Good day, and thank you for standing by. Welcome to the Goodbank Group two three FY twenty one quarterly operational update conference call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, mister Gregory Goodman, CEO of Goodman Group. Thank you. Please go ahead.
Yes. Thank you very much. Good morning, and welcome to our quarterly operational update. I've got Nick Brondes with me on the call. We produced another strong quarter as we continue to deploy capital into our growing development pipeline, particularly through multi storey projects or where we can intensify existing urban locations.
This has seen our development workbook increase to $9,600,000,000 which is likely to grow further by June 30. Changing consumer habits across the physical and digital space is fundamentally increasing demand for our property around the world, and we believe this will continue over the medium to long term. Customers are wanting more automation, higher speed to market, greater resilience in their supply chains. We're well positioned to support the structural demands we're witnessing around the world. These trends are underpinning high levels of utilization and new space requirements, delivering importantly sustainable cash flows, which is reflected in our occupancy at 98% and like for like rental growth of 3.3.
This strong performance is a result of our deliberate strategy of owning assets in markets where barriers to entry are high, supply is limited and demand is robust. We are very active around the world in developing sustainable world class assets for the long term. The volume and scale of our projects continue to increase with approximately 60% of our development work book now in multistory development. We're very focused on the development of brownfield sites in urban infill locations. We also continue to acquire sites in line with customer demand and we're actively working with planning authorities on the highest use of existing land and buildings held across our business to support future development growth.
A significant portion of the development is expected to be retained in our partnerships. Assets under management have increased to $53,000,000,000 driven by growth in development, positive revaluations, strong cash flows and continued high occupancy. Collectively with our customers and individually, we are working diligently towards carbon neutral buildings and decarbonizing our development projects. We are focused on long term sustainable approach that leads to positive economic, environmental and social outcomes for our business, our stakeholders and the world more broadly. We also believe that reducing our carbon footprint in the construction process is a critical part of this solution.
This includes the impact of steel, concrete and other emissions. We're very well positioned operationally and financially with significant liquidity and low gearing. And on that basis, we can confirm, reaffirm our earnings guidance coming into June with FY 'twenty one operating profit of $1,200,000,000 representing earnings per share growth of 12% on the prior year. And finally, I'd like to thank all the Goodman people around the world for a really strong performance operationally in sometimes very difficult circumstances globally. So I thank them very much for their efforts.
I thank you for the call, and we're now turning over to questions.
Thank you so much. Star and one on your telephone. To withdraw your question, please press the pound or hash key. Please stand by while we compile the q and a roster. Again, it's star and one on your telephone keypad.
Again, it's starring one if you wish to ask a question on the phone. Alright. And our first question comes from the line of mister Stuart McLean. Your line is now open.
Good morning. My first question was just on the yield on commencements. So from page 30 presentation, the the yield's there 6.8%. It was I think it was 6.3% at the half year. Just what's growing, or, sorry, what's changed to that yield increase?
And and is it sustainable at 6.8% going forward?
Yeah. Good question. Look. There may be there's a bit of geography in that, but I think we're also we're bringing on a lot of sites online that we've been working on for four or five years. And I think, the 6.8% is reflective of that as well.
So sites that, some of them, I think, would be five, probably even seven years in the making, which is very much what we do. And what we're buying and doing today is probably for the '24, '20 '5. So I think it's just reflective of the nature of what we're doing in very constrained environments, primarily the infill and the high barrier to entry markets drive that number.
Okay. And it's got anything to do with the the yield that you're able to achieve on double story developments? For example, are they structurally high yield, higher returning?
Look. I think what we do is just really difficult, to put it to put it clearly. It's it's not a merchant developer type approach. We are in and out of nine months. This is years in the making.
So I think that's reflective of the difficulty, the time, the expertise, the people, the infrastructure required to do it. That's what it's reflective of. So providing we, you know, we keep, our discipline and we keep buying in the areas we wanna buy, and developing through, I think you'll find that, we can, have some pretty good returns.
