chairman's and chief executive officer's report

The Board and Management are pleased to present the interim report for the six months ended 30 September 2014.

It has been a particularly busy period with new strategic initiatives and a positive business environment contributing to another impressive operating result for GMT. 

The Board is extremely pleased with the progress that has been achieved in the first six months of the year. The implementation of a more active property strategy and refinements to the governance and management structures are business enhancements that are already contributing to the financial performance of the Trust. 

Financial Performance

Additional revenue from completed development projects, a lift in portfolio occupancy and modest rental growth, together with fair value gains on certain property assets have been the main drivers of the Trust’s solid profit result. 

Profit before tax of $65.3 million is in line with the $70.1 million recorded in the previous corresponding period. The 6.8% variance being largely attributable to the decrease in the value of the Trust’s interest rate swaps. 

Distributable earnings¹ have increased to $55.5 million before tax or 4.53 cents per unit on a weighted average issued unit basis, consistent with earlier guidance. The 8.4% increase from 4.18 cents per unit recorded in the previous period reflects greater revenue but also lower cash expenses following the introduction of a new fee arrangement. 

The reconciliation between profit and distributable earnings incorporates adjustments for both cash and non-cash items. These adjustments include gains of $18.0 million from asset sales and the valuation of certain investment and development properties, partly offset by $4.2 million of losses on GMT’s derivative financial instruments. 

These fair value movements contribute to the 1.7% increase in net tangible assets, from 31 March 2014, to 102.1 cents per unit at 30 September 2014. 

Property Portfolio

A growing economy is continuing to have a positive impact on customer demand with increasing levels of development activity and positive leasing outcomes enhancing the Trust’s operating results. 

Leasing transactions, securing over 70,000 sqm of space on new or revised terms, have lifted occupancy to 97% and ensured that the weighted average lease term across the portfolio has been maintained at more than five years. 

Sustained customer demand is also supporting a heightened level of development activity and it is expected that the Trust will commence more than $100 million of new projects this financial year. 

It is a value adding activity that enhances the wider portfolio while extending the range of property solutions that can be offered to customers. 

New development and infrastructure projects with a total cost of almost $78.0 million have been announced in the first 6 months of the year, these include; 

  • Five new industrial facilities at Savill Link in Otahuhu, Highbrook Business Park in East Tamaki and Westney Industry Park in Mangere; and 
  • Infrastructure investment at Central Park Corporate Centre with the refurbishment and upgrade of the childcare and gym facilities, together with the development of a new multi-level car park building. 

Encompassing over 35,000 sqm of rentable area these new projects are expected to generate $6.2 million of annual rental income and deliver valuation gains of between 10% and 15% once completed. 

Valuations undertaken on current and recently completed development projects have contributed around $14.5 million to the interim profit result, demonstrating the value adding potential of the Trust’s strategic land holdings. 

Asset Recycling

A focus on sustainable growth and a buoyant investment market, as local and offshore investors compete for prime assets, means that asset recycling is now the preferred source of funding for new development projects. 

GMT has taken advantage of the strong demand to sell three assets during the period for a total of $45.2 million. These sales were achieved at a premium to book value and contributed around $4.3 million to the Trust’s profit. 

A further $18.9 million of sales were contracted shortly after the Trust’s interim balance date. 

Financing new development and investment activity through asset recycling is facilitating the Trust’s business growth while preserving its balance sheet capacity. 

At 30 September 2014 GMT’s loan to value ratio was 36.5%², well within the Board’s targeted band of 35% to 40%. 

Other capital management initiatives undertaken since 31 March 2014 have included; 

  • the suspension of the distribution reinvestment plan; and 
  • the refinancing of the Trust’s main bank facility. 

The success of the asset sales programme means that that the equity from the distribution reinvestment plan is not currently required and it was suspended in August 2014, ahead of the first quarter distribution payment in September 2014. 

The term of the Trust’s $600 million debt facility was extended out to a weighted average of three and a half years in October 2014. The composition of the banking syndicate that provides the facility was also changed. The inclusion of HSBC followed the repayment of Kiwibank earlier in the year. 

Viaduct Partnership

A more active strategy has been further demonstrated with the announcement on 3 November 2014 that GMT is partnering with GIC, a leading global investment firm which manages Singapore’s reserves, to co-invest in Auckland’s rapidly developing Viaduct Quarter. 

The introduction of a strongly aligned capital partner will enable GMT to extend and diversify its Viaduct portfolio maintaining a long term investment of around $250 million. 

The joint venture, which includes GMT’s existing Viaduct property interests, will own a portfolio of assets valued at $313 million with a mandate to grow to around $500 million over time. 

To facilitate the transaction the Trust is selling a 49% interest in two of its existing Viaduct assets:

  • The Air New Zealand Building, which was originally acquired by GMT in 2006 for $55.0 million, is being sold into the joint venture at its March 2014 valuation of $64.0 million.
  • The Fonterra Building, which was acquired ahead of its completion by GMT for $92.6 million, is being sold into the joint venture for $93.2 million.

GMT's current joint venture partner is also selling its 50% interests in the Vodafone, KPMG, Microsoft & HP buildings at its March 2014 valuation of $156.2 million.

GMT will have a 51% interest in the expanded joint venture which will continue the Trust's strategy in the Viaduct, investing in high quality, campus style office properties, occupied by major customers on long term leases.

The new partnership is expected to provide a range of benefits to GMT, including; 

  • The capacity to reinvest in a growing market segment; 
  • Access to new office stock in a progressive location; 
  • Increased asset and customer diversity; and 
  • Greater mix of ownership tenures in an expanded portfolio. 

Securing a sovereign wealth fund as a investment partner demonstrates the quality and maturity of GMT. It also signals an important new phase in the growth of the Trust with a greater range of capital options now available for new investment opportunities. 

Outlook and Guidance

A growing economy is continuing to generate strong customer demand for high quality, well located business space. With a stable economic outlook, expectations are that the strong property market dynamics will continue over the medium term. 

The strategy of the Trust has been refined to take advantage of these conditions and a more active operational approach is being pursued. 

A focus on sustainable growth, with asset sales financing an accelerated development programme, is converting the Trust’s strategic land holdings into high quality income producing assets. It is a value adding activity that is enhancing the portfolio while improving the quality and profile of GMT’s earnings. 

New corporate initiatives and strategic partnerships are also improving the business structure ensuring the Trust remains a leading investment entity. 

The Board is pleased with the progress that has been achieved and positive about the current business outlook. It has reiterated its distributable earnings guidance for the 2015 financial year of around 9.1 cents per unit before tax. 

Quarterly cash distributions totalling 6.45 cents per unit are expected to be paid. 

On behalf of the Board and Management: 


Keith Smith

Chairman and Independent Director

 JD signature




John Dakin

Chief Executive Officer and Executive Director


¹ Distributable earnings is an alternative performance measure used to assist investors in assessing the Trust’s underlying operating performance. Further information, including a reconciliation between profit after tax and distributable earnings is provided in note 6 of GMT’s interim financial statements on page 19.


² Net of cash, unamortised bond issue costs and after adjusting for unconditional sales at 30 September 2014. 
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John Dakin, Chief Executive Officer, and Keith Smith Chairman and Independent Director at the new commercial offices at Highbrook Business Park

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The new Pelikan Artline facility at Highbrook Business Park