A positive year

Gregory Goodman
Group Chief Executive Officer
  • Rewe, Leipzig IV Logistics Centre, Leipzig, Germany
  • Global Gateway, Hong Kong

Group Chief Executive Officer’s report

Goodman Group has had a positive year, performing well to deliver a strong full year financial result in 2014. This was achieved through the focused execution of our business strategy and day-to-day operational activities, coupled with the consistent and reliable delivery of our high quality product and service offering. We have worked hard over the last 12 months, successfully completing a number of targeted initiatives and projects and leveraging our entrepreneurial and operational expertise around the world, to create value for Goodman’s stakeholders and drive the sustainable long-term growth of our business.

Goodman’s result reflects the strong underlying operating performance across our business and the significant competitive advantage we derive from our recognised brand and position as one of the largest providers of industrial property and business space globally. Total assets under management increased by 14% during the year to $26.8 billion. The size and scale of our business, geographic diversity of our operating platform and proven capability, enabled Goodman to capitalise on the continued strong demand for high quality industrial space in key logistics markets.

Our operating platform extends from Australia to New Zealand, Asia, Europe and the Americas, providing a key point of differentiation with virtually unrivalled capacity to service the diverse needs of a global customer base and secure unique investment opportunities for our capital partners. This is evident from the growth in operating earnings attributable to Goodman’s international businesses, which increased to 56% and for the first time represents more than half of operating earnings. We expect the contribution from our international businesses to grow further in future periods, as we benefit from the timing differences of economic cycles and increased activity levels, while continuing to grow our operational capabilities in markets such as China, Japan, North America and Brazil.

Goodman’s customer focused approach ensured that our property portfolios continue to be managed and maintained to a high standard. This was reflected in the solid property fundamentals we experienced during the year, achieving strong leasing results while maintaining our high occupancy and customer retention levels. We also capitalised on the operating environment during the year, which was driven by an undersupply of quality industrial space, significantly increasing asset prices and a surplus of available capital. This provided attractive conditions for Goodman to selectively dispose of assets, while also leveraging our active asset management capabilities. We continually assessed opportunities over the last 12 months to reposition assets and maximise their value through higher and better use opportunities, including the trend to urbanisation and property renewal.

56% of operating earnings are attributable to Goodman’s international businesses and for the first time represent more than half of the Group’s earnings.

 

  1. $445m
    of developments underway in the key Tokyo and Nagoya markets
  2. $1.7bn
    development pipeline in the
    United States

  3. 800,000 sqm
    of developments underway
    in China
DHL, Rheinberg Logistics Centre,
Rheinberg, Germany

This strategy to enhance our total return on assets saw Goodman sell properties to the value of $1.5 billion, primarily in Australia and the United Kingdom, and recycle capital into new developments and opportunistic property investments. In this context, the increased focus on urban renewal in Australia is positive for Goodman, providing substantial opportunities to benefit from change of use planning outcomes across a number of our industrial properties in Sydney and Melbourne. We have made good progress on our urban renewal strategy, with a pipeline of over 35,000 residential lots identified and at different stages of planning. Goodman’s urban renewal activities have the potential to generate significant incremental long-term value, which we consider to be an adjunct to our core business.

A key driver of growth over the last year was Goodman’s development activities, which continued to perform strongly. In line with our development-led strategy, additional capital was allocated to markets, such as China and North America, with a focus on selectively undertaking the best quality opportunities. With higher development volumes, available capital and land, Goodman is in a competitively strong position to benefit from the ongoing high demand for prime quality industrial property and a number of structural changes driving our sector globally. These changes include the major growth in e-commerce and associated opportunities this is providing for logistics customers, greater supply chain efficiencies and building obsolescence. Highlighting the growth over the 12 month period, our New Zealand business experienced its highest level of development activity in the last five years, almost doubling its work in progress to $270 million, compared with the same period last year.

