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Edited Transcript of GMT.NZ earnings conference call or presentation 13-Nov-19 9:30pm GMT

Half Year 2020 Goodman Property Trust Earnings Presentation

Auckland Nov 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Goodman Property Trust earnings conference call or presentation Wednesday, November 13, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Jonathan Eakin

Goodman Property Trust - CFO

* James Spence

Goodman Property Trust - Director of Investment Management

* John Morton Dakin

Goodman Property Trust - CEO & Executive Director

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Conference Call Participants

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* Adam Lilley

Craigs Investment Partners Limited, Research Division - Research Analyst

* Angus Simpson

ANZ Investment Services (New Zealand) Limited - Equity Analyst

* Jeremy Andrew Simpson

Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities

* Jeremy Kincaid

UBS Investment Bank, Research Division - Associate Analyst

* Nick Mar

Macquarie Research - Analyst

* Owen Batchelor

Jarden Limited, Research Division - VP of Equity Research

* Shane Solly

Harbour Asset Management Limited - Director & Portfolio Manager

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Presentation

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Operator [1]

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Thank you for standing by, and welcome to the Goodman Property Trust interim results webcast. (Operator Instructions)

I would now like to hand the conference over to Mr. John Dakin, Chief Executive Officer and Executive Director. Please go ahead.

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [2]

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Thanks, Chantelle, and good morning, everybody, and welcome to the interim results call for Goodman Property Trust. I've got with me James Spence, the Director of Investment Management; and Andy Eakin, our CFO.

So if I can take everybody to Slide 4, the overview. The -- our focus on Auckland certainly is behind the strong operating results that we're seeing. The occupancy ticked up a bit over the half year to 99.5%, retention rate of around 74% over the last couple of years, and the weighted average lease term expanded a bit to 5.5 years, which is very strong.

Leasing, also very active, 128,000 square meters of new leasing. And importantly, market reviews completed with a 7.3% rental growth, and that's pretty consistent with our assessment of under-renting across the portfolio of around 7.6%, which, again, has expanded a bit over the half year.

The development workbook also remains strong. 15 build-to-lease warehouses completed over the last 12 months, fully leased, and James will give you more detail on that later on. The interim revaluation, also very strong at $172 million at 6%, driven by a combination of cap rate compression and also the strong underlying market fundamentals in Auckland industrial.

In terms of investment, over the period, acquisitions in Mt Wellington of the Turners and Growers site, in addition to our Tamaki Estate, which is also mixed-use at Pilkington Road, and property at Favona Road, all prime urban infill logistics locations, and we settled those for $103.9 million during the half. Development commitments of 9 new projects, $123 million, and including another couple of customer expansions, which is a theme that we're seeing across the portfolio.

On the financial metrics. The equity raising, which were very well supported through the investment community of $175 million, has given us significant financial flexibility with our balance sheet gearing at 17.9% and just over 20% on a fully committed basis. The -- we've also worked through a refinancing of the bank facilities, which Andy will give you an update on. And importantly, from a total return point of view, the increase in NTA of around 10% to $1.728 per unit as at 30 September.

We're reaffirming the FY '20 earnings guidance with cash earnings to be materially consistent with FY '19, and also maintaining the distribution guidance at $0.0665 per unit.

So that's a bit of a summary, and I'll hand over to Andy to take you through the financial results.

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Andrew Jonathan Eakin, Goodman Property Trust - CFO [3]

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Thanks, John. Good morning, everybody. So moving on to Slide 6 and just some highlights of the first half results. Really pleasing to announce a record profit before tax today, $236.4 million. And as John touched on before, $172.4 million portfolio revaluation being the major contributor into that profit. NTA at $1.728. Again, that 10% growth is strongly influenced by the portfolio revaluation. And our LVR reported at 17.9%, so a very low LVR. Through the first half of the year, total unitholder return, so looking at stock price movement and distributions paid, sitting at just over 30%. And our cash earnings, pretty consistent with the first half of last year at $0.0315 per unit; distributions for the first half, $0.03325 per unit.

