Goodman Group (Goodman or Group) today announced its results for the full year ended 30 June 2014, delivering an operating profit of $601 million. Key financial and operational highlights for the period are:
- Operating profit of $601 million1, a 10% increase on same period last year
- Statutory profit of $657 million1 (including property valuations, derivative and foreign currency mark to market and other non-cash or non-recurring items)
- Operating earnings per security (EPS)1 of 34.8 cents2, up 7% on FY13
- Total distribution of 20.7 cents per stapled security, up 7% on FY13
- Strong financial position maintained – balance sheet gearing of 19.5%3 and interest coverage ratio (ICR) of 5.9x
- Group’s liquidity at $1.5 billion, with weighted average debt maturity of 5.4 years
- Positioned to deliver target long-term EPS growth of 6%, representing forecast FY15 operating EPS of 36.9 cents (up 6% on FY14)
- Target distribution payout ratio unchanged at 60%, resulting in a forecast FY15 distribution of 22.2 cents per security, up 7% on FY14
- Total assets under management of $26.8 billion, up 14% on FY13, reflecting investor demand for quality and well performing industrial assets
- Robust property fundamentals across core investment portfolio, with occupancy maintained at 96%, and weighted average lease expiry of 4.9 years
- Development work in progress at $2.6 billion across 76 projects, 53% pre-committed and 91% matched to third party capital, generating a forecast yield on cost of 8.3%
- $2.2 billion of new committed third party equity raised, endorsing Goodman’s contemporary fund management and independent governance structures
- $4.5 billion of uncalled equity and debt available for managed funds to participate in development opportunities from the Group and broader market opportunities
Goodman’s Group Chief Executive Officer, Mr Greg Goodman said, “We are pleased to deliver a strong full year operating profit of $601 million, which represents an increase of 10% on the same period last year and is in line with the increased earnings guidance announced by the Group in June. This equates to 7% growth in operating earnings per security and highlights the robust performance across all parts of our business, together with the significant advantage we derive from successfully exporting our sector specialist expertise and proven capability around the world.”
The full year statutory profit of $657 million is after property revaluations, derivative and foreign currency mark to market and other non-cash or non-recurring items.
As an Australian-listed, leading industrial property operator and fund manager with active businesses in 16 countries, Goodman’s full year result reflects the quality and diversity of our earnings and the momentum across our operating platform. Importantly, we are leveraging our entrepreneurial expertise to create value and drive the long-term growth of our business, while maintaining prudent balance sheet metrics. Accordingly, Goodman is well positioned for FY15 and we are forecasting full year operating earnings per security of 36.9 cents, up 6% on the upwardly revised FY14 result.” Mr Goodman added.
Goodman has a distinct competitive advantage in the current operating environment, which continues to be shaped by the significant customer and investor demand for prime industrial assets and a number of structural changes that are redefining the industrial property sector. The Group is benefitting from the global reach of its diversified international operating platform, which has contributed 56% of FY14 operating earnings and enables Goodman to meet the varied needs of its customers and selectively secure high quality investment opportunities for its capital partners. This has seen Goodman’s development workbook increase to $2.6 billion, reflecting the strong underlying momentum experienced across Goodman’s development activities, with active projects underway in all regions.
In FY14, Goodman disposed of $1.5 billion of assets across the Group and managed funds, predominantly in the UK and Australia, capitalising on the significant capital flows and strengthening asset pricing globally. This provided attractive conditions to selectively rotate assets, including urban renewal opportunities, in line with Goodman’s strategy to enhance the return on assets by recycling capital into new developments and opportunistic property investments. Such investments include Sydney Corporate Park, acquired for $343 million in the prime industrial precinct of South Sydney. The acquisition represents a landmark transaction and is a strategic site with a strong, diverse and sustainable cash flow, with active asset management opportunities.
The Group continues to realise higher and better use opportunities and is making good progress on its urban renewal strategy in Australia, with over 35,000 residential lots identified at different stages of planning. While urban renewal is an adjunct to Goodman’s core business, the incremental long-term value that may be generated from this activity has the potential to be significant.
Goodman is focused on delivering consistent and sustainable growth, while maintaining its strong balance sheet position. In FY14, $2.2 billion of new third party equity was raised from capital partners to help fund long-term growth. As a result, the Group’s gearing has been maintained at 19.5%, with available liquidity of $1.5 billion.
“The strong demand for Goodman’s product reflects the focus of global investor groups to partner with a best in class industrial property sector specialist, with the proven development capability and the right infrastructure and people in place to deliver quality, stable and well performing industrial assets.