Our teams in China and Japan have taken advantage of the robust operating conditions and undersupply of prime industrial space, commencing new developments in well-located logistics markets. In China, Goodman increased its development work book to 800,000 sqm across 13 projects in nine cities, which is being driven by strong domestic market consumption. In Japan, we have projects to the value of $445 million underway in the key Tokyo and Nagoya markets that will deliver 180,000 sqm of new, modern logistics space.

 

 

Our operating platform provides a key point of differentiation, with virtually unrivalled capacity to service the diverse needs of our customers and secure unique investment opportunities for our capital partners.

Toll IPEC, Bungarribee Industrial Estate,
Sydney, Australia

Goodman maintained its leading market position in Europe, driven by activity in the key markets of Germany, France and Poland. For the third consecutive year, we retained our ranking as the number one developer1 in Europe, with solid demand for pre-committed opportunities, primarily from logistics, e-commerce, automotive and retail customers. In the United Kingdom, we are taking advantage of the improving operating conditions, with increased customer confidence securing new opportunities across Goodman’s logistics and business park operations.

The Group’s platform in Brazil is building momentum following our entry into that market in the 2013 financial year and the launch of our WTGoodman joint venture with leading local developer of industrial and logistics space, WTorre. WTGoodman completed the development of phase one of International Business Park in Rio de Janeiro during the year and has subsequently commenced development of phase three, together with further projects in Rio de Janeiro, São Paulo and Betim, which will deliver a combined 480,000 sqm of new logistics space. With an increasing number of customer pre-commitments being secured, we expect the development work book in Brazil to continue to grow strongly.

 A key achievement for the year was the completion of Goodman Logistics Center Oakland in the United States and commencement of the rollout of Goodman’s $1.7 billion development pipeline, which followed the completion of our comprehensive land procurement and planning strategy undertaken since entering that market. Our focus on securing prime land sites in the key Southern California, New Jersey and Pennsylvania markets has ensured that we are in a strong position to leverage our significant development capability and take advantage of the lack of quality space available in these proven logistics locations. We commenced the rollout of our development pipeline with a 150,000 sqm logistics centre in the Inland Empire market in Southern California.

Goodman Logistics Center Oakland, California, USA
Goodman Logistics Center Oakland, California, USA

The demand from global investor groups for well-performing industrial assets was reflected in the ongoing strong support Goodman received from capital partners in the 2014 financial year, raising significant new third party capital across our managed fund platform. The attractiveness of our investment offering and the investor focus on partnering with specialist industrial property groups, in particular those with proven development capabilities, remain a key advantage for Goodman. It gives us significant capacity to invest alongside our capital partners in high quality opportunities that are typically not available on the open market. Major development projects, including Goodman Sakai at Osaka Bay, Japan, Goodman Citylink in Beijing, China and Bungarribee Industrial Estate in Sydney, Australia, are indicative of the substantial long-term investment opportunities we are creating for our capital partners. The $343 million acquisition of Sydney Corporate Park during the year, with its strategic location in the prime South Sydney industrial precinct, sustainable cash flow profile and active asset management potential, further demonstrates the scope of the quality investments being realised through our partnering approach.

 

Importantly, Goodman has delivered its initiatives and day-to-day operational activities in a measured and disciplined manner, underpinned by our prudent capital management strategy and reflected in the sound balance sheet metrics that we have maintained. We also maintained our low risk development approach, only undertaking projects without pre-commitments in selected markets with low vacancy levels in proven, quality logistics locations and where demand for assets is high. Developments completed during the year on this basis achieved 96% pre-commitment levels.

Goodman’s strong performance in the 2014 financial year delivered full year operating earnings per security of 34.8 cents, up 7% on FY13 and operating profit of $601 million, representing an increase of 10% compared with the same period last year and ahead of our initial 2014 financial year targets.

For the full year, Goodman paid a total distribution of 20.7 cents per security, consisting of a 10.35 cents per security distribution in each half year period.

Our operating platform provides a key point of differentiation, with virtually unrivalled capacity to service the diverse needs of our customers and secure unique investment opportunities for our capital partners.

