NZX-listed landlord Goodman Property Trust has a $635.7 million expansion under way via 10 developments, setting a workload record for that business.
Analyst Rohan Koreman-Smit has questioned the drive, particularly when building costs are high, but Goodman chief executive John Dakin said it would advance the business significantly and the timing is right for the business with a $4.8b portfolio.
All 10 new projects are in Auckland but do not include $500m plans for the ex-Villa Maria Estate in Māngere where irrigation lines and vines are being removed to make way for Goodman's new logistics/warehouse park on the horticultural land.
"This is the busiest the trust has been since Goodman Group took over the management in 2003 in terms of new workloads," Dakin said referring to the larger, ASX-listed associate.
"Typically, in my 18 years here, the trust would have been working on only around $150m of new projects at any one time."
The 10 projects will bring an extra 14.9ha of new floorspace to Auckland's warehouse/logistics sector with businesses from major retailers to freight forwarders all needing new and much larger premises.
New details are out on the latest four developments. Those will be worth around $221.4m and all for Auckland's logistics and distribution sectors. The $635.7m includes the $221.4m of projects just announced in late September.
Dakin provided further details of the latest four, geographic locations, their planning timeframes and if they've been leased. Plans for the four newest projects announced in late September are:
1. Mainfreight expansion
Largest of the four new developments announced in September, 23,300sq m twin-warehouse project, 12-18 Savill Dr, Savill Link, Ōtāhuhu. Separately, a new super-site facility is being developed for Mainfreight at the trust's Favona Road Estate, Māngere. The trust has not released the value of the Savill Link project but it is understood to be around $100m. Mainfreight leases an existing warehouse of around 5000sq m from the trust at 113 Savill Dr so the new project will rise near that.
2. Retailer Cotton On's new Roma Rd warehouse
More than doubling that retailer's footprint in Auckland with a new 17,300sq m design-build project on the ex-Foodstuffs site at 62 Roma Rd, Puketapapa/Mt Roskill, behind the new NZ Post project, under construction now. This is understood to be worth around $80m but the trust hasn't announced any valuation yet.
3. New non-leased, speculative warehouse/logistics building, Puketapapa/Mt Roskill: built without preleasing, of around 4000sq m to 4500sq m at 60 Roma Rd, Puketapapa/Mt Roskill, not yet leased. This could be worth around $40m on completion including the land.
4. New non-leased warehouse/logistics building, Puketapapa/Mt Roskill: around 4000sq m to 4500sq m, 61 Roma Rd, Mt Roskill. Also worth around $40m on completion. Expected to be completed by around March 2024 and to be leased before or by that date, given the strength of demand.
But a further six projects are being planned or rising now including at Highbrook which Goodman owns where it is developing new premises for NZ Blood and Stanley Black & Decker.
Forsyth Barr analyst Koreman-Smit was somewhat underwhelmed by the four latest projects and has an "underperform" rating on the trust. His latest note was headed "Topping up the development pipeline but does it add value?"
He acknowledged industrial asset development was a large part of Goodman's raison d'être but said: "We question the value-add at [this] point in the cycle given high land and construction costs and uncertain valuations on completion."
He cited agency CBRE's latest market monitor pointing to industrial cap rates expanding during the last six months. Goodman's development book could yield a less than 8 per cent development profit or even a slight loss, he forecast. Earnings accretion from the big development activity was also likely to be slim given increased incremental debt cost, Koreman-Smit said.
"For development returns to improve we will need higher industrial rents, lower construction costs and/or lower ingoing land values," he wrote.
Asked about the analyst's views, Dakin said: "Everyone has a view, that's what makes a market. While ForBar has an underperform, others have an outperform. What I would say however is that real estate is a long-term asset and while financial markets are experiencing extreme volatility at the moment, we remain focused on long-term decision-making. These developments we are undertaking, not only achieve our financial hurdles but are creating high-quality long-term assets in locations that cannot be replicated."
Detailed planning work for the big push is under way. No building contractor had yet been appointed for the four latest projects but the trust is holding discussions with around five parties with a view to appointing a head contractor.
"It's strongly elevated right now. That's very similar to what's happening with Goodman Group," Dakin said referring to the Australian-headquartered ASX-listed entity whose associate manages the trust.
Goodman Group has around A$13b to A$14b of development work currently on a global basis, building in Europe, Asia, the United States and Australia.
Dakin said the trust's development pipeline was being driven by a constrained leasing market and the growing digital economy.
"There's a whole bunch of things going on, particularly with e-commerce and businesses wanting locations closer to where they sell their goods which makes their operations more efficient. Just with the changing dynamics of the retail space, we've realised that businesses need more stock than what they have traditionally held because we're a long way from any supply markets," Dakin said.
"Demand is very, very strong in our space, but it's for those infill locations," he said citing the ex-Foodstuffs site Roma Rd site, bought in 2018, a move he previously described as being greeted by the marked as "mad" when Goodman paid what was thought to be an extremely pricey $93m for the 13.1ha site.
Now, Dakin says such a site is invaluable: "Our initial view was that we would hold that for 10 years. Now, it's going to be fully redeveloped by 2024. So there's enough demand for those sorts of locations to change the plans. Our customers holding more stock has accelerated our plans. Covid has been disruptive but it's brought our plans forward. In the case of what we do, for the locations we own, it's been a massive accelerator."
Around 93 per cent of the four new projects are pre-committed. The lease term averages are more than 13.5 years, much longer than the NZX sector averages.
In May, the trust reported how rising demand for warehouses and logistics centres and strong revaluations drove net after-tax profit for the past year up 18 per cent, to $748.6m.
The business was boosted by $660.4m in revaluations, up on last year's $560m, showing the rising worth ascribed to the type of property the trust specialises in - increasingly popular because of online shopping.
"The revaluation result is the main contributor to the 17.7 per cent increase in profit before tax to $763.8m, previously $648.9m," Goodman noted. Strong property market fundamentals and continued investor demand for the warehouse and logistics space the trust specialises in were also cited for the strong result.
Units in the trust are now trading on the NZX around $2.02, down 18 per cent annually. The business has a market cap of $2.8b but declares a property portfolio valuation of $4.8b.
Industrial projects dominate new supply, the study found, comprising 65% of new stock.