We turn over to Slide 7, just take a bit more detailed look at cash earnings. And most of you will appreciate that the arrangements that we had in place regarding the base fee changed at the end of last financial year. So the base fee is now settled in cash on an ongoing basis, and the cost of that basically is included within our operating earnings measure.

On this table, we've restated the first half of last year, so that's on a consistent basis with how we look at cash earnings in the first half of this year. And you'll see on the table, the $0.0315 cash earnings first half of this year compares pretty well with $0.0322 last year.

Strong income contribution coming through from the developments. The acquisitions that we've made in the period and also like-for-like rental growth really are offsetting the impact of the disposals and the deleveraging that took place since the year-end.

Full year cash earnings, as we guided at the beginning of the year, we expect them to be materially consistent this year with last year. And on a like-for-like basis, last year's cash earnings were $0.0624 per unit for the full year.

Turn over to Slide 8 and take a look just at the contributors to that growth in NTA. So $1.57 per unit at March. As mentioned before, the most significant impact on the stabilized revaluation $0.116 per unit contributed from that. Development just under $0.01 per unit. That was $12.4 million of revaluation, but that represents a margin of around 16% on those completed developments. And the equity placement, $150 million placement, which was completed in mid-September, contributes about $0.025 to NTA because that equity was raised at a 23% premium to NTA.

Moving on to Slide 9. There's quite a lot of detail on this slide in relation to the portfolio revaluation. So we completed a revaluation at the half because the early indications that we were getting from the value is whether there had been a material movement in the asset values, some very strong evidence in the market from transactions that have taken place, and we commissioned full valuations. And as you see, overall, 6% increase in the portfolio. But the stabilized portfolio itself, 6.5% increase, $160 million of the total $172 million. About 2/3 of that stabilized movement came from cap rate compression, with the balance obviously coming through from underlying markets' rental increases.

And you'll also see on the table the impact of the new leasing standard. That increases the portfolio value by $62 million. There's a corresponding liability on the balance sheet as well for our lease obligations. But importantly, no impact on net tangible assets from that change, and no impact on operating profit that's reported.

Turn over to Slide 10 and just take a look at the loan to valuation ratio. A very active first half of the year. We started the year with gearing reported at 19.7%. Acquisitions settled during the period. Developments completed during the period, contributing almost 4.5 percentage point increase. Disposal settled, the last few of our disposal program settled in the period. Stabilized revaluation, reducing it again. But the most significant contributor to that lowering LVR coming from the equity placement that was completed in the period that brings us down to 17.9%.

If we roll forward, though, with commitments that we've already made around developments where the cash hasn't yet been spent and take into account the $25 million raised in the retail offer during October, fully committed LVR sitting at just over 20%. Importantly, that gives us very significant capacity to continue with the development pipeline and to look for other opportunities and invest in other opportunities as they arise. The Board's medium-term target gearing range still sits at 25% to 35%.

Turning over now to Slide 12. And as John mentioned, we completed a refinance of our bank facilities at the end of last week. So announcing that just today. We had a $300 million facility in 2 tranches, 2 $150 million tranches. That overall facility has been increased to $400 million now in 3 tranches with 2-, 3- and 4-year tenors. As at today, with the equity that was raised, both September and October, we're sitting on a little bit of cash. So there's no drawn bank debt. And the facilities now are provided by 4 banks, whereas previously, that was 5.

Still committed to accessing non-bank funding as well. I think when we look at the cost in the markets, banks tend to be more competitive at the shorter end. And we do want to continue to have long-term funding on the balance sheet, and the domestic bond market and the U.S. private placement market still provides us with opportunity. And I think over the next 12 to 18 months, we'll look back to those markets again.

Standard & Poor's reaffirmed GMT's credit rating at BBB stable. And for the debt, BBB+ in July. And the credit metrics have continued to improve since then. So we would expect that rating to remain.

