Goodman delivered another strong performance in FY17. We capitalised on market conditions and continued to deliver consistent and sustainable growth.
Our strong performance was evidenced by operating profit, earnings per security and distribution per security all up on last year. We also continued our proven strategy of focusing on key gateway cities, close to consumers.
Goodman’s integrated own+develop+manage platform and global network provides a broad diversity of earnings which we saw grow in FY17.
Key operational highlights to 30 June 2017 included:
- Growth in AUM to $34.6 billion (Own)
- An increase in development WIP to $3.5 billion (Develop)
- Average Partnership return of 14.4% (Manage).
This growth happened as we decreased our gearing level and increased liquidity, giving us the flexibility to capitalise on opportunities as they arise.
TECHNOLOGY DRIVEN MARKET
Technology is having a greater impact on consumers as well as on the industrial property market and how we service our customers. We are seeing, and planning for, rapid technology and behavioural change as more automation and artificial intelligence are rolled out.
Technology has raised consumer expectations around product availability, speed of delivery and cost. Meeting expectations on the latter two are essential. Therefore, proximity to consumers has become a critical factor in reducing delivery time and cost. In some markets there can be less than one hour between purchase and delivery.
As e-commerce evolves, demand grows for our expertise in high quality logistics facilities in prime locations. We expect this to accelerate over the next five to ten years.
HIGHER QUALITY PORTFOLIO DELIVERING RESULTS
In FY17, we continued to improve asset quality through our strategy of asset rotation.
By taking advantage of the property cycle to refine our portfolio, we completed $3.5 billion in asset sales (including urban renewal), with another $2 billion forecast in the next year. This led to marked improvements in metrics such as occupancy, lease reversions and like-for-like rental growth, with expectations of further improvements.
Our customers value our quality locations and service, as evidenced by customer retention, which remained high at 81%. Our customer base is largely comprised of four industry sectors and no single customer accounts for more than 3% of our base.
In Australia, we have completed $2.1 billion in asset sales over the last three years as part of our urban renewal programme, with $1.2 billion settled in FY17 and a further $0.3 billion due to settle in FY18. The Group has sites under its control across the Australian portfolio, capable of delivering a pipeline of 35,000 apartments which will continue to be a potentially significant source of capital to fund our operations over the medium to long-term.
STRONG WORKBOOK INCREASINGLY MOVING INTO PARTNERSHIPS
Goodman’s development work in progress increased to $3.5 billion. It covers 77 projects in 12 countries and has a forecast yield on cost of 7.8%.
75% of this development work in progress is now within the Partnerships. This reduces volatility in development earnings while providing the Partnerships with the opportunity for higher returns, supporting outperformance over the long-term.
Customer enquiries remained strong, reinforcing the strategy to limit speculative development to supply constrained markets. 65% of developments were pre-committed on commencement and upon completion, 88% of developments had customer commitments.
We are well placed to keep delivering high quality product in key locations with a potential global development pipeline of $10 billion as we continue to favour development as the way to grow assets under management at this point in the cycle.
Goodman has increased its total assets under management to $34.6 billion. External assets under management are up 4% to $30.5 billion. This growth is despite $8 billion in asset sales achieved since FY15 and is a direct result of our higher quality portfolio in wealthy, consumer-dominated markets.
Given the volume of asset sales, net investment income is down. However, we anticipate the underlying portfolio will deliver strong long-term results as we redeploy capital to developments that leverage increasing urbanisation and rising consumerism.
Management earnings were up 3%, supported by positive valuations and development programmes. Strong returns in the Partnerships led to performance fees that are forecast to continue beyond FY18. The development and management businesses made strong contributions to Goodman’s outperformance, with a combined operating earnings before interest and taxes (EBIT) margin of 67%.
Major achievements in our Partnerships included:
- The Goodman Australia Industrial Partnership received a rating from Moody’s and a ratings upgrade from Standard and Poor’s. It also issued a US$600 million 10 year debt issuance
- The Goodman Australia Partnership reduced its gearing from 26% to 7.3% with liquidity of around $1 billion
- The Goodman Hong Kong Logistics Partnership restructured its unsecured debt platform with weighted average debt expiry extending to 5.5 years and net liquidity increasing to HK$2.9 billion
- The Goodman European Partnership raised €399 million in uncalled equity.
CAPITAL MANAGEMENT — OPERATIONAL FLEXIBILITY AND FUNDING FUTURE OBLIGATIONS
Goodman’s capital management is focused on operational flexibility, the ability to fund financial obligations and supporting long-term growth. This year, we capitalised on positive market conditions and the strength of our underlying business.
Key activities included:
- Reducing our gearing to 5.9% (measured net of cash)
- Amending our bank and bond covenants
- Completing an exchange offer for US$1 billion in US144A bonds.
Due to our improved financial performance and position, we received credit rating upgrades from Standard and Poor’s (BBB+) and Moody’s (Baa1), with a stable outlook.
We also announced our repurchase of all $327 million Goodman PLUS hybrid securities to take place in October 2017. These capital management initiatives and further debt reduction will see continued interest savings in FY18 and beyond.
We now have $3.2 billion in liquidity while the Partnerships have $11 billion available in undrawn debt, equity and cash. This provides significant capacity to capitalise on growth opportunities.
SUSTAINING GROWTH INTO THE FUTURE
Goodman’s strategy is designed to meet the changing needs of our customers and provide sustainable returns into the future. The strength of our development and leasing activities are being driven by:
- Growth in consumerism globally
- Evolution of e-commerce and increased supply chain sophistication
- Rapid technological and behavioural change for both business and consumers as the use of automation and artificial intelligence increases
- Scarcity of land in our gateway city locations.
Our diversity of earnings across divisions, combined with our scale and geographic spread, is expected to continue to deliver stable income growth. Meanwhile, assets under management are set to increase as our Partnerships continue to invest in new developments.
At a time of low interest rates, we are focused on total property returns on an unlevered basis. The Group’s forecast is for a full year operating profit for FY18 of $828 million, or 45.7 cents per security, up 6% on FY17.
The Group’s team of more than 1,100 employees worldwide is central to this success and I would like to sincerely thank them for their hard work and commitment. On behalf of Goodman, I’d also like to thank all our stakeholders for their ongoing support. We look forward to continuing to deliver consistently strong results well into the future.
Mr. Gregory Goodman,
Group Chief Executive Officer