Online Retail Demand And Green Logistics Assets Will Drive Long Term Industrial Outperformance

Catalysts

About Goodman Property Trust

Goodman Property Trust owns, develops and manages warehouse and logistics real estate focused on key Auckland industrial locations.

What are the underlying business or industry changes driving this perspective?

• Growing online retail penetration in New Zealand from a relatively low base is expected to translate into sustained demand for modern warehousing, supporting higher occupancy and like for like rental growth, which should underpin revenue and cash earnings.
• Redevelopment projects at Mt Wellington and the multi year build out of Waitomokia are being executed into undersupplied, centrally located industrial markets, positioning GMT to capture rental premiums and lift net property income and development margins as these assets are delivered.
• The adoption of a funds management model, exemplified by the Highbrook Fund, opens incremental fee based income streams with limited balance sheet risk, which should gradually diversify and grow earnings beyond pure rental income.
• Very low look through gearing and substantial available liquidity give GMT capacity to deploy capital into higher yielding development and acquisition opportunities as pricing normalizes, enhancing returns on equity and supporting earnings growth over time.
• Ongoing investment in energy efficient, Green Star rated properties and lower embodied carbon designs is expected to attract quality tenants and reduce operating costs, supporting stronger occupancy, rental resilience and net margins as sustainability requirements tighten across the industry.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Goodman Property Trust's revenue will decrease by 10.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 43.9% today to 136.2% in 3 years time.
• Analysts expect earnings to reach NZ$276.7 million (and earnings per share of NZ$0.15) by about December 2028, up from NZ$125.9 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as NZ$323.8 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 15.7x on those 2028 earnings, down from 24.3x today. This future PE is lower than the current PE for the NZ Industrial REITs industry at 17.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.72%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Leasing inquiry is currently subdued and portfolio vacancies have begun to creep higher. If economic recovery in Auckland is slower than management expects, or customer optimism fails to translate into concrete expansion decisions, GMT could face weaker occupancy and slower like-for-like rental growth, reducing revenue and net property income growth over time.
• A high proportion of forthcoming industrial supply in Auckland is being developed on a speculative basis at the same time as GMT is committing to large projects such as Mt Wellington and the multi-year Waitomokia build-out. If tenant demand does not keep pace with this new space, increased competition could pressure achievable rents and incentives, lowering net margins and long-run earnings.
• GMT is relying on achieving attractive yields on cost and double-digit internal rates of return from its development pipeline at a time when market pricing for acquisitions is described as not stacking up on a risk-adjusted basis. If construction costs rise again or capitalization rates expand further, development returns could fall below target levels, weighing on future revenue growth and overall earnings.
• The new funds management platform and Highbrook Fund are intended to be long-term earnings diversifiers, but fee income is activity-driven and still relatively small. If transaction volumes, leasing activity, or performance fees underwhelm, the additional corporate and staffing costs required to support the platform may outpace fee growth, compressing operating margins and cash earnings.
• While low gearing and strong liquidity provide capacity for investment, the large cash balance currently earns modest returns and all bank debt has been repaid. If attractive opportunities remain scarce for an extended period or capital is deployed too cautiously, the drag from underutilized capital could limit growth in cash earnings per unit and constrain long-term distributions and earnings expansion.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NZ$2.2 for Goodman Property Trust based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be NZ$203.1 million, earnings will come to NZ$276.7 million, and it would be trading on a PE ratio of 15.7x, assuming you use a discount rate of 8.7%.
  
• Given the current share price of NZ$1.99, the analyst price target of NZ$2.2 is 9.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.