Goodman Property Trust (GNZ) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this Annual Meeting of Shareholders. I'm John Dakin, Chair of Goodman New Zealand Limited and Goodman Property Services Limited, which together form the new stapled group, Goodman NZ. Certainly a pleasure to be engaging with you all today back here at Pipiri Lane. As is customary, I need to deal with the emergency procedures upfront before we proceed, and I introduce the Board and executives that are joining us today. So if I can just brief you on some health and safety practices in relation to the use of this venue. In the unlikely event of an emergency here at Pipiri Lane, the meeting will be paused. And those of us in the room will be required to evacuate to a designated safe zone. Should this occur, please exit the room via the stairwell at the back of the room or the external stairwell at the front left of the room, following the directions of the event space staff to the outside assembly points for the building, and please do not use the elevator in the event of an emergency. I'd now like to cover off some meeting formalities. In accordance with usual practice, I can confirm that the meeting has been properly convened and the requirements for a quorum have been satisfied. Today's meeting has a hybrid format and is being held both in-person and online through Computershare's online meeting platform. For those in the room, please be aware there are cameras and audio equipment streaming proceedings. For those of you attending the meeting virtually, if you'd like to submit a question, the Q&A is always open. So please feel free to submit questions throughout the meeting. These may be moderated or if we receive multiple questions on one topic, amalgamated together through our moderator, and we have allocated time at the end of the meeting to answer these. Polling has also opened. So if you are eligible to vote at this meeting, you will be able to cast your vote under the Vote tab. You can amend your vote, up until the time the poll closes at the conclusion of the meeting. To streamline proceedings, I will refer to Goodman NZ as GNZ throughout the meeting. It's now my pleasure to introduce the other directors of the Board and executives of GNZ who are in attendance today. Starting from my far left, your right, we have Leonie Freeman, Steve Jurkovich, Laurissa Cooney, James Spence, and David Gibson. Andy Eakin and Greg Goodman join us online. We're also joined by representatives from our legal advisers, Russell McVeagh, our auditor, PricewaterhouseCoopers, our tax consultants, KPMG, and our registrar of Stapled Shares, Computershare Investor Services Limited. These executives and representatives will be available to answer any questions if required. So I'd now like to begin the meeting by outlining the purpose. Our presentations will focus on GNZ's 2026 operating results and the progress we have made across GNZ's strategic initiatives this year. The formal business of the meeting is to ask shareholders to consider and vote on the ordinary resolutions to approve a buyback of GNZ's Stapled Shares and the appointment and remuneration of GNZ's auditor. Our new stapled structure means that separate resolutions must be passed by the shareholders of both GNZL and GPS to give approval. At the conclusion of the voting, we'll invite any general business questions from the floor and online. So now to the year-end review. As we reflect on FY '26, it is important, I think, to note and acknowledge the ongoing geopolitical and economic volatility that we're seeing here and around the world. The Board remains mindful that many New Zealand businesses continue to navigate an extremely challenging operating environment. However, against this backdrop, the management team continued to work very, very closely with all our customers, and we are encouraged by the resilience of GNZ's portfolio and also the resilience of those customers. The 2026 financial year has been a significant one for GNZ. We delivered financial results in line with guidance, reflecting the quality of our $4.9 billion warehouse and logistics portfolio and an operating model that supports sustainable earnings and distribution growth. The annual cash distribution increased to $0.06825 per Stapled Share, a 5% increase on the previous year. Increased Property asset valuations also contributed to an improved statutory result with an after-tax profit of $248 million. Over the past year, we have continued to refine and strengthen our business, establishing a complementary property funds management platform, successfully executing our capital recycling program. We've also advanced key sustainability initiatives and completed the transition to a corporatized and stapled structure, and these have all been important milestones for the business. Together, these initiatives have enhanced our strategic flexibility and also position GNZ well for sustainable long-term growth. On behalf of the Board, I would like to acknowledge the sound financial performance delivered this year in a pretty volatile environment and the significant progress made across GNZ's strategic initiatives. I'd now like to hand over to our Chief Executive, James Spence, who will take you through GNZ's FY '26 operating results, investment strategy and update on the investment and development opportunities that will support our next phase of growth. James?

