Goodman

Goodman Group Securityholder Review 2013

Strength in numbers

Gregory Goodman Group Chief Executive Officer

Sustainable growth

Goodman Group delivered a solid financial result in the 2013 financial year, driven by the earnings sourced outside Australia focused and consistent execution of our business strategy and the accelerating momentum of our activities across Goodman’s key operating markets globally. This has enabled us to successfully complete major initiatives during the year and selectively undertake high quality projects in Goodman’s core markets to grow our business and add value for all stakeholders.

48%

earnings sourced outside of Australia

The result we have delivered reflects the strength of Goodman’s brand and leading position as one of the world’s largest providers of prime industrial and business space. We have worked hard to build a specialist business of significant size and scale, with a quality product offering and proven capability which is able to service the diverse needs of our customers and secure attractive investment opportunities for our global capital partners. This gives Goodman a distinct competitive advantage and when combined with the global diversification of our business, which consists of an operating platform now spanning Australia, New Zealand, Asia, Europe and North and South America, we are uniquely positioned to drive the future growth of our business.

The global reach of Goodman’s operating platform has seen the contribution of our international businesses grow to 48% of operating earnings during the year. A key advantage of the geographic diversification of our business is the significant scope it gives Goodman to access a broad range of opportunities due to the different timing of economic cycles, which in turn provides greater stability of earnings. This is a real point of differentiation, with the ongoing contribution from our international operations expected to grow even further over the medium-term, as the Group continues to build its capabilities in key logistics markets.

Print

32.4¢

operating earnings per security

The underlying performance from Goodman’s operations was a key strength of the 2013 financial year. Our experienced teams around the world focused on the quality execution of our day to day operational activities across all parts of the Goodman business. This was reflected during the period through the robust property fundamentals we experienced, our ability to capitalise on the undersupply of prime quality logistics space, and the significant growth in our development and management businesses.

Goodman continues to benefit from the high level of customer and investor demand for its development product. A major driver of our growing development activity is due to various structural changes taking place across the industrial sector globally, including the rapid growth in e-commerce, greater supply chain efficiencies and consolidation by third party logistics providers. Over the 12 month period, development activity in our Australian business remained strong with over $850 million of new commitments secured. Our development activity continues to grow in China, with current development volume at approximately 600,000 sqm, reflecting the ongoing shortage of quality logistics space and the growing wealth of its population.

In Europe, we retained our market leading position with solid activity levels, underpinned by robust demand, in particular from the e-commerce, third party logistics and automotive sectors, which has seen total assets under management across our European business increase to over $5 billion.

Importantly, the Group focused on the measured and disciplined delivery of its initiatives and day to day operational activities. We have maintained our prudent development approach, ensuring that the majority of new projects have customer pre- commitments in place and are pre-sold to Goodman’s managed funds or third parties. We entered the Brazilian logistics market during the period and strengthened our capital partner relationships, raising significant new third party capital across our managed fund platform. Through the efforts of our property teams, we delivered strong leasing results and ensured our customers received the highest standards of service, which was reflected in our high occupancy and customer retention levels.

Goodman delivered full year operating earnings of 32.4 cents per security, up 6% and operating profit of $544 million, representing an increase of 17% compared with the same period last year, and ahead of our initial 2013 financial year targets.

For the full year, Goodman paid a total distribution and dividend of 19.4 cents per security, consisting of a 14.2 cents per security distribution from Goodman Industrial Trust and a 5.2 cents per security fully franked dividend from Goodman Limited.

Our experienced teams around the world focused on the quality execution of our day to day operational activities across all parts of the Goodman business.

A key achievement for the year was the further diversification of the Group’s operating platform into South America. This was undertaken through Goodman’s entry into Brazil, with the launch of a 50/50 joint venture with WTorre, one of Brazil’s leading developers of industrial warehouses and logistics facilities. The joint venture, WTGoodman, provides Goodman with a strategic foothold in a market that exhibits attractive conditions for industrial property groups, including low vacancy rates, an undersupply of prime logistics space, ongoing limited supply of capital and a population of over 195 million, with a growing middle class.

WTorre’s leading market position and proven development capability in Brazil, combined with Goodman’s global customer and capital partner relationships and fund management expertise, have seen WTGoodman implement a development led investment strategy with the objective of matching completed developments to demand from Goodman’s global capital partners. The joint venture commenced operations in October 2012 with a portfolio of development sites in São Paulo and Rio de Janeiro. Construction of a 56,000 sqm warehouse is already underway at one of the Rio de Janeiro sites, International Business Park, which represents phase one of a three phase development that will eventually comprise almost 187,000 sqm of high quality logistics space.

