Amidst fears of rising bond yields and industrial overcapacity,
-Goodman upgrades FY22 guidance for the third time
-Work in progress continues to increase and demand remains robust
-Rents increasing on near-full vacancies
-Guidance likely conservative, again
As a real estate investment trust (REIT),
The Top 20 previously included retail
Goodman's point of difference is it is an industrial REIT, not a retail or office REIT, and such was not impacted by lockdowns to any great extent. Indeed the REIT's investment in and development and management of logistics assets, including distribution warehouses for online retail, has proven a pandemic winner.
The story has unfortunately been vastly different for Goodman investors in 2022, from the moment the
Given investors typically turn to REITs for their yield, despite REIT distributions being zero-franked, rising government bond rates are the enemy of the REIT. As the attraction of a risk free yield via bond investment grows, the attraction of riskier REIT yields diminishes.
And it doesn't help that Goodman is a low dividend payer. Since late December the share price has fallen -29%.
Adding to the turnaround in sentiment were comments from the global behemoth of online retail,
Allaying Fears
At Goodman's March quarter trading update, management put these fears to bed, noting underlying demand for industrial facilities across the world remains robust, driving low vacancy rates and strong market rental income in almost all markets globally.
Yes, rising yields pose a headwind, but with tenant demand remaining exceptionally strong, rental growth is accelerating, which should cushion the negative impact of rising rates on property capitalisation rates and valuations.
For the third quarter in a row, management upgraded FY22 earnings growth guidance, to 23% this time from 20% prior, and 15% at the end of the first quarter. Goodman has exceeded full year guidance in each of the past four years.
Development work-in-progress rose to
Margins were also very healthy at 50%, as Goodman is developing product on margins 250 basis points above market capitalisation rates.
Within Goodman's fund management business, assets under management rose 1% in the quarter and 31% year on year.
In other words, management does not know what all the fuss is about, and neither do brokers. While the consensus target among FNArena database brokers covering the stock has slipped to
Agreeing FY22 guidance is likely conservative, as always, and after upgrading their earnings forecasts, four of five covering brokers retain a Buy or equivalent rating on the stock, with
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