Slide 13 just gives a little detail around our interest rate profile. So with the repayment of debt over the last 6 months, we continue to reasonably elevated hedging levels for the next 12 months. It is through to late calendar 2020. But you'll see from the chart that, that drops off pretty sharply into the 12 months following that, and we will get much greater exposure to floating rates from late next calendar year.

Weighted average cost of debt for the half, start at 5%. For the full year, we expect it to be around 4.9%, which is pretty consistent with last year. But then as we get into FY '21 and beyond, we'd expect to see that fall.

Industry covenants requirement for that to be greater than 2x. We've presented that on a normalized basis, so we've excluded the one-off gains that were achieved on the sale of the Wynyard Precinct joint venture. That normalized basis is now at 3.9x compared to 3.6x at March, so it's still improving. The actual covenant measure, that sits at 5x, so it's significantly in excess of that.

So I hand you over to James now to talk through the portfolio.

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James Spence, Goodman Property Trust - Director of Investment Management [4]

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Yes. Thanks, Andy. Starting over on Slide 15. Metrics across the business remain robust, with the portfolio at near capacity of 99.5%. Weighted average lease term of 5.5 years, and like-for-like net property income growth of 3.4%.

Slide 16 gives an overview of the Auckland industrial market, which continues to perform strongly. Vacancy rates remain below 2%, with the lack of supply of existing stock and land also driving continued market rental growth with a 5.5% increase in the year to June. Average prime warehouse rates are now sitting around $140 per square meter, up from slightly over $100 a square meter 5 years ago.

GMT accounts for about 1/3 of the speculative supply currently being built in the Auckland market. We constantly monitor our exposure to this type of development. Speculative development underway across Auckland is around 160,000 square meters, which when put into context is around 1.5% of total stock or around 75% of the industrial absorption expected for the 2019 year.

Over to Slide 17. Leasing on a stabilized portfolio of almost 70,000 square meters has increased occupancy from 98% at March to 99.5% at the half year and has reduced pending expiries for FY '21 from 15% to 11% over the last 6 months. GMT's existing customer base, which now totals 185 businesses, continues to provide a strong demand pull for our new developments, with 75% of development leasing for the year coming from customers within the existing portfolio.

Over to Slide 18. NPI for the first half of the year of $71.3 million was approximately $3 million down from the same period last year. Acquisitions, developments and underlying rental growth have largely offset the impact of asset sales. Like-for-like NPI growth for the period equated to 3.4%. And when adjusting for the impact of straight-lining and fit-out rents, the like-for-like number is slightly over 4%.

Over to Slide 19. The first 6 months of the year saw approximately 12.5% of the portfolio subject to a new leasable market review, resulting in an annualized increase since the last time these leases were reviewed of 4.6%. The bottom table on the slide gives an overview of the largest 5 of these new leases and reviews. Same level of market rental growth for a number of years now has meant a number of rental increases are reaching pre-agreed capped levels.

Over to Slide 20. We have assessed the portfolio as at 30 September to be 7.6% under-rented, which can be compared to 5% to 6% under-rented 12 months ago. The chart on the left provides some insight into the reversion profile going forward. You can see from the FY '21 and '22 years, around 80% of the portfolio is subject to a form of review or expiry each year, providing opportunity for rental growth.

On Slide 21. Today, we're announcing the expansion of 2 further customers, [Mainstream] at Savill Link and Ingram Micro at M20. These expansions, which total 6,000 square meters, bring the total customer expansion workbook to just over $60 million when including Panasonic, OfficeMax and also Big Chill, which was announced last year.

Slide 22 and 23 provide an update on the progress of Savill Link and M20 Business Park, both significant estates, which following the developments announced will be practically complete.

Slide 24. Inquiry on our development program continues to stay strong with around 50% of our current developments with either signed leases or agreed terms. Our exposure to uncommitted product remains low, equating to around 4.4% of our wider portfolio of 1.1 million square meters. If you take into account those leases with terms agreed, this exposure level falls to just 3.5%.