Operating EBIT by geographic segment


  • Australia 44%
  • Europe 30%
  • Asia Pacific 25%
  • The Americas 1%

Sydney Corporate Park, Sydney, Australia

Group operations

Goodman achieved operating EBIT of $662 million for the year, equating to a 9% increase compared with the same period last year, driven by the organic growth and increased scale from Goodman’s existing markets. The continued level of demand for high quality industrial space across all of the Group’s operating markets is reflected in the strong performance of its development and management businesses, which have increased to contribute 30% and 16% of operating EBIT respectively. The contribution to earnings from Goodman’s property investment activities was 54%, with the composition of earnings in line with our expectations.

Goodman’s international operations contributed 56% of earnings, consistent with the significant growth being achieved in these markets, while 44% of earnings were sourced from Goodman’s Australian business.

Further information on the Group’s operations for the 2014 financial year is available here.

Capital management

Goodman maintained its sound financial position and retained its strong balance sheet in the 2014 financial year. A number of initiatives were successfully completed, including the recycling of property assets and fund cornerstone investments, consistent execution of the Group’s selective development approach, and an active distribution reinvestment plan, raising $87 million over the full year.

As a result, our gearing was a conservative 19.5% at year end, compared with 18.5% as at 30 June 2013, with available liquidity of $1.5 billion. This ensures we have financial flexibility, with sufficient funding to meet our debt maturities until the end of the 2018 calendar year.

We continued to focus on the delivery of our stated strategy of diversifying our debt funding sources and lengthening our debt maturity profile, finishing the year with a weighted average debt maturity of 5.4 years. Goodman demonstrated its ongoing access to global banking relationships, procuring $5.1 billion of bank facilities with an average term of 4.0 years during the year. Separately, our managed funds secured $0.8 billion on an average 10.5 year term through debt capital markets. Furthermore, debt ratings agency, Standard & Poor’s, revised the Group’s long-term corporate BBB credit rating outlook to ‘positive’ from ‘stable’, together with an upgrade to Goodman European Logistics Fund’s credit rating to ‘BBB’, while Goodman Hong Kong Logistics Fund secured a ‘BBB+’ long-term corporate credit rating.

The Crossing, Highbrook Business Park,
Auckland, New Zealand

Goodman has delivered its initiatives and day-to-day operational activities in a measured and disciplined manner, underpinned by our prudent capital management strategy and reflected in the sound balance sheet metrics that we have maintained.

Outlook

Goodman has worked hard over the last 12 months to build on its position as one of the most diversified and largest global industrial property groups, with a brand and reputation that is recognised for the delivery of a consistent, high quality product and service offering, and the reliable execution of its day-to-day operational activities.

The disciplined execution of Goodman’s business strategy, coupled with its proven capability, geographically diverse operating platform, extensive infrastructure, and significant customer and capital partner relationships, is providing the Group with a strong competitive advantage. We will continue to capitalise on the ongoing demand for prime industrial assets and the structural changes taking place in our key operating markets and take advantage of the significant capital flows and strengthening asset pricing being generated by the current operating environment.

In turn, we have positive momentum and are well positioned to leverage our entrepreneurial expertise to create value and drive the sustainable long-term growth of our business, while maintaining prudent balance sheet metrics. The strength and quality of our development and management activities and active asset management capabilities will provide Goodman with opportunities in the year ahead to selectively rotate assets, including from urban renewal initiatives, and recycle capital into new developments and opportunistic investments.

For the 2015 financial year, Goodman is forecasting full year operating earnings per security of 36.9 cents, up 6% on the 2014 financial year. Goodman is also forecasting a distribution of 22.2 cents per security, an increase of 7% per security on the 2014 financial year.

On behalf of the Board and executive management team, I would like to acknowledge and thank all of our people for the significant contribution they have made during the year to deliver strong operating performance and provide a robust platform for the successful long-term growth of our business.

Gregory Goodman
Group Chief Executive Officer