Thank you, John. Good morning, everyone, and it's good to see so many familiar faces in the room. It's a pleasure to be here today to reflect on another great year and strong performance for the business. It's a good opportunity for both the directors and executive team to engage directly with you, our shareholders. GNZ is New Zealand's largest property investment group and one of the top 20 stocks on the NZX by market capitalization. With a substantial warehouse and logistics portfolio valued at $4.9 billion, including our external assets under management, GNZ's investment strategy remains focused on high-quality real estate in core industrial property markets. Over the past 25 years, we've built a business around a quality portfolio, a wide customer base, a proven development capability and a committed team. It is these foundations that continue to underpin our performance and gives us confidence in the opportunities ahead. Our strategy is built around 3 complementary pillars: investment, development and funds management. This is a strategy that continues to deliver strong operating results for GNZ, creating long-term value for our shareholders and positive outcomes for our wider stakeholders. Our conviction in the industrial property market remains strong in Auckland. As New Zealand's Gateway City, Auckland's infill markets are tightly held and land constrained, making our portfolio increasingly difficult to replicate. Development is expected to remain a significant part and component of GNZ's business. Our in-house development team brings deep expertise across planning, design and delivery. GNZ's in-built development pipeline of more than $1 billion underpins future opportunities that are increasingly shifting towards providing essential infrastructure for the digital economy. Our focus remains on future-proofing assets -- our assets to meet the evolving needs of our customers. We're also expanding into development and sale of land-parcel and turn-key assets to meet demand in markets where investment and owner-occupier opportunities are limited. A measured allocation of invested capital into develop-to-sell opportunities introduces more active income streams while maintaining modest relative to the scale of GNZ's core businesses. The successful establishment of the Highbrook partnership, which I'll cover in more detail later in the presentation, has created a scalable platform that diversifies revenue and unlocks access to third-party capital. A $4.9 billion urban logistics portfolio provides the physical infrastructure that enables supply chains to operate efficiently. The aerial image on the current slide shows the location of our assets, which are strategically positioned across the Auckland region. The map also highlights the proximity of our properties close to major transport networks and utility infrastructure. The locational advantages are increasingly valuable for logistics businesses operating in a competitive environment. We have 220 customers that lease more than 1.2 million square meters of space within the portfolio. GNZ has performed well and delivered positive leasing results with average portfolio occupancy of near or 98% achieved throughout the year. The average age of our buildings is now 13 years across the core portfolio. We have a proven development track record with 90% of the core portfolio developed by Goodman, about 1/3 of that in the last 10 years. Moving over to capital management and allocation. GNZ now has a modern corporate structure that will facilitate the delivery of an active business strategy focused on sustainable earnings growth. Our funds management business allows GNZ to pursue its growth objectives without increasing financial risk, an important consideration in an environment of increasing capital scarcity. We have around $350 million of funding capacity over and above our existing commitments before we reach a look-through gearing of 30%. This gives us the flexibility to fund our in-build development pipeline, progress our develop-to-sell activities, target on-balance sheet acquisitions, and execute initiatives such as the buyback program, which I'll talk a bit more about now before moving to our 2026 financial summary. On to the buyback. As you'll recall and as was detailed in our Notice of Meeting that you would have received, Goodman Property Trust launched a $125 million on-market buyback program earlier this year, which ceased at the end of March to allow the corporatization and stapling of GMT. We bought around $16 million worth of units, which were purchased before balance date at an average price of $1.94, which is an 8% discount to the net tangible asset backing as at 31 March 2026. The continuation of the buyback at those sort of prices represents a clear value-driven opportunity to effectively buy the highest quality real estate at a discount and provides an attractive risk-adjusted return. At those levels, it's an accretive -- it is accretive to both NTA and cash earnings on a per share basis, supporting sustainable distribution growth. The approval being sought today for the buyback program will ensure no shareholder holding between 20% to 50% of the Stapled Shares in GNZ, such as Goodman Group, our largest shareholder, is required to sell as a result of the continuation of the program, given that both GNZL and GPS are considered code companies under the Takeovers code. This will be covered more in the detail in the formal business following the conclusion of the presentation this morning. On the financial summary for FY '26. As John noted, it's been a successful FY '26 despite more uncertain times with GNZ's financial performance being relatively robust and resilient. The Highbrook Partnership has strengthened the balance sheet and supported income diversification with new fee revenue stream from the Highbrook Partnership contributing to a 3.6% increase in operating earnings before tax. In FY '26, GNZ recorded a revaluation uplift of around $111 million of fair value gains compared to around $11 million for the year before. During the period, nearly $700 million of capital was recycled. As at 31 March 2026, GNZ had a balance sheet committed gearing of 16.2%. And on a look-through basis, which takes into account Highbrook Partnership as well, GNZ's committed gearing is 24%. We have substantial