Goodman blames finance costs for $4.2m earnings slip

DHL occupies a building at Highbrook Business Park, part of Goodman Property Trust's $1.5 billion portfolio.

Rising finance costs and leasing difficulties pushed down half-year earnings from listed industrial landlord Goodman Property Trust by $4.2 million.

Goodman, which owns real estate worth $1.5 billion, including much of the Highbrook Business Park, made $38.5 million in distributable earnings for the six months to September 30, down on last year's $42.7 million for the same period. Goodman's net profit for the half-year was $13.2 million and the trust will pay its second-quarter distribution of 2.1 cents on December 17.

John Dakin, chief executive of Goodman's manager, blamed higher financing costs for the 9.9 per cent earnings drop, saying these had risen after a December deal to renegotiate debt.

But Dakin also attributed the drop to a much harder leasing climate and predicted a challenging second-half for the business.

At the same time as the result was issued, Goodman released details of a plan to raise $100 million in bonds so it can repay and restructure debt. The offer is expected to open on November 16 and close on December 10 with a five-year term.

Jeremy Simpson, analyst at Forsyth Barr, has an "accumulate" recommendation on Goodman which he said this week had its banking under control.

He noted development activity was picking up and said Goodman had announced a $12.7 million design-and-build project at its M20 Business Park in Wiri.

This is to be completed by May with an estimated 9 per cent yield on cost, "although there is yield upside given downward pressure on building costs. There is increasing tenant interest both in terms of new builds and existing properties and we would not be surprised to see further developments commenced in 2010," Simpson wrote.

Goodman, with a market cap around $887 million, is trading at a discount to net tangible assets but Simpson praised its debt management moves.

"Goodman rolled over its banking facilities well ahead of the rollover date and it has locked in more favourable funding margins than it would if it was attempting to roll over its facilities at present. These debt facilities total $902 million and do not roll over until October 2011. It has over $200 million of additional liquidity under these facilities," Simpson wrote.

The trust

* Goodman's property assets at September 30 were worth $1.5 billion.
* Net profit for the half-year was $13.2 million.
* $100 million in bonds on issue to repay and restructure debt.