Goodman Property Trust (GNZ) Earnings Call Transcript & Summary

And you can hear me okay? Welcome to the Special Meeting of Unitholders. I'm John Dakin, Chair of Goodman New Zealand Limited, the current manager of Goodman Property Trust. The purpose of today's meeting is to consider a proposal to internalize the management of GMT. The proposed change to the corporate structure is an important decision that will shape the future direction of our business. GMT's existing externally managed trust structure has been the traditional model for listed property businesses in New Zealand for more than 30 years. Internalization is a strategic shift that will create a fully integrated property entity, a contemporary structure appropriate for today's environment and importantly, for GMT's future ambitions. The Board believes the internalization proposal offers exciting growth opportunities for GMT and provides immediate and longer-term benefits to unitholders. Given the related party nature of the resolutions that will be discussed today, our Deputy Chair and Independent Director, David Gibson, has been nominated by the trustee to act as Chair for this meeting. David very capably lead the independent Board committee that negotiated the internalization agreement with Goodman Group. He's also participated widely in the stakeholder engagement program that followed the announcement. I'd now like to invite David to formally open the meeting. Thank you.

[Foreign Language] Thank you, and greetings to everyone. Firstly, some formalities in accordance with usual practice, I can confirm that this meeting has been properly convened and the requirements for a quorum have been satisfied. The meeting has a hybrid format with unitholders either participating in person or through a live webcast. For those in the room, please be aware that there are cameras and audio equipment streaming proceedings. For unitholders joining us online, questions can be submitted through the webcast portal at any stage. These will be moderated, and we will have allocated time at the end of the meeting to answer any of these questions. Polling has also opened and the votes can be cast by selecting the polling icon on the instructions screen and following the prompts. Votes can be amended up until the time the poll closes at the conclusion of the meeting. Some health and safety practices relating to the use of this venue and the unlikely event of an emergency, you'll be required to evacuate to a designated safe zone. Should this occur, please exit the room through the fire escape doors to the right and to the rear of the room following the directions of the venue 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, we have Keith Smith, Laurissa Cooney, Andy Eakin, Leonie Freeman, John Dakin, James Spence and Greg Goodman joins us online from Sydney. We also have representatives of our trustee, solicitors Tech Consultants and Financial Advisers President, and these representatives will be available to answer any questions if required. We can now move on to the presentations. James and I will summarize the internalization proposal before reviewing the resolutions and inviting questions from the floor and online. At the conclusion of the meeting, we'll ask unitholders to vote on the 3 resolutions to affect the change. I'm pleased to confirm that with the exception of unitholder approval, all other necessary approvals have now been obtained. Goodman Group has been the manner of GMT and a cornerstone investor since 2003. The relationship has been positive with the delivery of world-class developments like Highbrook Business Park, establishing GMT as New Zealand's largest listed property entity. It has also been the best performing on a total return basis over the last 10 years. On the 26th of February '24, a conditional proposal to internalize the management of GMT was announced to the NZX. The announcement followed detailed negotiations between the independent directors and representatives of Goodman Group. Given the related party nature of the process, at the outset of negotiations, the Board established an independent Board committee, which comprise the independent director of the Board. It was a comprehensive and carefully managed process overseen by our solicitors, Russ McVeagh and with special advice from KPMG, Macquarie and UBS. Deloitte were also commissioned to complete an independent appraiser report to assess the value and fairness of the initiative. The independent directors are excited by the opportunity that internalization presents and believes it positions GMT for the next phase of business growth. In addition to the alignment benefits and lower operating expenses, internalization provides GMT with a more contemporary corporate structure. It is this change that will enable GMT to pursue wider business opportunities, including the establishment of the funds management platform. Before we move on to the key terms of the internalization proposal, I'll briefly summarize existing arrangements and how these would change. Under the current corporate structure, GMT pays fees to Goodman Group for the services it provides as manager of GMT. Goodman Group delivers these services through its New Zealand subsidiaries, Goodman NZ Limited and Goodman Property Services NZ Limited. Under an internalized structure, these arrangements will end. GMT will no longer pay fees to Goodman Group and will now employ the team responsible for delivering these management services. To effect the Goodman Group internalization, it will be paid $272.4 million to relinquish its management rights and for the ongoing cooperation agreements and services outlined in the notice of meeting. The payment represents about 6% of the current value of GMT's property assets. Deloitte, the independent appraiser, assessed the $272.4 million consideration is being within their fair