Group Chief Executive Officer
Goodman Group performed strongly in the 2012 financial year to deliver a solid financial result, reflecting the focused execution of our business strategy and successful completion of a number of significant initiatives during the year.
Our teams around the world have worked hard to selectively and prudently pursue a range of opportunities to expand our operating platform and grow our business globally.
In an environment where greater emphasis is being placed on high quality assets with strong cash flows, we have leveraged our industrial sector specialisation and proven capability to position Goodman globally as a leading specialist provider of prime quality logistics and business space. By adapting our business to operate in a low growth and capital constrained environment, Goodman has built a distinct competitive advantage, benefiting from a geographically diverse platform, well established customer and capital partner relationships and sound financial position. Goodman is, in turn, well positioned to drive the future growth of its business and value of its brand globally.
An important feature of the 2012 financial year was the performance we achieved right across our business, with good contributions made across all of Goodman’s operating markets. This reinforces the quality of our global platform, provides earnings diversity and gives us the ability to service a global customer and investor base. We experienced solid property fundamentals and capitalised on the undersupply of prime quality industrial space, which has seen our development and management activities perform particularly well during the year.
We continue to experience high levels of demand for our development product and are benefiting from a number of structural changes taking place around the world, including the rapid growth in e-commerce, greater supply chain efficiencies, building obsolescence, and consolidation among third party logistics providers. We further increased our development activity over the year with development demand in China exceptionally strong and now representing 9% of our overall development book, up from 2% last year. In Europe we had a record year, with over 671,931 sqm of logistics and industrial space delivered across 22 projects.
Importantly, Goodman maintained its prudent development approach, ensuring customer pre-commitments are in place and the majority of projects are pre-sold to third parties or Goodman’s managed funds. We entered the key North American logistics market during the period and further strengthened our existing capital partner relationships and introduced new investors into our managed funds. We maintained high occupancy and customer retention levels, resulting from the efforts of our property teams who achieved exceptional leasing results and provided the highest standards of service to our customers.
For the full year, Goodman delivered an operating result of 30.5 cents per security and operating earnings of $463 million, exceeding our initial targets for the full year period.
Goodman distributed a total amount of 18.0 cents per security for the full year, consisting of a 9.0 cents per security distribution in each half year period.
European logistics and industrial space delivered
A key achievement for the year was Goodman’s strategic and timely entry into the important North American market with the signing of an agreement with California based Birtcher Development & Investments (Birtcher) to form a new management company, Goodman Birtcher North America. The management company combines Goodman’s global expertise and proven fund management capability with the strength of Birtcher’s local knowledge, well established track record and reputation.
The quality of our global platform, provides earnings diversity and gives us the ability to service a global customer and investor base.
The focus of our North American platform will be to develop and invest in prime quality logistics and industrial facilities in key North American markets. The undersupply of quality, new logistics and industrial space in key markets means that we will initially undertake a development-led approach and seek opportunities in key logistics hubs on the West Coast and East Coast. In this regard, we have already identified four development opportunities to take advantage of the positive market conditions. Three prime land sites have been secured in California, two in the Inland Empire in the Los Angeles area and a third site at Oakland in the San Francisco Bay area. A fourth site has separately been secured in the Philadelphia Lehigh Valley industrial market.
To fund the investment in the properties developed and sourced by Goodman Birtcher North America, the Group also formed a new logistics and industrial partnership with Canada Pension Plan Investment Board (CPPIB), called Goodman North America Partnership (GNAP) which was finalised last month and will target an initial equity amount of US$890 million on a 55/45 basis, representing US$490 million from Goodman and US$400 million from CPPIB.
Significantly, GNAP highlights the strength of our capital partner relationships which we continued to build on during the year. Our China partnership with CPPIB, Goodman China Logistics Holding (GCLH), benefited from an additional equity commitment in response to the strong demand for our development product, which is driving the growth of our development activities and market share in China. A further combined US$500 million was contributed to GCLH post
balance date by CPPIB and Goodman, taking the total combined equity commitment to US$1 billion.