Our development program has the added benefit of providing options for our customers, which is important considering we did not have any -- we do not currently have any vacant space within the stabilized portfolio.

And that's it. Back to you, John.

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [5]

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Thanks, James. Well, if we just move to Slide 26. In terms of outlook, we do expect the underlying fundamentals that are driving the Auckland market to be maintained. The -- certainly, we're seeing a scarcity of land and infill locations, and our focus is very much on urban infill logistics, and we expect that to result in increased brownfield development and/or site intensification.

Across the industrial sector, we're still seeing significant change with customers reevaluating their supply chains and becoming more focused on locations, which provide efficient and timely distribution, particularly given the congestion around Auckland. I think a lot of that is driven by the ongoing desire for convenience for many consumers.

We also expect, within that trend, to see an increased use of technology and automation. We're seeing some early signs of that here. But certainly, Goodman as a group is seeing that significantly internationally, where people are looking to maximize productivity from within their existing assets. And with all these structural trends, we do expect to continue to see a lot of capital coming into the sector. I think there's been as much capital as certainly I've seen in my time in the Auckland market, and we expect that to be around for some time.

But I guess, as always, our focus will be on making good long-term decisions. We think the location of the assets that we've got, being in strong urban infill locations, will support our customers' supply chain evolution. We think that those also support resilient cash flows in what is a very low interest rate environment.

And I think, finally, the balance sheet flexibility that we have give us the opportunity to continue to make good acquisitions, consistent with the ones we have done in the last couple of years, which are based on urban infill locations and also develop out the balance of our development opportunity.

So basically, that concludes the formal presentation. Certainly happy to hand back to you, Chantelle, to manage the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Jeremy Kincaid, UBS.

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Jeremy Kincaid, UBS Investment Bank, Research Division - Associate Analyst [2]

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My first and maybe only question is just, if we turn to the appendix, Slide 29, work-in-progress summary. The total project cost going forward, you have there $235.6 million, does that include land in that number? Or is this the additional spend from today?

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James Spence, Goodman Property Trust - Director of Investment Management [3]

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It includes land, Jeremy.

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Jeremy Kincaid, UBS Investment Bank, Research Division - Associate Analyst [4]

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Okay. Great. And so could you give an indication of what the additional spend would be then?

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James Spence, Goodman Property Trust - Director of Investment Management [5]

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Yes, I can, a second. I actually don't have it in hand, mate. I have to get back to you.

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Operator [6]

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Your next question comes from Jeremy Simpson, Forsyth Barr.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [7]

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Just a couple of things from me. The gearing obviously really low and well below the Board kind of levels, and you talked about flexibility. I'm just wondering whether what degree is also, I guess, caution as well, given, I guess, we've had such a protracted cycle. And then also, in terms of flexibility, what's your pipeline like for potential brownfield infill you have in sights?

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [8]

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Yes. Thanks, Jeremy. Well, maybe I'll answer that. There was a couple of reasons, I think, for the low gearing. Obviously, the -- we do think that over the sort of medium term that we will be redeveloping a number of our sort of brownfield site, and I think we sort of put a number out there of about $500 million over time that we think is potential capital that we'll spend on most sites.

I think the other part of it, look, we -- valuations, clearly, are elevated. We have had an extended [retention] recycle and now see (inaudible) and we don't think at this point it makes sense to be highly leveraged. I think there's sort of 2 reasons for flexibility. One is to absorb any shocks that come along, and also to take advantage of opportunities as they come up. So I think we're very comfortable with the seatings we've got, how we've been cautious. (inaudible) But if you look at the -- more broadly, we've got low interest rates for a reason because economies are weak, and we've got to make sure we can manage our way through it.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [9]

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Great. And I guess right to that, your team, I understand, have a lot of options given how low vacancy is in the market. What you're seeing sort of tenants view on life and expansion, relocation of premises, headcount, those sorts of things, paying a lot more rent, so the things around all that?

