Goodman Property Trust (GMT.NZ) Earnings Call Transcript & Summary

Our investors. Today's meeting, as you may have noticed, has a hybrid format. So for those in the room, please be aware, there are cameras and audio equipment watching you as we stream proceedings for our online participants. Our presentations today will focus on GMT's 2025 operating results and the positive progress we have made extending our business operations. We will also provide an update on our sustainability initiatives and the new 2030 emissions reduction targets we have adopted. The formal business of the meeting includes 3 resolutions. These relate to the reappointment of myself, Greg Goodman and Steve Jurkovich as Directors of the manager. I'd now like to cover off certain meeting formalities. In accordance with the usual practice, I can confirm that I have been nominated as Chair for the meeting. The meeting has been properly convened and the requirements for a quorum have been satisfied. For unitholders joining us online, questions can be submitted through the webcast portal at any stage using the Q&A tab on the right-hand side of your screen. These will be moderated, and we have allocated time at the end of the meeting to answer these. Should you need any help, please submit a query through the Q&A tab and a support person will respond directly to you. Polling has also opened and votes can be cast by selecting the Vote tab and following the prompts. Votes can be amended up until the time the poll closes, which will be at the conclusion of the meeting. In the unlikely event of an emergency here at the Sofitel, the meeting will be paused. You'll be pleased to know. And those of us in the room will be required to evacuate to a designated safe zone. Should this occur, please exit the room through the fire escape doors to the left and right and the entrance to the room following the directions of hotel staff to the outside assembly area. I'd now like to introduce the other directors of the Board and executives of the manager who are in attendance today. Starting from the far left, your right, we have Leonie Freeman, Laurissa Cooney, Andy Eakin, James Spence and David Gibson. And joining us online, we have Greg Goodman and Steve Jurkovich. Also present are representatives from our trustee, auditor, solicitor, and tax advisers. These representatives will be available to answer any questions if required. But before we move on to the presentations, I would like to formally welcome Steve, who recently joined the Board as an Independent Director. Many of you will recognize Steve as the CEO of Kiwibank, and we expect Steve's extensive leadership and governance experience in the financial services sector will be a very real and very strong benefit to our business. Steve's appointment maintains the size of the Board at 6 directors and in line with governance best practice ensures we continue to have a majority of independent directors. So now on to the year in review. The 2025 financial year has certainly been a defining 12 months for GMT. If you -- I guess, if you're writing a report card, you describe it as the first year as an internally managed vehicle as a transformative year. We have quickly adapted to the new corporate structure and have made significant progress towards wider business objectives. GMT has also delivered another strong operating result, demonstrating the resilience of its $4.7 billion urban logistics portfolio in what I think we all know has been a more challenging and volatile economic environment. Our focus on well-located warehouse and logistics space has continued to support substantial revenue and earnings growth, and there has been a corresponding 4.8% increase in distributions paid to our unitholders over the year. This continues a positive trend with 5 years of consistent growth. Stable property valuations as at 31st of March have also contributed to an improved statutory result with GMT recording a profit before tax of $130.9 million. Despite these positive financial results, we remain mindful of the more challenging operating conditions and the risks to New Zealand's economic recovery. Within this environment, the team is actively supporting customers to improve productivity and manage costs. These efforts are focused on initiatives that are enhancing the efficiency of leased facilities, and also helping to lower utility costs. We've certainly refined the business over the past 12 months with new strategic initiatives, creating a platform for long-term growth. These initiatives include the governance changes with the internalization, and new remuneration framework as the people have been brought into the business and extended sustainability reporting with new emission reduction targets. Following the year-end, we've also established a property funds management business, initiated new development projects and completed the sale of the Bush Road Distribution Centre on the North Shore. Of these initiatives, the establishment of the property funds management business is the most significant. Securing international investor Mercer and Goodman Group as Foundation Capital Partners at a new fund investing in Highbrook Business Park is an important first step as we extend the scope of our business. Attracted by the strong fundamentals of the Auckland industrial market and the quality and scale of Highbrook, our new capital partners are acquiring a minority stake in the limited partnership that will own the $2.1 billion estate. The necessary regulatory approvals, I'm pleased to report, are progressing really well, and we expect to settle the transaction later next month. Establishing this complementary funds management platform just 18 months after internalizing is a significant achievement that provides real momentum to our business. I can't emphasize enough just how important this extension to our business strategy is for our future growth. Leveraging the existing management capabilities that creates new revenue streams for GMT and importantly, releases capital for reinvestment into higher-yielding and returning opportunities, including our own development pipeline. I'd now like to pass over to James Spence, who will review our financial and operational performance and provide further commentary on the new investment and development opportunities that will drive our business forward. James?