The capital inflows experienced over the last 12 months position us well to continue funding our development activities and provide significant capacity for our managed funds to participate in development opportunities from the Group and broader market. Total assets under management have increased to $26.8 billion over FY14, predominantly from organic growth achieved through the completion of $2.3 billion of developments, of which 93% were undertaken on behalf of our managed funds, in line with the Group’s prudent development approach.” Mr Goodman said.
Goodman is committed to building on its position as an Australian listed, leading global industrial property group and fund manager through the prudent yet active execution of its stated business strategy. The Group will leverage its proven expertise and capability, diversified global operating platform, and quality customer and capital partner relationships, to pursue opportunities and realise initiatives to drive the long-term growth of its business in a measured and sustainable manner.
Goodman’s customer focused approach ensures that its quality portfolio is managed and maintained to a high standard, and is reflected in the high occupancy and retention rates achieved. Its active asset management capability ensures that opportunities to reposition assets are continually assessed, with Goodman seeking to generate additional value by identifying higher and better use opportunities for its assets, including the trend to urbanisation and property renewal in its key markets.
The Group’s operations achieved an operating EBIT of $662 million4, or a 9% increase compared with the same period last year and reflects the organic growth and increased scale from Goodman’s existing markets. The development and management businesses continued to perform strongly, consistent with the high customer demand for prime industrial space across all of Goodman’s operating markets, contributing a combined 46% of operating EBIT. This also reflected the earnings composition, which was in line with the Group’s expectations. Investments contributed 54% of operating EBIT, with 30% from developments and 16% from management services.
Underlying property fundamentals were sound over the full year period. Overall occupancy was maintained at 96%, consistent with the same period last year and the weighted average lease expiry across the investment portfolio was 4.9 years.
Investment earnings reflect the selective rotation of property assets and co-investment initiatives undertaken during the year, ensuring Goodman is capitalising on the market demand for industrial property and recycling capital into new growth opportunities.
Mr Goodman commented, “We experienced solid underlying property fundamentals over the year to 30 June, reflecting the quality of our industrial and business space portfolio, and the dedication and focus of our Property Services teams who are committed to delivering the highest standards of service to Goodman’s global customer base. As a result, we leased 3 million sqm of industrial and business space, maintained high occupancy and retention levels and achieved like-for-like net property income growth of 2.2%.”
The Group’s work in progress as at 30 June 2014 was $2.6 billion, generating a forecast yield on cost of 8.3% and equating to 2.2 million sqm of new space across 76 projects in 11 countries, with Goodman continuing to be one of the largest industrial real estate developers globally.
Growth in development volume is a reflection of our development led investment strategy at this point in the cycle where competition for grade A assets is strong.
Development demand remains strong, particularly in Asia, where we are selectively pursuing high quality development opportunities to take advantage of the robust market conditions and undersupply of well located, prime logistics space. In Europe, Australia and New Zealand, volumes remain stable, with customer demand continuing to drive predominantly pre-committed development activity. The Americas now contribute 9% to the Group’s current development book, which will increase as further Brazilian projects commence this calendar year, together with the rollout of the $1.7 billion development pipeline in the US.
Developments without customer pre-commitments were undertaken in selected markets that exhibit low vacancy levels, are proven quality logistics locations and where the demand for assets remains high. Goodman’s confidence in these markets has been supported by the 96% pre-commitment levels on projects completed during the year.
“Our development business is performing very well driven by the high level of customer and investor demand for Goodman’s product and we are well positioned to pursue the best quality opportunities being generated by the undersupply of prime quality industrial space and capitalise on the structural changes taking place across our sector globally.
“In this context, we allocated additional capital to a number of our operating markets where Goodman is executing a development led strategy, including Japan, China, North America and Brazil. This is reflected in the growth of our development workbook to $2.6 billion and together with the robust activity being experienced in our other key markets, will help grow our development book in future periods.” Mr Goodman said.
Third party assets under management increased to $22.4 billion over the full year, which is a 15% increase compared with 30 June 2013. Management earnings have contributed 16% of operating EBIT, with the increase in earnings driven by growth in assets under management, largely through development completions and a number of fund initiatives undertaken during the year.
The broad range of fund initiatives completed by Goodman in FY14 reflects the continued demand by global investor groups for core, stable, and well performing assets, together with their focus on partnering with specialist industrial property providers, including those with the capability to create new product. A key driver of Goodman’s success is its ability to attract third party capital into its managed fund platform, combined with the alignment of investors’ interests through the contemporary fund management structures which underpin its partnering approach.