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [10]

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Sure, sure. Well, look, I mean, clearly, we've had to have a number of conversations with existing customers about pretty substantial rental increases, and I think James can probably talk a little bit about those.

The -- I mean, the fact that we're seeing a number of our customers expanding. I think we've got 5 expansions on the go at the moment, which are pretty substantial.

So as a general theme, you'd have to say demand is still exceeding supply in the Auckland market. We might be a little bit slower in terms of demand. But the -- even in the last few weeks, we've got ahead in terms on a number of buildings that we're building. So I think what's happening is the structural changes that are coming through the industrial sector continuing to underpin the demand that we see.

Did you want to add anything about the rental increases?

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James Spence, Goodman Property Trust - Director of Investment Management [11]

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Yes. I mean there are lots of conversations about rental increases, of course, but it's happening right across the market. It's also happening internationally. I think our customers are focused on a lot of the other factors like delivery times, getting the trucks off the road and also getting more out of their warehouses. So they're paying a higher rental rate. Having conversations about racking, more efficient racking, automation, those kind of things, to make the impact of rental increases a lesser thing pretty much.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [12]

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And just lastly, you mentioned you're getting close to pre-agreed capped levels of rent, which is, I guess, a high-quality problem. But what are the -- what's the implications of that?

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James Spence, Goodman Property Trust - Director of Investment Management [13]

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Yes. So I mean from a customer's perspective, it can be a good thing. So you might be on $110 a meter, and you'll go $120 instead of $130. But eventually, that just goes to under-renting, and that's why the under-renting is kind of built up a bit from last year at the landlord, but it'll eventually come through. On the (inaudible) can run through with the weighted average lease term of 5.5 years. So that eventually comes to us. It just means it's a bit slower. I think it's probably the factor, and it still comes through in new valuations.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [14]

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Yes. Yes. Good luck having structured rent that lags well. And structured rent...

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James Spence, Goodman Property Trust - Director of Investment Management [15]

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Yes, exactly.

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Jeremy Andrew Simpson, Forsyth Barr Group Ltd., Research Division - Director & Senior Analyst of New Zealand Equities [16]

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You get to catch-up here. Cool. So guys, well done. Looks good.

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Operator [17]

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Your next question comes from Nick Mar, Macquarie Group.

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Nick Mar, Macquarie Research - Analyst [18]

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Just a couple on the kind of tenant side. Are you seeing anything out there in terms of how the tenants businesses are performing? Or any changes to your arrears profile or anything like that just in terms of the kind of macro environment?

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [19]

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No, not really. I think midyear, it seemed a little bit quieter. But in the last, I guess, the last month or so, I think inquiries sort of picked up again. The number of our customers working through expansions at the moment, so we've got 5 customers that are expanding.

So the -- generally, the demand seems pretty good. The -- I mean obviously there are some customers growing quicker than others. But we -- at the same time, the economy is not growing as fast as it was. So we're sort of keeping a pretty close eye on it. But for the moment, the demand looks pretty solid.

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Andrew Jonathan Eakin, Goodman Property Trust - CFO [20]

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Just in terms of arrears. So as you know, we monitor that very clearly. There's nothing -- we don't see anything changing in terms of tenants, customers paying rents, speed of payment or anything like that. There have been no change at that sort of factual level in terms of what we're receiving.

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Nick Mar, Macquarie Research - Analyst [21]

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Yes. And while I've got you, Andy, on the [first] changes, you obviously separate out the interest cost impact. Do you know how much it should increase the rental number for the period?

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Andrew Jonathan Eakin, Goodman Property Trust - CFO [22]

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Off the top of my head, I think it was $1.6 million. If I'm wrong with that, I will come back...

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Nick Mar, Macquarie Research - Analyst [23]

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So the same number as the interest number?