Thanks, John. It's good to see some familiar faces in the crowd and a few of our staff members. Look, it's a real pleasure to be here today as we reflect on our recent achievements and share the vision we have for the future. Focusing our investment strategy on the urban logistics sector in Auckland continues to deliver strong operating results for GMT. It is a strategy that is creating long-term value for our unitholders and positive outcomes for our general stakeholders. If you're all familiar, as you look up on the screen there with any of the estates in our $4.7 billion portfolio, you'll recognize the essential role our warehouse and logistics properties perform in the supply chain. Supporting our everyday lives, these properties provide the physical infrastructure that facilitates the efficient distribution of goods and materials and the delivery of digital services that we all rely on, on a day-to-day basis. The aerial image on the current slide shows the location of these estates strategically located across the Auckland region. The map also highlights the city's geographic constraints, and you'll note the proximity of our properties to major transport networks and utility infrastructure. These locational advantages are important features for logistics businesses operating in a competitive environment. It simplifies distribution and creates efficiencies that leverage the growth in e-commerce. Our core business focus is the 215 customers that lease over 1.2 million square meters of space within the portfolio. These relationships are managed by a dedicated team, many of whom are here today, committed to delivering the property solutions that these companies demand and help them succeed. The operational environment, as many would know, is evolving as customers adapt to the growing digital economy, rising consumer expectations, the expectations of us and Auckland's continued expansion. We have positioned the portfolio over many years to align with these trends, and we continue to do so. We advance our development program, and we invest in sustainable properties that enhance productivity, resource efficiency and supply chain resilience. Look, a more uncertain economic outlook has eased capacity constraints and moderated short-term demand. Despite this dynamic, vacancy for prime space across the market, of which we're about 15%, 20% of the market continues to reflect positive leasing dynamics and results within our business. Limited land availability in central locations and elevated construction costs have also contributed to a reduction in new industrial supply, with development completions in 2025 expected to fall to a 10-year low. The lack of competing new stock and supply, combined with significantly under-renting in our portfolio has driven over the last 12 months and 24 before that, continued growth in GMT's contracted rents. Facing rising occupancy costs, our customers are focused on selecting the right location for their businesses and maximizing the value of the space they already lease off us. And as I walk around the portfolio, I see a significant amount of new investment in automation as an increasing number of businesses look to boost technology and get more out of that existing space. In terms of our financial performance for the last 12 months, the portfolio generated over $230 million in revenue. This was driven by like-for-like rental growth of around 7% and additional rental cash flows from new development completions. GMT's strong revenue growth and lower corporate expenses have outweighed the impact of higher interest costs and a higher effective tax rate effectively following the removal of the tax deductions for building depreciation. This has contributed to a 3% increase in operating earnings to $125 million. As John already noted, the strength of GMT's underlying operating performance is complemented by an improved statutory result. Our after-tax profit of $110 million included $11 million worth of fair value gains following a modest revaluation uplift. In terms of earnings and distribution guidance going forward. Cash earnings, as many will know in this room, our preferred measure of underlying operating performance, increased by more than 5% last year to $0.0755 per unit. Targeting growth of at least 5% per annum, our guidance for FY '26 includes a further increase in cash earnings to around $0.08 per unit. Cash distributions of $0.06825 per unit are expected to be paid, also another 5% increase. Maintaining financial discipline is really significant and important for us. This has enabled us to grow the business sustainably with earlier asset sales providing the balance sheet capacity to fund investment in new development projects and ongoing sustainability initiatives. It has been a prudent approach that has enabled us to maintain gearing at an appropriate level through economic cycles and market disruptions. We recently sold the Bush Road Centre in Rosedale for $89 million. With the settlement of this sale and the launch of the new Highbrook fund recycling over $670 million in capital, GMT's committed gearing is just 23% on a look-through basis. It's well below the sector, which has averaged around 36%, 35% and provides us with significant balance sheet capacity to take advantage of new opportunities. We regard capital allocation as one of the most critical aspects of the decisions we make, given its direct impact on long-term performance and the investment returns we deliver to unitholders. While we're in a strong position, we remained disciplined in our decision-making, pursuing