market valuation range of $268 million to $315 million and therefore, fear to nonassociated unitholders. A binding rolling from [ ID ] was confirmed the payment as deductible for tax purposes with a net cost being $199.3 million. In addition to the $272.4 million, Goodman Group has also being paid $17.6 million to settle GMT's performance fee obligations to acquire its interest in investment properties co-owned with GMT and for net tangible assets of Goodman Property Services NZ Limited. That made total consideration paid to Goodman Group of $290 million. Goodman Property Services NZ Limited will become the new manager for internalized GMT and will effectively be controlled by unitholders. The acquisition of Goodman Property Services NZ Limited also provides business continuity with current staff being retained and remunerated directly by GMT. The internalization proposal also enhances GMT's corporate governance practices with all directors to be appointed and voted on by unitholders going forward. It's an ongoing requirement of GMT's investment -- managed investment scheme structure that the business is independently monitored. The Supervisor Covenant Trustee Services Limited will continue to provide this oversight on behalf of unitholders. Although no longer the manager, Goodman Group will remain a highly committed business partner, using its total consideration to subscribe for new units, it will increase its cornerstone investment in GMT from 25.2% to 31.8%. The issue price for the new units is $2.14 and this is a 5-day volume-weighted average price ending on February '24, with an issue price above GMT's net tangible asset backing, Deloitte also concluded that the issue of new units was fair to nonassociated unitholders. In addition to increasing its cornerstone investment in GMT, Goodman Group will also continue to provide access to its brand, corporate services and global expertise at no further cost to unitholders. For an initial period of 10 years and with a further right of renewal for 5 years, it's a benefit to the business that highlights Goodman Group's ongoing commitment to the success of GMT. The independent directors have been delighted with the level of unitholder engagement and support for the transaction since it was announced. By way of update, following the close of proxy voting on Sunday, over 70% of units have been voted with all 3 resolutions polling above 99% in favor, where the vote has been directed. The share market has also viewed the internalization proposal positively with GMT stock price increasing 7.5% since it was announced just over a month ago. And this compares to the listed real estate index, which recorded 2.4% gain and the wider NZX 50 which recorded a 1.9% increase. The independent directors unanimously recommend that unitholders vote in favor of all 3 resolutions. I'd now like to hand over to our CEO, James Spence, who will talk in more detail about the growth opportunity internalization provides and what it means for our business strategy.

Thanks, David. Good morning, everyone. It's good to see some familiar faces around the room and good to see a bunch of staff here as well. It's a pleasure to be here today, discussing a unique opportunity to drive our business forward. Internalization brings management in-house, integrating investment, development and property management functions within GMT. It builds on what we've achieved to date, leveraging the knowledge and expertise of our team, and provides a framework for sustainable long-term growth. Look, the immediate financial benefit of internalization, of course, is the elimination of external management fees and the reduction of operating costs in GMT, but the most significant benefit of a more contemporary corporate structure is the flexibility it provides to pursue new business opportunities, including the establishment of a funds management platform. As you will all know, if we take a step back, we've refined our investment strategy over the last 5, 10 years to focus on the Auckland industrial market and the growing demand for high-quality warehouse and logistics space close to the end consumer. Our portfolio has grown to $4.5 billion and now accommodates around 215 businesses. These customers lease over 1 million square meters of space and paid more than $175 million in annual rent roll each year. Many of you will recall, and it's quite close to home down here. We sold over $1 billion of assets and the Viaduct and Greenlane and Christchurch to reposition GMT. These sales provided the balance sheet capacity to fund our recent development activity. It's been a successful growth strategy with over 285,000 square meters of high-quality industrial development since our last significant disposal in 2018. A pipeline of greenfield sites and redevelopment properties within the portfolio provide further opportunity for growth. These sites are expected to support the development of over 400,000 square meters of logistics space in the next 10 to 15 years, and the estimated cost to fully develop these sites is at least $1 billion. A number of the redevelopment sites within the portfolio may also be suitable for things such as data centers in the area of emerging demand within the Auckland industrial market that would like to have the opportunity to capitalize on. The establishment of a funds management platform creates a scalable business that allows us to maximize the value of GMT's development pipeline in a capital-efficient manner. It provides the funding flexibility to take advantage of new investment opportunities. We expect more of these acquisition opportunities as higher interest rates continue to impact more highly leveraged investors. Subject to the internalization proceeding, our intention is to establish a property funds management platform anchored by our new Auckland Logistics Fund. The successful execution