liquidity for investment -- reinvestment, as I mentioned, into developments, acquisitions and the buyback program. Turning now to our earnings and distribution guidance for the year ahead. Consistent with guidance for the year, GNZ delivered cash earnings of $0.0798 per share for FY '26. This represents a 5.7% increase on FY '25. Cash distributions totaled $0.06825 per Stapled Share for the year, a 5% increase for FY '25, which reflects the quality of our earnings and our commitment to delivering sustainable returns for our shareholders. Looking forward into 2027, we expect this momentum to continue. Full year cash earnings are forecast to grow by around 5% and cash distributions to the shareholders are expected to also increase by 5% to $0.071 per Stapled Share with all distributions expected to be paid from GNZL benefiting -- which benefits from its tax favorable PIE status. This guidance reflects the resilience of our business and the disciplined execution of our strategy, which we expect to support earnings growth, subject to there being no material adverse change in market conditions or other unforeseen events. As I mentioned earlier, the successful launch of the Highbrook Partnership has been a significant achievement in the year. GNZ's Capital Partners acquired a 28.9% interest in the limited partnership that now owns Highbrook Business Park with GNZ retaining a 71.1% interest. Establishing a complementary property funds management business has extended the scope of our operations and enhanced financial flexibility of our business. The Highbrook Partnership reflects an important first step in building a property funds management business of scale. This platform has enabled income diversification and allowed GNZ to recycle capital for reinvestment into higher-yielding opportunities. Further to the establishment of that partnership, we purchased a site on Felix Street in Onehunga for just over $50 million. Works are planned to commence in the second half of FY '27. The project represents a unique opportunity for owner occupiers, investors and lessees, providing flexibility to accommodate a broad range of modern warehouse requirements. We've also progressed, as you can see on the screen there, development at Mount Wellington with the commencement of the first stage of regeneration of the site. You've probably seen it as you drive down the motorway office at Sylvia Park coming out of the ground. The project remains on schedule for completion in the first half of calendar 2027. The slide shows the artist impressions of both the Felix Street development on the left and Mount Wellington on the right. At Penrose Industrial Estate, we continue to prepare the site for data center use and have committed to preliminary design and infrastructure works. Our focus is on the delivery of a development-ready site with power and design flexibility to provide optionality to meet future requirements of data center customers. With an approved data center resource consent and a works agreement for a 32 MVA power connection now signed, we anticipate an on-site power connection in the first half of 2028. More broadly, we believe New Zealand is well positioned to capture data center investment, supported by a strong renewable energy grid and growing demand for digital infrastructure. At Waitomokia in Mangere, as you can see there on the right, our earthworks are progressing well with the first development site ready for above-ground construction in the second half of FY '27. I'll now briefly cover some sustainability highlights before making a few concluding remarks and hand back to John. Sustainability continues to be embedded within our business strategy and decision-making. Our focus is on the built environment and the delivery of sustainable property solutions. During the year, we expanded our Green Star performance program across the business, providing independent verification of building performance and operational efficiency. This not only supports lower emissions, but also delivers tangible benefits for our customers through reduced operating costs. Our LED lighting program is now 98% complete. We're also making really good progress with our electrical sub-metering program across the portfolio. This enables customers to better understand their energy use and optimize energy efficiency. Across the whole portfolio, 84% of our properties have now had upgrades that lead to lower emissions and lower operating costs for our occupiers. We also continue to focus our support on initiatives that improve social outcomes in the South Auckland locations where we invest. This is predominantly food rescue and literacy initiatives, with KiwiHarvest and Duffy Books, two of our longest-running partnerships. Through Goodman New Zealand community, we continue to support programs that help build inclusive, resilient and sustainable communities, providing support to around 15 organizations. We are proud of the long-standing relationships that we've built with our community partners and the positive impact these programs continue to deliver. I encourage everyone to read our latest annual report available on our website, which goes into greater detail on our sustainability initiatives and includes our climate-related disclosures. Before we move on to the ordinary resolutions, I'd like to provide some concluding remarks. While the broader geopolitical and economic volatility continues to influence activity in the short to medium term, GNZ's investment strategy remains well supported by substantial balance sheet capacity and a disciplined approach to capital allocation. The execution of key strategic initiatives during the year, including the establishment of our property funds management business has extended the scope of our operations and enhanced our financial flexibility. Supply-constrained Auckland industrial locations continue to reinforce our targeted strategy to deliver new product. Combined with our in-house expertise, many of whom are here today, proven track record and a development pipeline of more than $1 billion, GNZ is well positioned to capture future opportunities as they emerge. And finally, to our investors, thank you. Your continued support in our strategy and investment is truly, truly valued. And I'd like to hand back to John. Thank you for joining today.