We also established a new investment partnership with Malaysia’s Employees Provident Fund (EPF) in the form of a global logistics relationship, focused on investing in high quality, stabilised logistics assets. The relationship was announced with an initial circa $400 million investment in a portfolio of six Australian properties acquired from the Group and its managed funds. We will retain an interest in the investment portfolio on a 60/40 basis with EPF holding the majority share.
During the year, our operating platform in Japan was fully integrated into Goodman Group and we launched the Goodman name in that market by rebranding to Goodman Japan Limited. This has significantly strengthened our business in Japan by enabling it to leverage the financial resources and global expertise of the Group. To further build on this, we also commenced the process of privatising Goodman Japan Limited in the 2012 financial year, which we continue to work through. Separately, we announced US$350 million of new third party equity commitments post balance date for our Japan Core and Japan Development Funds. Abu Dhabi Investment Council has committed US$250 million to the Japan Development Fund, while the Japan Core Fund successfully closed an equity raising with three global institutional investors, increasing the Fund’s external equity commitments to over US$100 million.
Goodman’s operations delivered operating earnings of $463 million, a 21% increase compared with the 2011 financial year and diluted operating earnings per security of 30.5 cents, up 8%.
On behalf of the Board and the executive management team, I would like to take this opportunity to acknowledge and thank our people for their significant efforts and commitment to driving the growth of our business over the last year and ensuring that Goodman is in a strong position for future success.
Operating EBIT for the year was $527 million, with the composition of our earnings highlighting the growing contribution from the Group’s development and management businesses, which contributed 38%, while our property investment activities contributed 62%. Significantly, Goodman’s international operations performed strongly, with a 41% contribution to earnings and led by the growth in our Asian and European businesses. Australia capitalised on its market dominant position, contributing 59% to operating EBIT.
Goodman’s property investment portfolio was valued at $5.2 billion at year end, which compares with $5.0 billion last year. The portfolio consists of the Group’s direct property investments, cornerstone investments in our managed funds and other financial investments, with the increase in value predominantly reflecting the higher participation in our managed fund cornerstone investments, in China and Europe, and the establishment of our relationship with EPF.
The Group’s overall investment portfolio performed well in the 2012 financial year as a result of solid property fundamentals. The size, scale and quality of Goodman’s portfolio coupled with our strong customer relationships and flexible approach ensured that we continued to benefit from the strong demand experienced during the year. This saw Goodman lease over 1.9 million sqm of space, equating to $195 million of net property income. We maintained a high 96% occupancy rate and achieved sound like for like rental growth of 2.8%.
Goodman’s development activities continued to experience significant growth across all of its operating markets. We capitalised on the strong demand for our development product, which is being driven by the undersupply of prime quality industrial assets. We are increasing market share across Goodman’s regions of operation and are currently one of the largest developers of logistics property globally. By year end, we had secured $1.8 billion of new development commitments across 77 projects in 13 countries, with a forecast yield on cost of 8.5%. An overall leasing pre-commitment of 74% was achieved, with an average lease term of 7 years. Our focus on maintaining a low risk approach was demonstrated through 87% of our current development commitments either pre-sold to, or pre-funded by, our managed funds or third parties. Commenced developments include:
- two facilities both for 112,597 sqm in Germany on behalf of online e-commerce provider, Amazon;
- in Belgium, a 62,494 sqm warehouse for global provider of hand tools, power tools and related accessories, Stanley Black & Decker;
- a 46,693 sqm facility in Kunshan, China for global third party logistics provider, DB Schenker;
- also in China, a 42,410 sqm distribution centre for online retailer, Moonbasa;
- outdoor furniture manufacturer, Décochine has committed to a 23,260 sqm warehouse in Nantes, France;
- a 21,505 sqm distribution centre for leading retail supplier of fasteners and hardware products, ITW Proline in Melbourne;
- in the United Kingdom, a 21,524 sqm distribution hub for milk and dairy producer, Arla Foods; and
- a 17,150 sqm warehouse for Frucor Beverages in New Zealand.
The Group and managed funds also completed $1.7 billion of developments during the 2012 financial year, representing a substantial increase over the $773 million of development completions last year, and equating to 1.3 million sqm of new space for 35 customers. We achieved a 100% customer pre-commitment on our completed developments and 98% were undertaken on behalf of Goodman’s managed funds or third parties.