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Andrew Jonathan Eakin, Goodman Property Trust - CFO [24]

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Yes, it's exactly the same, yes, because the [meters] are such so long term the assumptions around that. In essence, what happens is the rent that was being paid and recognized through net property income effectively just slides down to interest expense.

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Nick Mar, Macquarie Research - Analyst [25]

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Yes, yes. No, that's good. And then the retention rate, how has that kind of been breaking? And those 25% of customers, what are the decision points for moving elsewhere? Or are they taking a newbuild? Or what are you kind of thinking on that?

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [26]

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No, it's been long term consistently around that rate between 70% and 90%, so no real changes there. That's just sort of a natural attrition.

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Nick Mar, Macquarie Research - Analyst [27]

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Yes. And then just on the kind of brownfield stuff. Given the kind of valuation growth and the rental growth you've been seeing in those assets, how easy it is for you to actually get the economics working on redeveloping those assets, in particular, some of the infill sites that you've bought? The land owes you a lot of money if you look at the land plus building. How realistic is it that you get going on those in the next kind of 3 to 5 years?

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [28]

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Yes. Look, it really depends on how the rental growth cycle sort of unfolds and the impact of the, I guess, the structural changes across the sector.

I mean what we've been seeing internationally in sort of urban infill logistics is that rents that are -- for really well-located assets close to consumers can be sort of 3x what they are (inaudible). And I think as we've said before, there hasn't been that differentiation in Auckland. But I think if that comes through, then obviously, the time frame for redevelopment is shorter. If and obviously it's longer. But at the same time, in the meantime, most of the properties we own at brownfields have got pretty good improvements on them. They're old but well maintained, and we get a good cash flow off them and we're getting some of our strongest rental growth off those sites. So therefore, we end up just taking an increased cash flow for a while. We'll take that as well.

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Operator [29]

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(Operator Instructions) Your next question comes from Adam Lilley, Craigs Investment Partners.

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Adam Lilley, Craigs Investment Partners Limited, Research Division - Research Analyst [30]

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Just a quick one for me on the refi. So you've just completed your bank refi in November. Just curious if you can give any guidance as to how pricing compared relative to before, and if there's any influence or discussions about the impending reserve bank proposal on those discussions.

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Andrew Jonathan Eakin, Goodman Property Trust - CFO [31]

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Yes. Adam, it's Andy here. The pricing we were able to achieve was improved on where we sat previously. I'd say it's probably -- in my time, it's probably been the most interesting refi process to go through. We're seeing quite a wide degree of variance in bank's views on where pricing sits for GMT. But ultimately, we got them all to the same position, which I was very pleased to be able to do that. And I think some of that is influenced by varying views by the banks around the reserve bank. But noting that they don't expect that of any material impact certainly in the next 1, 2 years, albeit we'll find out more, I think, in about a month's time or less than a month's time. So it's sort of hard to read through what exactly is driving it on a bank-by-bank basis, but I'm pretty confident in the longer tenors that's having some influence.

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Adam Lilley, Craigs Investment Partners Limited, Research Division - Research Analyst [32]

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Just other one. Obviously, you're talking about -- you've got the GMB020 Bonds maturing. I think it's late next year. So it looks to be coinciding with that fall-off in fixed interest rate in your profile. If you were to go to market, again, let's say, like another bond, would you be considering like swapping the bond to maintain that exposure to floating going forward? Or have you got any thoughts on that?

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Andrew Jonathan Eakin, Goodman Property Trust - CFO [33]

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Yes. Look, we developed the thoughts on that closer to the time once we're sort of decided about what markets we have access to refinance that.

With -- one of the reasons for increasing the size of the bank facilities was to give us the flexibility that if we thought it was appropriate, that bond could be refinanced with bank debt at that time. But we haven't made any firm decisions around that at this stage. It's still more than 12 months away to that maturity. So as we get into sort of second half of next year, we'll be considering that. Plus if we were successful with acquisitions over the next 12 months or so, we could potentially be tapping alternative markets sooner.