Thanks, James. We will now consider the ordinary resolutions and any questions you may have on those resolutions. For those of you participating through the live webcast, I encourage you to submit your questions now. As I mentioned earlier, these need to be entered through the online portal and will be moderated to avoid duplication. As a Nonexecutive Director of the Board and an executive of Goodman Group, both myself and Greg Goodman will abstain from making a recommendation on the resolutions relating to the buyback program. So with that in mind, David Gibson, as Deputy Chair, will chair the consideration of these resolutions today. I'd just like to invite David to take us through that section.

Thank you, John, and good morning, everyone. As outlined in the Notice of Meeting, Goodman Group is GNZ's largest shareholder, holding just under 32% of Stapled Shares. If shareholders approve the buyback resolutions, a takeover code exemption will apply and Goodman Group's holding could rise by up to 1.65% to a maximum of around 33.59% in aggregate if 75 million Stapled Shares were acquired through the buyback. If not approved, the Board will reassess whether to proceed with the buyback program or an alternative buyback proposal. Shareholders will have also seen that the Notice of Meeting was accompanied by an independent adviser's report prepared by Simmons Corporate Finance. The report was commissioned by the independent directors and provide shareholders with an independent assessment of both the buyback program and the consequential increase in Goodman Group's voting control that may result if the buyback proceeds. The takeovers panel was satisfied that Simmons Corporate Finance was independent and competent to prepare the report. Importantly, the report concludes that after considering all the relevant factors, the positive aspects of the buyback program outweigh the negative aspects of Goodman Group retaining any increase in its voting rights from the perspective of shareholders not associated with Goodman Group. Resolutions 1 and 2 relate to the approval of the buyback of GNZ Stapled Shares and are detailed in the Notice of Meeting and on the proxy form you will have received. Resolutions 1 and 2 will not take effect unless both resolutions are passed. A simple majority of votes of shareholders entitled to vote and voting is required to carry each Resolution. The voting restrictions on Resolutions 1 and 2 are detailed in the Notice of Meeting and the proxy form. The independent directors unanimously recommend that shareholders vote in favor of the buyback resolutions. So moving to Resolution 1. Resolution 1 is shown on the screen now. This is an ordinary resolution of GNZL approving the buyback program. I'll now open the floor for questions on this resolution. Please raise your hand and wait for the microphone to be provided. So any questions in the room? Okay. No questions in the room. We'll now move to questions from our website -- webcast participants. Have we got any questions? Very good. Thanks, everyone. There don't appear to be any further questions, so we'll now move to Resolution 2. Resolution 2 is now shown on screen now. This is an ordinary resolution of GPS approving the Buyback program. I'll now open the floor for questions on this resolution. Please raise your hand and wait for the microphone to be provided. Any questions in the room on Resolution 2? No. Then we'll just move again to questions from our webcast participants. No questions. Very good. Thank you, everyone. There don't appear to be any further questions. So I'll now hand back to John to chair the consideration of the auditor resolutions and conclude the formal business of this meeting.