of this strategy will unlock new investment and development opportunities for GMT. It would generate fee revenue, diversify income and contribute to faster earnings growth. The investment focus will complement our existing strategy as we believe the underlying drivers and growth opportunity of the Auckland industrial market remain the strongest of all the commercial real estate sectors. It is also the asset class where our knowledge and our expertise can deliver the greatest value. To start with, GMT will allocate $100 million to create the new fund, while Goodman Group will contribute up to $200 million of additional equity. We also intend to leverage Goodman Group's global investor relationships to help secure additional capital partners, another benefit of its ongoing support. The potential to sell assets directly into its fund management platform will enable -- will limit, sorry, the requirement for new equity for GMT itself and allow it to grow more sustainably. Recycling capital in this way and co-investing in new investment opportunities is expected to generate significant value for unitholders. Targeting the creation of a $2 billion property funds management business over the next 3 to 5 years and internalized GMT is expected to produce earnings growth per year of -- between 5% and 7%. That's a strong forecast that reflects the growth of a successful funds management business that the funds management business will deliver, and we expect to make good progress in establishing this fund platform over the next 12 months. The assumption that the internalization proposal proceeds is reflected in our FY '25 earnings and distribution guidance. Cash earnings of around $0.075 per unit are forecast and that represents a 5% increase on this year's FY '24 restated cash earnings. Distributions as well are going up, cash distributions of $0.065 are also forecast for FY '25. That's a 5% increase on this year. And this year was a 5% increase on last year, so growing distributions for unitholders. But before we move to resolutions, I'd like to reinforce some key points from the presentations. GMT has always been an active business, and it will remain to be so. Internalization maximizes the value of our investment focus and will provide us with alternative options around capital. The creation of a fund's management platform and introduction of capital partners will reduce the reliance on debt and equity issuance to fund new growth opportunities. Retaining all the benefits of the Goodman brand, we've got the team, property portfolio, customer relationships and market expertise to scale up our business and deliver an investment strategy focused on sustainable value creation. I encourage you all to vote in favor of the resolutions to affect this change. Thank you for your attention, everyone. I will now hand back to David to complete the formal business of the meeting.

Thank you, James, and we'll now move on to the 3 resolutions and questions. [Operator Instructions] There are 3 resolutions detailed in the notice of meeting and on the voting and proxy form that you have received. All resolutions must be approved for the internalization to proceed. As the resolutions have been notified, there's no requirement for a seconder. The independent directors unanimously recommend that unitholders vote in favor of all 3 resolutions. There are voting exclusions on Resolutions 1 and 2, and these were also detailed in the notice of meeting and the voting and proxy form. Resolution 1 is shown on screen now. This ordinary resolution approves the internalization proposal and gives authorization to the manager and supervisor to do everything required to effect change. I'll now open the floor to questions on this resolution. Please raise your hand and wait for a microphone to be provided. Any questions? Okay. Assuming there's no questions, we'll now move on to questions from our webcast participants. No questions? Thank you, everyone. It doesn't appear to be any further questions. I will now move on to Resolution 2. Resolution 2 is shown on screen now. This ordinary resolution approves the issue of new units to Goodman Group subsidiaries at an issue price of $2.14 per unit being the 5-day VWAP ending on 20 February 2024. I'll now open the floor to questions on this resolution, please raise your hand and wait for the microphone to be provided. Do we have any questions? Doesn't look like there's any questions. So we'll move online. Anton, do we have it? Okay. Thank you, everyone. It doesn't appear to be any further questions, so we'll move on to Resolution 3. Resolution 3 is shown on screen now. This extraordinary resolution requires the appointment -- sorry, relates to the appointment of Goodman Property Services NZ Limited as the new manager of GMT upon settlement of the internalization. I'll now open the floor for questions. Any questions from the floor, Resolution 3? Anton, any questions online? Thank you, everyone. As there doesn't appear to be any further questions, we'll now proceed to a poll. For those participating through the live webcast that have not already voted, please submit your votes now. The poll will be closing in a few minutes. For those of you in the room that have not already voted, please complete your voting and proxy form and place it in the boxes provided by Computershare. The result of the poll will be announced to the NZX in due course, and a copy of the announcement will also be available on our website. On behalf of the Board, I'd like to thank you all for your participation today and for your continued support of the trust. I'd also like to thank the Goodman team and the dedicated group of advisers that worked under a tight time frame and strict confidentiality to deliver this proposal to unitholders. I now declare this meeting closed. And for those in the room, please join us for refreshments.