Financial summary

A portfolio revaluation gain of over $200 million has contributed to a record statutory profit of $334.8 million before tax.

overview

The revaluation of the Trust’s property portfolio contributed $201.9 million of fair value gains to this year’s profit. The 8.2% increase in asset values reflects the quality of the portfolio, strong property market fundamentals and record sales results, with local and international investors competing for assets in a low interest rate environment.

These factors are reflected in the portfolio's average capitalisation rate which has strengthened 40bps over the last 12 months to 5.8%, while market rents have increased by 5% on a like for like basis.

The disposal of the Trust's 51% interest in Wynyard Precinct Holdings Limited(1) has also generated strong gains for GMT, contributing to a 61.6% increase in profit from the $207.2 million achieved previously.

Adjusting for these and other cash and non-cash items provides the reconciliation between statutory profit and operating earnings.(2)

(1) Adjusted operating earnings is a non-GAAP financial measure included to provide an assessment of the performance of GMT’s principal operating activities. Refer to note 4.2 of GMT’s financial statements for further information.
(2) Cash earnings is a non-GAAP measure that assesses free cash flow, on a per unit basis, after adjusting for certain items. 

Operating performance

Low vacancy rates and sustained economic growth is driving customer demand for high quality industrial facilities across Auckland. These positive market dynamics are contributing to GMT’s strong operating performance, with new leasing and development commitments growing rental cashflows across the portfolio.

A successful sales programme has provided the balance sheet capacity to fund the heightened level of development being undertaken. The positive revenue contribution from completed projects and new acquisitions during the year has been offset by the impact of these earlier disposals. The deleveraging that has occurred, has contributed to a 2.5% reduction in net property income, from $130.1 million to $126.8 million.

There has been a corresponding reduction in interest costs, which have decreased from $18.7 million to $16.0 million.

Administrative expenses have increased $0.1 million to $2.7 million and while a performance fee of $8.6 million was earned this year, it is excluded from operating earnings as the Manager is required to use the fee to subscribe for new Units in the Trust.

The operating contribution from GMT’s share in Wynyard Holdings Precinct Limited, which was contracted for sale in May 2018 and settled in December 2018, is detailed in note 2.1. The $8.9 million total contribution(1) ($10.3 million previously) from the joint venture results in adjusted operating earnings of $117.0 million before tax.

On a weighted average unit basis, this equates to 9.04 cents per unit. Full year cash distributions paid to Unitholders(2) have been maintained at 6.65 cents per unit, which represents 95.3% of GMT’s cash earnings.

(1) Adjusted operating earnings is a non-GAAP financial measure included to provide an assessment of the performance of GMT’s principal operating activities. Refer to note 4.2 of GMT’s financial statements for further information.
(2) Cash earnings is a non-GAAP measure that assesses free cash flow, on a per unit basis, after adjusting for certain items. Calculation of GMT’s cash earnings is set out above.

Balance sheet

The disposal of Trust's 51% interest in Wynyard Precinct Holdings Limited in December 2018 means GMT’s investment strategy is now exclusively focused on the Auckland industrial sector. The transaction was the largest sale completed by the Trust, making up $323.9 million of the $370.5 million of asset disposals announced last year.

The conditional sale of the remaining assets at Show Place Office Park, post balance date, completes the sales programme. It has been a successful strategy that has repositioned the business and deleveraged the balance sheet, providing the funding capacity for new development and investment initiatives.

Eleven development projects, requiring $114.1 million of additional investment, commenced during the year and two strategic acquisitions totalling $122.0 million were also announced.

At 31 March 2019, the Trust had a loan to value ratio (LVR) of just 19.7% with committed gearing of 23.7%. It’s a conservative level, well below the 50% maximum allowed under the Trust Deed and debt facility covenants.

While the fair value movements from GMT’s portfolio revaluation are excluded from operating earnings, they are the main drivers of the 13.0% increase in net tangible asset backing to 157.0 cents per unit (on a fully diluted basis).

Cash earnings

Cash earnings is a non-GAAP measure that assesses free cash flow, on a per unit basis, after adjusting for certain items.
The table below shows how the Trust’s cash earnings are calculated and how this compares to the distribution it pays.

million2

The Manager currently uses the base management fee it earns to subscribe for new units in the Trust. Adding back the fee in 2019 would reduce cash earnings to 6.24 cents per unit

Taxation

A total tax expense of $15.3 million results in an after-tax profit of $319.5 million, an increase of 64.7% from the $194.0 million recorded in 2018.

After tax adjusted operating earnings, reflects an effective tax rate of 15.0%

GMT Bond Issuer Limited

During the year, GMT Bond Issuer Limited received $19.7 million of interest income and incurred $19.7 million of interest expense. The 28.8% increase reflects the full year impact of the GMB040 and GMB050 bond issues during the previous period.

Standard & Poor’s has maintained the credit rating of all Goodman+Bonds at BBB+. This is one notch higher than the Trust’s investment grade issuer rating of BBB.

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