“The significant capital inflows achieved across our managed fund platform during the year is testament to the extensive partnerships we continue to build with global investor groups and the quality of Goodman’s investment offering. Our managed funds achieved in excess of a 12% total return on average in FY14, highlighting the disciplined execution of their investment strategies and focus on long-term value creation for our global investors.” Mr Goodman said.
As investment markets strengthen, Goodman will continue to assess opportunities to dispose of assets where value has been maximised and look to reinvest through its development pipeline and specific on-market opportunities.
“Goodman’s managed funds have significant momentum and investment capacity heading into FY15, provided by $4.5 billion of uncalled equity and debt available and proceeds from ongoing asset rotation initiatives to participate in a broad range of growth opportunities in the year ahead.” Mr Goodman added.
Goodman maintained its sound financial position during FY14, which was actively demonstrated with the successful completion of balance sheet recycling opportunities and its selective approach to pre-sold developments. As a result, gearing was retained at a conservative 19.5%. Interest cover remains high at 5.9 times.
Available liquidity is currently $1.5 billion, providing financial flexibility for future periods. The Group has a weighted average debt maturity profile of 5.4 years, with debt maturities fully covered to the end of the 2018 calendar year.
Goodman has continued to deliver on its stated strategy of diversifying its debt funding sources and demonstrated its ongoing access to global debt capital markets. During the full year, $5.1 billion of debt facilities with an average term of 4.0 years were procured across the Group and managed funds. In addition to this, Goodman’s managed funds secured $0.8 billion through debt capital markets, with an average expiry of 10.5 years. Separately, Standard & Poor’s revised the Group long-term corporate BBB credit rating outlook to ‘positive’ from ‘stable’, together with an upgrade to Goodman European Logistics Fund’s credit rating to BBB and Goodman Hong Kong Logistics Fund securing a BBB+ long-term corporate credit rating.
Furthermore, the Group’s Distribution Reinvestment Plan was active over the full year period, raising a total of $87 million from the 31 December 2013 and 30 June 2014 distributions.
Goodman is well positioned to grow operating earnings in FY15 by leveraging its expertise and capability as an entrepreneurial industrial property group.
The ongoing investor demand for high quality industrial assets is driving significant capital flows and strengthening asset pricing globally. This will enable the Group to selectively rotate assets, including for urban renewal opportunities, and recycle capital into new developments to enhance investor returns and drive long-term value for the Group.
Goodman’s development capability and managed fund platform is attractive to capital partners, providing access to new investment product not available to investors on-market. This delivered strong total fund returns in FY14, and with $4.5 billion in uncalled capital available to participate in a range of opportunities, Goodman’s managed funds are expected to perform strongly in FY15.
Accordingly, Goodman is forecasting full year operating earnings per security of 36.9 cents, up 6% on FY14 and a forecast distribution of 22.2 cents, up 7% on FY14.
- Ends -
For further information, please contact;
Citigate Dewe Rogerson
Group Chief Executive Officer
Tel: + 612 9230 7400
Jasmine Yap Crystal Yip
Co-Managing Director Senior Associate Director
Tel +852 3103 0108 Tel +852 3103 0106
1Operating profit and operating EPS comprise profit attributable to Securityholders, adjusted for property valuations, derivative and foreign currency mark to market and other non-cash or non-recurring items. Operating profit is used to present a clear view of the underlying profit from operations. It is used consistently and without bias year on year for comparability. A reconciliation to statutory profit is provided in summary on page 10 of the ASX Results Presentation and in detail on page 5 of the Directors’ Report as announced on ASX and available from the Investor Centre at www.goodman.com.
2Calculated based on weighted average diluted securities of 1,729.0 million, including 8.0 million LTIP securities which have achieved the required performance hurdles and will vest equally in September 2014 and September 2015.
3 Calculated as total interest bearing liabilities over total assets, both net of cash and fair values of cross currency swaps used to hedge liabilities denominated in currencies other than those to which the proceeds are applied equating to $46.3 million – refer to Note 8 of the Financial Statements.
4 Operating EBIT comprises statutory profit before interest and tax of $786.0 million adjusted for property valuations and other non-cash or non-recurring items. A reconciliation to statutory profit before interest and tax is provided in Note 4 of the Financial Statements.
For more information, please go to www.goodman.com