high value-enhancing investments only when the opportunity and timing are right. Maintaining a development pipeline extends the range of property solutions we can offer our customers. It has been a major contributor of GMT's growth with over 90% of the core portfolio constructed since 2004. Over the last 12 months, our delivery team completed 3 more highly sustainable projects, a couple of which you can see on the screen. These new warehouse and logistics facilities in Mount Roskill and Otahou provide over 50,000 square meters of well-located and operationally efficient space. Expected to achieve a 5-star Green Star rating, the new facilities are leased with a weighted average lease term of over 9 years. While current inquiry for new design build solutions remains subdued, we're initiating the first stage of the Mount Wellington estate regeneration project to meet future demand and leverage more favorable construction pricing. As with our other value-add estates, the strategy for this property has been to maximize holding income ahead of redevelopment. The aerial image on screen highlights the benefit of the location alongside State Highway 1 and the Mount Wellington Highway. The new multiunit development will provide over 21,000 square meters of space across 4 new warehouses. Many of you will notice the location being right across the motorway from Sylvia Park. With low vacancy and a lack of industrial zoned land limiting new supply in prime Auckland locations, the nearly $94 million project is being undertaken on a build-to-lease basis. It's a targeted approach that reflects the tight supply dynamic in this central location. We are also progressing development at Waitomokia in Mangere. Infrastructure and enabling works are underway with the construction of the first industrial facilities expected to start next year. Over time, we expect this estate to support up to 110,000 square meters of new development. Even with these new projects commencing, there is still a significant pipeline of opportunity ahead of us. Value-add estates within the portfolio provide a further 50 hectares of well-located land for future development. We're also positioning ourselves in our business to capture opportunities from the rapid technological shift being driven by the growth in artificial intelligence, cloud computing and other digital services. The expected growth in AI is driving an exponential demand for computational power, real-time processing and data storage. This is in addition to a sector that has already seen significant demand driven by greater Internet and Smart Device penetration, media streaming and e-commerce. Data centers provide the physical infrastructure needed for delivering these services and have evolved from information storage hubs into the digital engines of the global economy. On screen now are artist impressions of new generation data centers under development by Goodman Group around the world. Resembling modern industrial buildings in size and appearance, data centers are essentially vast server halls, often multileveled, containing rows of computer racks, raised floor for cabling and airflow with sophisticated climate and security controls to safeguard the digital infrastructure. Given the scarcity of suitable sites and the complexity of development, data centers offer enhanced returns for owners that have importantly, the capital, the land and delivery capability. With experience delivering a first-generation data center for IBM at Highbrook and benefiting from New Zealand's global connectivity and renewable energy grid, we are preparing for potential data center development at one of our sites, Penrose Industrial Estate. We have committed to up to $20 million for preliminary design and infrastructure work with the key priority being the establishment of a primary power connection to the almost 9-hectare estate. Completing this initial phase will give us greater optionality in a rapidly evolving market. A development-ready estate with power, consents and design offers flexibility and speed to market advantages and reduce delivery risk for future data center customers. So that concludes my presentation, everyone. And before I hand over to Andy, our CFO, I'd like to just reiterate a few messages. Our recent strong financial performance achieved in a challenging operating environment demonstrates the strength of our investment strategy and disciplined capital management. Internalization has further enhanced our capital flexibility. allowing us to reduce reliance on new debt and listed equity by partnering directly with institutional investors to fund our future growth. With the launch of the Highbrook partnership, we're in a strong position to build a funds management platform of scale. This strategy is expected to deliver superior long-term returns, exceeding those of a traditional real estate investment trust. Its capital partnering not only provides a source of funding for growth, but also generates income diversifying our revenue streams. Importantly, our property investment strategy has not changed. We will continue to focus our investment on our preferred Auckland market, a market which remains well positioned given its unique investment characteristics. The combination of these new growth opportunities and solid underlying portfolio performance is expected to support a 5% increase in both cash earnings and distributions for the next 12 months. It's a strong guidance that reflects our confidence in this business. Thank you for your continued support. Now I'll hand over to Andy.

