The 17.3% increase in the value of the Trust’s property portfolio, to almost $3.8 billion, contributed $560.0 million of fair value gains to this year’s statutory profit. The uplift follows the 5.7% or $165.8 million increase recorded in FY20.
The stronger revaluation result is the main contributor to the 128.2% increase in profit before tax, from $284.4 million to $648.9 million. It also underpinned the 23.0% increase in net tangible asset backing to 212.5 cents per unit (on a fully diluted basis).
The significant rise in property values has been driven by record low interest rates and positive investor demand for high-quality warehouse and logistics space across Auckland. The attraction of the asset class is reflected in the strengthening of the portfolio capitalisation rate which has firmed 70 bps over the last 12 months to 4.7%.
Adjusting for these fair value gains and other cash and non-cash items provides the reconciliation between profit and operating earnings.
Strong property market fundamentals were reflected in high occupancy levels, positive leasing results and new development commitments over the last 12 months. Low gearing and substantial liquidity have also allowed the Trust to secure new investment opportunities, acquiring properties neighbouring its Savill Link and Mt Wellington industrial estates for a total of $83.0 million.
The additional income from new acquisitions and recently completed developments, together with rental growth from the investment portfolio have driven the 5.3% increase in net rental income this year, to $153.0 million.
Total expenses of $38.1 million were 7.0% higher than last year. A higher base management fee, increased net interest costs and higher administrative expenses all contributed to the $2.5 million increase.
The revenue and expense items described above result in operating earnings before tax of $114.9 million, 4.7% higher than the $109.7 million recorded in FY20. On a weighted average unit basis, operating earnings before tax were 8.26 cents per unit and 6.86 cents per unit after tax.
A performance fee of $13.7 million was also earned by the Manager this year. The fee was earned as a result of the carry forward amount reflecting GMT’s very significant outperformance (on a total return basis) against its listed peers in FY20. The fee is excluded from operating earnings as the Trust Deed requires it to be reinvested into new units in GMT, ensuring the interests of the Manager remain well aligned with the interests of other investors.
Earlier asset sales and equity initiatives have repositioned the Trust and deleveraged the balance sheet. It has been a successful strategy that has provided GMT with the financial flexibility to fund new investment opportunities.
The issue of $200 million of eight-year and ten-year fixed interest rate bonds to New Zealand wholesale investors in September 2020 was a continuation of this prudent approach. Achieved at competitive margins the highly successful issue adds further tenor and diversity to the Trust’s debt book which now includes bank borrowings, listed retail bonds, wholesale bonds and US Private Placement debt notes.
At 31 March 2021, the Trust had a loan to value ratio of just 19.2% with committed gearing of 22.5%. It’s a conservative level, well below the 50% maximum allowed under the Trust Deed and debt facility covenants. With only partially drawn debt facilities the Trust retains $339 million of funding capacity for future investment.
A total tax expense of $17.2 million results in an after-tax profit of $631.7 million, a 141.2% increase from the $261.9 million recorded in FY20.
Tax on operating earnings reflects an effective rate of 17.0%, compared to 17.5% previously.
Along with other commercial property investors GMT is again able to claim tax deductions for building depreciation. Effective from 1 April 2020, the legislative change has reduced the amount of tax paid by the Trust.
Cash earnings and distributions
Cash earnings is a non-GAAP measure that assesses free cash flow, on a per unit basis, after adjusting for certain items. The table above shows how the Trust’s cash earnings are calculated and how this compares to the distribution it pays.
Cash earnings of 6.40 cents per unit were 2.9% higher than the 6.22 cents achieved in FY20. The increase is ahead of initial market guidance of 6.20 cpu, which was increased to 6.30 cpu in November 2020. The increase reflects the stronger than forecast performance of the portfolio with only minor financial impacts resulting from the COVID-19 pandemic.
From FY22 the cash earnings calculation will be amended to remove the straight line accounting treatment of fixed rental increases. The change will better align GMT’s cash earnings measure with underlying cashflows.
Under the revised methodology GMT’s FY21 cash earnings are restated at 6.28 cpu. Guidance for FY22 (on the same basis) is for cash earnings of around 6.54 cpu, a 4% increase.
Cash distributions of 5.30 cents per unit compare to 6.65 cents per unit previously. The reduction, signalled at the beginning of the year, reflects a revised payout ratio of between 80% and 90% of cash earnings.
GMT Bond Issuer Limited
GMT Bond Issuer Limited received $20.8 million of interest income (FY20 $19.7 million) and incurred $20.8 million of interest expense (FY20 $19.7 million).
The change in the interest income and interest expense amounts from the previous year reflects the $200 million of wholesale bond issues in September 2020 and the maturity of the GMB020 Goodman+Bonds in December 2020.
S&P Global Ratings 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 as a result of the mortgage security held over GMT’s property portfolio.