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Operator [34]

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Your next question comes from Owen Batchelor, Jarden Securities.

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Owen Batchelor, Jarden Limited, Research Division - VP of Equity Research [35]

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Just one quick question. At the full year '19 result, you provided a helpful slide that showed your stabilized CapEx figure. It was around 12.1 for the full year or around 60 bps. Are you going to provide an indication of what that figure was for the first half?

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James Spence, Goodman Property Trust - Director of Investment Management [36]

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We're not disclosing that at the moment, Owen. We'll give you a full year number in May next year.

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Owen Batchelor, Jarden Limited, Research Division - VP of Equity Research [37]

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Okay. So that's policy going forward. Just -- we just get it at a full year?

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [38]

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Yes.

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James Spence, Goodman Property Trust - Director of Investment Management [39]

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Yes. Because it's a bit lumpy with timing and projects, so it probably doesn't give you a full picture.

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Operator [40]

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Your next question comes from Angus Simpson, ANZ Investments.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [41]

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Just first quickly, congratulations on the improved disclosure. That's great. And then just one quick question for me. Just in relation to the 2 developments that were announced today. Can you give an indication of where sort of the cap rate on completion and where sort of margins -- development margins are at the moment?

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James Spence, Goodman Property Trust - Director of Investment Management [42]

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Yes. Cap rates on new buildings, 4.75%, 4.5%. And the yield on cost for those including land is probably between 5.5% and 6%. The margins are in that same level, sort of 15% to 20%.

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [43]

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Okay. So probably even if you expanded on -- from 12 months ago. Would that be a safe comment?

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James Spence, Goodman Property Trust - Director of Investment Management [44]

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The GAAP, the margin?

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Angus Simpson, ANZ Investment Services (New Zealand) Limited - Equity Analyst [45]

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Yes. The GAAP, so going from 5.7% down to 4.75%, net percent GAAP, that would be -- is that wider than...

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James Spence, Goodman Property Trust - Director of Investment Management [46]

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No, that's been between 15% and 20% or so for a couple of years now. That sort of slipped down together.

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Operator [47]

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Your last question comes from Shane Solly, Harbour Asset Management.

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Shane Solly, Harbour Asset Management Limited - Director & Portfolio Manager [48]

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I just wanted to expand a little bit on this, on the cap rate on -- sorry, the yield on cost on the 2 developments you've announced today, a little bit tighter than we've seen before. Just -- can you just walk through a little bit about what that reflects?

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James Spence, Goodman Property Trust - Director of Investment Management [49]

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Yes. Shane, it's James. I think it's just because they're a little bit smaller. I don't think the economies of scale on the full build. There are expansions for existing customers and not large expansions as opposed to a 5,000 or a 10,000 square meter building, where the build rates are a bit cheaper, Shane. That's all that is.

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [50]

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Look, I think the other thing overlaying that, Shane, is just the strength of that investment market, which has kind of -- has been driving your exit cap rates down. And as I mentioned earlier, you've got more buyers of industrial property than I've ever seen in my time and more seeming to pop out of the woodwork every week. So I think that's -- your yield on costs have sort of had to come down in order to be competitive in that market.

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Shane Solly, Harbour Asset Management Limited - Director & Portfolio Manager [51]

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And just building on that, is there any change to the terms, the leases on those related to those 2 expansions?

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James Spence, Goodman Property Trust - Director of Investment Management [52]

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Yes, there is a 7-year expansion on the term for Ingram Micro, and Mainstream stays the same at 7 years already.

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Operator [53]

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There are no further questions at this time. I'll now hand back to Mr. Dakin for closing remarks.

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John Morton Dakin, Goodman Property Trust - CEO & Executive Director [54]

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Thanks, everyone, for dialing in this morning. The management look available for any one-on-ones, so feel free to come see us or book a call. Thanks very much.

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Operator [55]

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Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.