Our development work in progress increased to $1.9 billion compared with $1.8 billion for the same period last year. The development projects we have underway equate to 1.5 million sqm of space, with 87% being undertaken on behalf of our managed funds or third parties and 75% are currently pre-committed.
To facilitate the ongoing rollout of Goodman’s development pipeline and ensure we continue to effectively respond to the strong customer and investor demand in all of our operating markets, the acquisition and replenishment of our controlled land inventory, particularly in China, Japan and North America, was a focus during the year. Consequently, we have maintained our development pipeline at in excess of $10 billion, capable of delivering a forecast gross lettable area of over 7 million sqm.
Goodman’s Property Services teams worked hard during the year to ensure that our customer service and properties were maintained to a consistently high global standard, to lengthen the life cycle and overall demand for our properties. Our teams are responsible for over 14 million sqm of total business space under management, equivalent to $20 billion of total assets under management (AUM).
Our Property Services teams are focused on attending to the needs of, and delivering a wide range of services to, our 1,550 customers across 389 properties in 17 countries.
Their success over the year can be measured by the quality leasing results achieved, consistently high occupancy and customer retention rates that have been attained and the presentation of our properties around the world.
Goodman’s third party AUM increased to $16.1 billion at year end, compared with $14.4 billion for the same time last year. We achieved this growth across our managed fund platform by building on our established capital partner relationships and introducing new global investors. This has seen significant equity flows into Australia, China and Europe from new and existing sources, with $0.9 billion of new committed third party equity raised during the year enabling our managed funds to complete a number of new initiatives. Goodman’s managed funds had $2.8 billion of undrawn debt and equity available at year end, providing substantial scope to participate in investment and development opportunities from the Group and broader market.
We secured new equity capital from new and existing investors, including an initial $300 million commitment in Australia from EPF; for Goodman European Logistics Fund, a combined €200 million from Dutch asset managers, APG and PGGM; and in China, the equity allocation to the Goodman partnership with CPPIB was increased to US$500 million.
Goodman has maintained its commitment to a sound financial position and retained its strong balance sheet over the year with the completion of a number of initiatives. We finished the 2012 financial year with gearing at 23.9% compared with 23.0% as at 30 June 2011, and had available liquidity of $1.3 billion at year end. This provides us with sufficient funding to meet our debt maturities to the 2016 financial year.
The Group completed the year with a weighted average debt maturity of 5.9 years, which is a further improvement on the 5.6 years reported for the 2011 financial year, and reflects the continued delivery of Goodman’s stated strategy of diversifying its debt funding sources and lengthening its maturity profile. In this regard, the Group demonstrated that it has ongoing access to debt capital markets with the successful completion of its third senior unsecured note issue in the United States 144A/Reg S bond market, raising US$500 million for a term of 10 years. Debt markets remain open to prudent operators and the Group and its managed funds secured $3.8 billion of debt facilities with an average term of 4.8 years.
Significantly, the Group’s focus on prudent capital management was acknowledged during the year with positive credit rating movements from Moody’s which upgraded Goodman’s issuer and senior unsecured rating to ‘Baa2’ from ‘Baa3’ with stable outlook, while Standard & Poor’s adjusted its ‘BBB’ corporate rating from ‘negative outlook’ to ‘stable’.
Goodman is well positioned as a global leader in industrial and business space investment, development and fund management. We have worked hard to adapt our business to operate in a low growth, capital constrained environment by focusing on leveraging our sector specialist expertise, global operating platform and significant customer and capital partner relationships.
This is providing Goodman with a distinct competitive advantage and the capacity to pursue a range of new opportunities, including the expansion of our global platform, to service the needs of our global customer base and the demand for high quality, income producing industrial properties from our investment partners.
We are committed to the prudent yet active delivery of our business strategy given our strong competitive position, quality portfolio, active asset management, development capability and focus on capital management. This in turn will continue to drive earnings growth and generate future value for our stakeholders.
For the 2013 financial year, Goodman’s earnings guidance is for a full year operating profit after tax of $524 million, equating to operating earnings per security of 32.3 cents, up 6% on the 2012 financial year.
Group Chief Executive Officer