Thanks, James, and good afternoon, everyone. It's great to be here today to share some insights on the business with you once again. At last year's meeting, I discussed our sustainability initiatives and an area of increasing focus from both regulators and stakeholders, and I'm pleased to provide another update today. As CFO and also Head of Sustainability, I oversee our response to the risks and opportunities presented by climate change. I'll outline how we integrate these considerations into our business operations. And I'll also highlight the work of the Goodman community and our partnerships with organizations that are helping to improve social outcomes in the areas where we invest. The 2025 financial year was the second year of reporting under the new Aotearoa New Zealand Climate Standards. This year, we incorporated these disclosures into our annual report, which was released in June. The report outlines the practical steps we're taking to reduce our emissions and demonstrates how these actions contribute to long-term value creation for the business. As New Zealand's leading industrial real estate investor, our focus is on the built environment and the delivery of sustainable property solutions that meet the evolving needs of our customers. By measuring the entire value chain, we've established a baseline for setting credible science-aligned targets. Independent assurance and timely disclosure of this data allows stakeholders to evaluate the effectiveness of our emission reduction initiatives. The graphic on screen summarizes our 2025 greenhouse gas emissions. This is what we refer to as the carbon footprint of the business. On an absolute basis, our total emissions of 38,322 tonnes were 5% lower than the previous year. You'll see that corporate emissions, which encompasses our operational activities, accounts for less than 2% of the total. It's Scope 3 emissions that present our biggest challenge, and also the greatest opportunity. As a property investor, our development activity and maintenance projects are the main sources of our Scope 3 emissions. And together, they accounted for around 82% of our emissions last year. The emissions generated by our customers' use of our buildings represents a further 16% of the total. We've set a clear pathway to reduce our overall carbon footprint with new emission reduction targets adopted for 2030. Otahou has independently confirmed that these commitments align with the science-based target initiative criteria for limiting global warming to 1.5 degrees. The 3 development projects that completed over the last 12 months generated 24,500 tonnes of upfront embodied carbon. By developing to a minimum 5 Green Star built rating and focusing on lower emission materials and building systems, we have reduced the emissions intensity of these projects by around 27% compared to a reference building of a similar size. It's a significant reduction, but we're working with consultants, contractors and building product suppliers to deliver even more resource-efficient buildings. Our target for 2030 is to reduce the emissions intensity of our development projects by a further 30%. We expect to achieve this by a combination of more innovative design and through the use of lower carbon steel, concrete and other building materials. Since 2023, we've matched the emissions from our development activity with globally recognized carbon credits at a total cost of around $3 million. For future projects, however, the funds that we previously allocated to the purchase of these credits will now be invested in the development of sustainable building technologies. We're establishing an embodied carbon innovation fund, which we see as a long-term approach with the goal of further reducing our construction-related emissions and lowering our carbon footprint. Maintaining our properties to a high standard and investing in upgrade projects that improve the operational and environmental performance of these buildings, also helps attract and retain customers. Over the past 12 months, we've invested over $10 million in targeted projects, advancing our 4-year $25 million program to improve the resource efficiency across the portfolio. These upgrade projects deliver tangible benefits for our customers, providing lower emission and more efficient buildings that support greater productivity and really importantly, reduced operating costs for our customers. Our target for 2030 is a 31% reduction in the intensity of the in-use emissions generated by customers occupying space within the portfolio. Our recent annual report also includes details of our community initiatives. While the food rescue organization, KiwiHarvest, continues to be the largest of our community partnerships, our support also extends to organizations focused on the health and well-being of the young people living in the neighborhoods around our estates. These include YMCA Sports camps at Camp Hunua, Upside Youth Mentoring Aotearoa and the establishment of the Waka Pacific Climb initiative in Manukau. With around 15 organizations benefiting directly from Goodman community support, these are just a few examples of the social initiatives that are making a real difference to people's lives in the locations where we invest. Hopefully, what I've discussed has given you a clear understanding of our sustainability program. It's a real core part of our broader strategy to build a lower carbon, more resilient business that delivers long-term value for all of our stakeholders. Thank you.

Thanks, Andy, and thanks, James. Before we move to questions, look, I would like to take a moment to sincerely thank our customers, you, our investors and the broader stakeholder community for their continued support of this business. I'd also like to acknowledge the contribution of the entire Goodman team, a number of whom are in the audience today and also the support from the Board in what's been a very dynamic yet rewarding year. So look, I'll now open the floor for questions.

Please raise your hand and wait for there's a couple of roving microphone people, Lennox and Jess. For those participating through the live webcast, please submit your questions now. As I mentioned earlier, these need to be entered through the online portal and will be moderated to avoid duplication. So, are there any questions in the room, first of all? So, Lennox and Jess might be out of a job. No questions. Well, why don't we -- can there could be a possible question coming. I can hear it. No, there's nothing for now. Are there any online questions, Anton? Okay. last chance. Going, going gone. Look, that's a good question. I didn't get any that much don't like -- where did they go? There you go, there's still some available. See Mandy later on. Thank you. Look, there doesn't appear to be any further questions online or in the room. So, look, I'd now like to invite our Deputy Chair, David Gibson, to conclude the formal business of the meeting. Thank you, David.