Goodman Operational Update for Q3/FY23

12 May 2023

Goodman Group provided the market with an update on its activities over the last quarter and increased its earnings growth per security guidance for FY23 to 15%.

Greg Goodman, Group CEO said, “The scarcity of space in our locations, and customer need for more productive and sustainable solutions is supporting underlying property fundamentals. These are driving development demand and rental growth. Despite the global macro economic volatility, we have almost zero vacancy and continue to execute on our development strategy with annual production rate for FY23 averaging around $7 billion.

Headwinds from cap rate expansion are being mitigated by continued growth in rents in most markets. The portfolio is expected to continue to grow organically, primarily through
development activity. The strong financial position of the Group and Partnerships allows us to adapt to the environment and pursue opportunities.”

Total assets under management increased to $80.7 billion as at 31 March 2023, reflecting development completions, revaluations and FX gains, slightly offset by disposals. Weighted average cap rate across the Group and Partnerships portfolios of 4.3%.

KEY HIGHLIGHTS As at 31 March 2023 include;

  • $13.0 billion of development work in progress (WIP) across 79 projects
  • Completed development projects 99% committed
  • 4.4% like-for-like net property income (NPI) growth on properties in Partnerships
  • 99% occupancy across the Partnerships
  • $80.7 billion total assets under management (AUM)
  • Forecast FY23 operating EPS growth of 15%.

High utilisation of existing space and the desire for increased productivity is driving customer demand for infill locations. Scarcity of assets and the complex planning and delivery environment for new space, has seen many customers renew leases early to ensure security of tenure. As a result of concentrating the portfolio in these markets, we are experiencing high occupancy and positive rental growth. This is supporting valuations despite rising cap rates.

Potential rent reversion to market across the portfolio has continued to increase in most markets with North America 66%, Australia and New Zealand 37%, Continental Europe and the UK 17% and Asia
approximately 2% (with Greater China improving post reopening). This should continue to support cashflow growth in the medium term as higher increases from CPI-linked reviews and market reversion
positively impact the NPI growth number.

The Group continues to selectively consider tightly held, strategic, large scale sites that display infrastructure-like characteristics, and sites that can be rezoned to higher and better use, or value-add

  • Demand is supporting work in progress of $13.0 billion at 31 March 2023
  • Pre-commitments remain high across the workbook with WIP 64% committed and completions for the 9 months, 99% leased
  • Yield on cost (YOC) on WIP is 6.4%
  • Average annual production rate for WIP in FY23 is expected to remain at approximately $7 billion
  • Completions for the 9 months were $6.0 billion and 99% committed
  • Goodman continue to mitigate risk through a globally diversified workbook and investment partnering.
  • 83% of the WIP is either pre-sold or being built for third parties or Partnerships, and 71% of new starts pre-committed.

The Partnerships business remain in a strong financial position with over $18 billion of equity commitments, cash and undrawn debt. While aggregate investor demand across all real estate appears to have declined, there continues to be demand for prime located logistics and data centre assets, with the Group selling $700 million in the quarter. Goodman expect organic growth through development activity to be the strongest contributor to AUM.

The weighted average cap rate across the Group and Partnerships portfolios was 4.3% however the rising cost of capital globally has seen further movement in capitalisation rates in some markets.

Commenting on the outlook, Greg Goodman said “The Group’s long term strategy to focus on acquiring sites and developing assets in high barrier to entry locations creates essential infrastructure to service the cities, businesses and communities where we are located.

We remain focused on accessing scarce long term opportunities, based around key pieces of infrastructure servicing large populations. It’s increasingly challenging to supply space in these locations
given tight planning controls, access to power, the scale of our properties, and continued investment in sustainability initiatives. We believe this should support the resilience, growth in cash flows, demand for, and the value of our portfolio.

Demand for space in our portfolio across a broad range of customers, continues to be driven by their
desire for more productive and sustainable assets.

Data centre users are also particularly active. The significant continued growth in data requirements, network connection and difficulty procuring power is creating strong demand for available opportunities and is likely to remain that way for the foreseeable future.

The economic outlook remains uncertain and increasing cost of capital continues to see capitalisation rates expand with further expansion likely over the next 12 months. However, the Group is in a strong position, with high occupancy, rental growth and profitable developments largely mitigating the impact of higher capitalisation rates on valuations. We have significant liquidity, low gearing, extensive hedging, and our Partnerships remain in a strong financial position to leverage opportunities as they arise.”

The Group is positioned well with continued development activity, high occupancy and growth in rents. As a result, guidance for FY23 Operating Earnings Per Security growth has increased
to 15%.