The Group strengthened its global platform during the period by consolidating its interest in the Japan management platform to 100%. Obtaining full ownership of the Japan management company is consistent with our long-term commitment to Japan and the ongoing execution of our business strategy in that market. To highlight this, we established a new US$1 billion development partnership with Abu Dhabi Investment Council in September 2012, and are currently undertaking two prime quality, multi-customer developments in the Osaka Bay and Nagoya areas, capable of delivering over 180,000 sqm of new space. We are due to commence construction shortly on our two Tokyo Bay sites, which are expected to add a further 120,000 sqm of prime logistics space.

US$1bn

Japan development partnership with Abu Dhabi Investment Council

A further significant achievement and example of innovation for the year was our Goodman Hong Kong Logistics Fund’s acquisition of a 25% (US$450 million) ownership interest in ATL Logistics Centre Hong Kong (ATL), the world’s largest logistics facility, and an ownership interest in CSX World Terminals Hong Kong. This was undertaken by forming a co-ownership agreement with DP World, one of the world’s largest container terminal operators. The agreement has seen Goodman obtain 100% of the management rights for ATL, reflecting our property expertise, while DP World has retained management of the associated container terminal. The transaction strengthens Goodman’s position as a leading player in the Greater China logistics property market, and as a result we now manage over 2.2 million sqm of gross lettable area in Greater China, with a value in excess of $3 billion.

I would like to take this opportunity on behalf of the Board and executive management team to thank all of our people for their valued effort and commitment during the year, which has contributed to Goodman’s strong operating performance and ensured we are well positioned to drive the future growth and success of our business.

Group operations

Operating EBIT for the year was $609 million, an increase of 16% compared with the same period last year, and driven by the growth in the Group’s development and management businesses. This is reflected in the composition of our earnings, with the contribution from these businesses increasing to 42%, while the contribution to earnings from Goodman’s property investment activities was 58%. The continued strong growth in the Group’s international operations, particularly in Asia and Europe, resulted in 48% of earnings being sourced outside Australia, with a 52% contribution to operating EBIT from Goodman’s Australian business.

Further information on the Group’s operations for the 2013 financial year is available in the next section of this online Securityholder Review.

Capital management

Goodman maintained its commitment to a sound financial position and strong balance sheet during the year, through the successful completion of a number of initiatives. This included the Group’s $449 million equity raising from GMG Securityholders in the first half of the financial year, and the restructuring of the Group’s $327 million of Goodman PLUS hybrid securities.

Operating EBIT by geographic segment

  • Europe 24%
  • Asia-Pacific 24%
  • Australia 52%

We finished the 2013 financial year with gearing at 18.5%, compared with 23.9% as at 30 June 2012, and available liquidity of $1.8 billion at year end. This provides us with sufficient funding to meet our debt maturities until the 2018 calendar year.

The ongoing delivery of Goodman’s stated strategy of diversifying its debt funding sources and lengthening its maturity profile enabled us to complete the year with a weighted average debt maturity of 5.4 years. Our prudent capital management approach was demonstrated through our ongoing access to debt markets, procuring $4.5 billion of bank facilities across the Group and our managed funds with an average term of 3.3 years. We were also active in the global debt capital markets during the full year period, with two of our managed funds, Goodman Australia Industrial Fund and Goodman European Logistics Fund, successfully completing issuances.

Outlook

Goodman has worked hard to maintain its position in the current operating environment as a global leader in the industrial property and business space sector. We have built a quality brand and reputation, with proven investment, development and management capability, global operating platform, and extensive customer and capital partner relationships.

This is providing Goodman with a strong competitive advantage and coupled with the global diversification of our business, quality product offering and the consistent and reliable execution of our day to day operational activities, is driving significant momentum across our business globally. In turn, we are uniquely positioned to capitalise on the high level of customer and investor demand for prime logistics space in our key operating markets, and the structural changes occurring across the industrial sector, to pursue opportunities and realise initiatives to drive the sustainable long-term growth of our business.

Goodman is committed to the prudent yet active execution of its business strategy, with the strength and diversity of its global platform, growing contribution from its development and management activities, and active asset management capabilities ensuring it is well positioned for the year ahead.

For the 2014 financial year, Goodman is forecasting a full year operating profit of $594 million, equating to operating earnings per security of 34.3 cents, up 6% on the 2013 financial year. Goodman is also forecasting a distribution of 20.7 cents per security, an increase of 7% per security on the 2013 financial year.

42%

earnings contributed by development and management businesses

Gregory Goodman Group Chief Executive Officer