrial Estate 4.6 ha 46% site coverage $680 sqm land and building value yielding 6.8% 42

43 VALUE ADD OPPORTUNITY Tamaki Estate 5.8 ha mixed use zoning 34% site coverage $606 sqm land and building value yielding 5.1% 43

44 VXV PRECINCT Datacom Building, VXV Precinct 44

45 VXV PORTFOLIO NLA sqm 88,222 WALT 10 YEARS occupancy 99% portfolio of seven modern, low rise office assets jointly owned with GIC 7,000 employees now working within VXV portfolio average building age of 7.4 years 45

46 Lease expiry profile 80% PORTFOLIO METRICS Fonterra Centre, Bayleys House and Datacom all 5 Green Star Design rated % of portfolio rent 70% 60% 50% 40% 30% 20% 10% 0% Vacant FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 >FY26 Air New Zealand renewed for further eight years technology customer leased top floor of Datacom outstanding ground rent reviews settled 46 Rent reviews (by next review) Fixed 83% Market 16% CPI 1% Top 10 customers Fonterra Co-Operative Air New Zealand Datacom NZ Auckland Transport KPMG/Kensington Swan IBM New Zealand Bayleys Corporation Hewlett Packard NZ Microsoft NZ Technology Customer 0% 5% 10% 15% 20%

47 AREA OF URBAN REGENERATION VXV Precinct / Wynyard Quarter additional residential apartments and commercial space are planned 3,000 residents and 25,000 workers expected by 2030 America s Cup

48 Auckland CBD office premium rent & vacancy 600 Forecast 16% MARKET TRENDS Rent pa ($psm) % 12% 10% 8% 6% 4% 2% 0% Vacancy Auckland CBD office vacancy at historic lows Source: CBRE Source: CBRE Rent Vacancy vacancy to peak in 2019 with the completion of Commercial Bay net effective rents, expected to stabilise CBD prime yields continue to firm record levels of offshore investor interest and a number of new entrants to the market Capital value ($psm) Auckland CBD office premium yield & value $10,000 $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Forecast 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Yield 48 Value Yield Source: CBRE

49 OCCUPIER TRENDS Collaborative Brand Alignment 49 Agile & Flexible Authentic

50 INVESTMENT STRATEGY VXV Plaza Goodman Office, KPMG Building maintain premium space offer maximise long-term cashflows improve amenity to enhance the location investigate further opportunities 50 Fonterra Centre Bayleys House

51 BALANCE SHEET STRENGTH Ford Highbrook Business Park 51

52 FUNDING ENVIRONMENT funding market comparison changing funding environment has influenced capital management strategy bank funding retained for operational flexibility institutional lending remains strong but banks preferred exposure levels have reduced to around $100m per bank pricing has stabilised at higher levels with tenors longer than three years no longer attractive compared to other markets USPP and domestic bond market remain very strong Funding market costs (approximate) 52

53 CAPITAL MANAGEMENT STRATEGY operational flexibility maintain a degree of reliance on bank funding: - targeting ~$300m of bank facilities - tranche size set to minimise refinancing and re-pricing risk bank debt provides operational flexibility, target of $100m - $200m of drawn bank debt: - repayment flexibility in event of further asset sales - any WPH third party refinancing may result in repayment of shareholder loans to GMT, and bank debt repayment gearing gearing expected at lower end of 30% - 35% band, providing: - operating flexibility capacity to fund acquisitions - resilience in the event of asset devaluations liquidity (headroom) target to remain significant at $100m - $200m to provide for financial flexibility liquidity / maturity profile to be maintained; no unfunded maturities within next 12 months 53

54 FUNDING DIVERSITY OVER TIME 2018 funding sources (drawn 1 ) 2012 funding sources (drawn) reduced reliance on bank funding has been a key focus over recent years managing funding sources, not bank facilities (HHL, HDL) non-bank funding provides both tenor and pricing benefits most diversified funding in NZ listed property sector 1 adjusted for expected settlement of Central Park divestment Tighter capital requirements and rising cost of funds have resulted in margins required by banks lifting 30-50bps for LPVs over the last 24 months.. LPVs which have previously diversified funding through debt capital markets are best positioned to mitigate this impact. 54 Forsyth Barr, Funding headwinds gearing up, 18 December 2017

55 CURRENT FUNDING STRUCTURE 2018 debt maturity profile 2,3 weighted average debt term to expiry of 4.7 years (drawn basis), up from 3.1 years in 2012 around $200 million of headroom within bank facility amounts of $150 million or less are well suited to sourcing funding in multiple markets corporate credit rating of BBB and issue rating of BBB facilitates debt market access 2012 debt maturity profile excludes GMT s 50% share of Viaduct Corporate Centre 2 based on expected 31 March 2018 debt levels and adjusted for the expected settlement of Central Park 3 excludes GMT s 51% share of its Viaduct joint venture debt facility. GMT s Viaduct joint venture has a $112 million debt facility maturing September 2019.

56 BALANCE SHEET STRENGTH strong financial metrics look through loan to value ratio of 32.4% allowing for contracted sales, pro forma 30 September gearing of 25.8% debt currently around 63% hedged to reduce interest rate volatility interest cover ratio will be greater than 3.0x in 2018, well above the covenant minimum of 2.0x loan to value ratio at historical lows FY12 FY17 1H18 Pro forma Borrowings for LVR $m Assets for LVR $m 1,707 2,492 2,575 LVR %

57 CASH EARNINGS cash earnings of around 7.0 cents per unit are forecast for FY18 distribution represents 94% of cash earnings at half year development activity contributing to strong growth in cash earnings $ million FY12 FY13 FY14 FY15 FY16 FY17 1H18 Operating earnings after tax (before base fee) Capitalised borrowing costs (18.9) (23.6) (22.8) (20.3) (17.1) (11.4) (4.7) Maintenance capex (10.7) (9.4) (8.0) (6.7) (5.0) (3.9) (1.3) Cash earnings Base fee (6.0) (6.8) (6.7) (6.4) (6.3) (7.7) (3.9) Adjusted cash earnings Distribution (cpu) Cash earnings (cpu) % of distribution 118% 115% 110% 107% 109% 94% 94% Adjusted cash earnings (cpu) % of distribution 133% 130% 122% 117% 119% 103% 103% 57 introduction of fee for units arrangement from FY15

58 SUMMARY Highbrook Business Park 58

59 FOCUS own develop modern high quality assets with strong customer covenants in the best locations industrial property is the preferred sector, unique characteristics make it a superior long-term investment Auckland is the favoured location, demographic and consumer trends support this decision development programme has created portfolio of unrivalled quality essential business activity to service customers, while continually improving the portfolio new land opportunities difficult to secure, value add opportunities increasingly important 59 manage assets and customer relationships to maximise rental cashflows and long-term value balance sheet capacity funding development progamme treasury initiatives to lower interest costs improving diversity and tenor transition to cash earnings based distribution policy, headwinds while completing asset disposals

60 THANK YOU YOU 60 Datacom VXV Precinct