Ian Ferrier, AM
2012 has been another successful year for Goodman with our strategic focus remaining on the prudent allocation of resources, both financial and human, to drive earnings growth and build long-term value for our stakeholders.
We continue to gain market share across our operations by identifying unique opportunities, focusing on delivering high standards of service and consistently high quality product for our customers and investors.
Goodman delivered a strong financial result with the financial highlights including:
- the Group achieving an operating profit after tax of $463 million, a 21% increase on 2011;
- a statutory profit attributable to Securityholders of $408 million, a 4.2% increase on 2011;
- fully diluted operating earnings per security of 30.5 cents, an 8% increase on 2011;
- distribution per security of 18.0 cents, up 3% on 2011;
- a strong financial position with balance sheet gearing maintained at 23.9% and interest cover increasing to 5.5 times; and
- available liquidity of $1.3 billion with a weighted average debt maturity of 5.9 years.
The strong competitive position we have built globally and the new relationships created combined with established relationships have allowed Goodman to expand using an optimal mix of its own resources and those of our partners. A recent example is the establishment of our new global partnership, initially in Australia, with Employees Provident Fund (EPF) of Malaysia, securing a combined initial equity commitment of $500 million to invest in high quality, stabilised logistics assets.
The strong competitive position we have built globally, combined with our new and existing relationships, have allowed Goodman to expand using an optimal mix of its own resources and those of our partners.
Our entry into the US, the world’s largest logistics market is another example, which enabled us to further extend our relationship with the Canada Pension Plan Investment Board (CPPIB) to launch a new logistics and industrial partnership called the Goodman North America Partnership. Goodman and CPPIB have targeted an initial equity amount of US$890 million on a 55/45 basis. This capital partnership is in conjunction with the agreement between Goodman and California based Birtcher Development & Investments (Birtcher) for the development of, and investment in, prime quality logistics and industrial facilities in key locations across North America.
A highly experienced team, combining Birtcher’s local market expertise with Goodman’s fund management capability, has been deployed to establish the Group’s North American operations. To date, four sites have been secured; two in the Los Angeles area, one in the San Francisco Bay area and one in Philadelphia, with in excess of 900,000 sqm of gross lettable area and a completion value of more than US$700 million.
We have also prudently increased our allocation of resources to fund our expansion into China. We entered this market in 2005 and the significant growth that we are now benefiting from comes only after a number of years of understanding and investing in the local market, developing long-term relationships with capital partners, customers and government bodies, combined with building a capable and experienced local management team.
During the year, we reached a number of significant milestones. We have grown to become one of the largest industrial developers in China and with over 4 million sqm of land available we havethe development capability to commence 800,000 sqm of developments in the next 12 months. We have now completed our first development in Beijing, 100% pre-leased to customers including Nippon Express and DB Schenker, with whom we have strong
relationships globally. In May, the Group also expanded into Tianjin, a strategic location being a major port city and the gateway for the Bohai Bay region, with the signing of its first built-to-suit facility at Wuqing for major online ladies fashion and accessory retailer, Moonbasa.
We have achieved these results through an efficient mix of our capital partners’ resources and those of the Group. In late August, Goodman and CPPIB announced their increased equity commitment to Goodman China Logistics Holdings to US$1 billion. This partnership was formed in 2009 on an 80/20 basis and the further commitment is a reflection of the strong development activity being driven by the demand for high quality logistics product and the strength of the relationship. Goodman now has a strong local team of 315 in Greater China to ensure that the Group’s high quality product and customer service standards are met. They have also leveraged the Group’s global customer relationships to add Kuehne + Nagel, DHL and CEVA Logistics to their local portfolio.
Despite the significant expansion of our global platform and growth that the Group experienced in 2012, we continue to take a long- term strategic view, consistent with our own+develop+manage business model. Our entry into the US followed a number of years of due diligence and research to find the right opportunity and time to enter the world’s largest logistics market. Likewise, we recently announced that we are currently undertaking due diligence in Brazil, one of the world’s largest emerging markets, to partner with a local company for its knowledge and network. Entry into new markets and realisation of profits take time and our strategy is to expand prudently, allowing the Group to capitalise on its unique opportunities.
This growth in the Group’s international operations has provided not only diversity of earnings but also access to a broad range of opportunities. Despite flat market conditions globally, Goodman has selectively participated in a number
of opportunities across the logistics sector. While many European markets have been weak, Goodman’s operations are focused on the more stable markets where development activity has remained strong, particularly in Germany, France and Benelux. Demand for our product continues to be robust, driven largely by an undersupply of prime quality industrial space globally and a number of structural changes taking place, including the rapid growth in e-commerce.
During the year, Goodman commissioned an independent research report into the impact of the e-retailing sector on the logistics market. The report confirms the strong demand for high quality, built-to-suit warehousing solutions amid the rapid growth in the sector. This presents a range of opportunities for Goodman, which understands local market dynamics and has the specialist expertise and experience to respond to the specific property needs of individual e-retailers and the third party logistics providers who service them. The sector now represents one of the Group’s largest customer groups with a number of large developments undertaken over the last few years around the world for companies including Amazon, Zalando and Moonbasa.
In March, we received Securityholder approval at an Extraordinary General Meeting to undertake an internal restructure of the Group (Restructure), by adding a new Hong Kong company, Goodman Logistics (HK) Limited (GLHK), to Goodman’s existing stapled structure. With over 600 Goodman employees and around half of our assets under management being outside of Australia, the Restructure reflects the global nature of our business and the growth of our operations internationally, with 41% of our earnings being sourced outside of Australia as at 30 June 2012. It is expected that the Restructure will improve Goodman’s profile in Asia, and where appropriate, facilitate our international growth through GLHK.
The Goodman Foundation continued to support both the underprivileged in our community as well as providing
support to communities in times of need. In the 2012 financial year, the Goodman Foundation expanded internationally to include China, New Zealand and the UK via new partnerships which include Benji’s centre, Duffy Books in Homes and Wooden Spoon in these countries respectively. Opportunities in Europe are currently being finalised for implementation in the 2013 financial year.
During the year, we also continued to undertake a Board renewal process. Consistent with our strategy of having a diverse team who could bring new skills and experience to the Board, I am very pleased to welcome Mr Philip Fan and Ms Rebecca McGrath to the Goodman Board. Philip brings deep knowledge of the Chinese market and property expertise. Rebecca has worked across a broad range of disciplines including finance, operations and corporate planning in Australasia, the UK and Europe.
I am very pleased with the progress that Goodman has made in 2012 and am confident that we have adopted the right strategy to enable us to leverage unique opportunities and the Group’s resources to our advantage in the coming year. We will continue to take a long-term strategic view, growing the business in a prudent manner and being patient with our investment opportunities. The dedication and hard work of our staff around the world have been significant contributors to this result and in positioning the Group well for future success. I would like to thank our Securityholders, capital partners, customers and staff for their continued commitment and valued support.
Ian Ferrier, AM