Thank you. And my second question is on the duration of build. Seems to have elongated by an additional month. Where do you think that that duration will land over the next six to to twelve months? Could we be talking about twenty four months build time, or is that a little bit too too long?
Yeah. No. Look. I think I think we're about where we're gonna be. It might come back a little bit from where it is at the moment, but pretty much most of the starts coming in over the next twelve months.
A lot of multi story. I talked about that today, 60%, but a lot of also refurbishing old buildings into new facilities, particularly for parcel operators, a lot of van type parking and what have you. A lot of these projects now are complex and planning as well. The you've got infrastructure around EV charging and things of that nature. All of it requires permitting planning.
So in general, I think it's gonna be at the longer end, but '19 is probably at the extreme end at the moment.
K. Thank you. And and a final question, just on, underlying rental growth. I think for the owned portfolio, it went from three to 3.3%. So what's driving that?
But, also, can you give an idea of, rental growth that you are seeing in in your in field locations globally?
Yeah. Look, it it bear in mind, we've got a global portfolio, so it ranges anywhere from 1% in Japan to 5% in The US and anywhere in the middle. So I think 3.3 is a good representation of the 50 billion around the world we own. But it is in that it's in that parameter. So it depends on where the weighting of assets are primarily, but we're seeing good growth in the infill markets, in the markets we're developing.
We're seeing short supply with demand that is pretty robust. Once again, it's going to the structural change of the digitalization we're seeing around the world. That is not that is not reducing. It's actually increasing significantly. And over the last probably quarter, I would have had 30 customer calls with all our our big customers around the world, and all of them need solutions.
And without a without a word of doubt, all of them are growing and growing their footprints. But they want more efficiency. They wanna be faster to market. They want more automation. And importantly, also, they want sustainable features in the building.
And that's why today, we're talking about going to carbon neutral builds. That means carbon neutral steel and concrete. And we're doing some at the moment. And in the future periods, that'll be the standard for Goodman.
Thank you.
Thank you so much. And your next question comes from the line of Shalta Otsimich from Jefferies. Shalta, your line is now open.
Just to follow-up some of Stew's questions. On the WIP, it went up across all regions, but the mix was broadly unchanged at the percentage of split. Where is the demand coming from all the existing customers that you talked about already? Is there any incremental demand from different types of customers you could elaborate on?
Yes. Look, it's fair to say probably no surprise in the last half. There's a big been a big pharma increase. So pharmaceutical companies, there's no surprise. I suspect that they need more infrastructure for the long term because I think everyone, is gonna be building redundancies into their supply chains, particularly in that sector.
But generally speaking, across the board, and very, very good growth, but it is all about speed to market, and convenience, and how you do it more cheaply. Also, runs conscious of emissions coming out of trucks as well, transport effectively. That's a big big problem for all our big customers around the world who take sustainability, obviously, very, very seriously and may have their own targets and goals. That's an important thing to try and resolve for them as well, how we get transport times, get it into EVs quicker, more effectively. And that's a that's a big body of work we're doing with most of our big customers around the world, which has been leading to you'll find some pretty robust development programs for us with our customers.
And then just sticking on the development side, you said WIPs expect to increase again in June. Do you have a sort of level where you think it'll go to? I think you were saying over $10,000,000,000 recently, the last is all where that's going to land in June?
Yeah. We'll land over 10. Yeah. I think in '22, it gives you a good insight into '22. Clearly, on our development book is gonna be strong, and development margins are are good.
So I think that gives you a lead into '22.
So just on that, if you've got 6,000,000,000 of production, you sort of annualize this year, if you're doing six circa 10 and it goes back down to eighteen months, that sort of implies an annual production rate of 6 point 6 billion. Is it so we should have, the earnings recognition target sort of 6,000,000,000 to $7,000,000,000 as a sort of production run rate on the next sort of twelve or eighteen months?
Look, I think we've indicated 6,000,000,000 is a good number. So margins are good. I think that's six is probably a fair number. Yes.
I think with the $10,000,000,000 shelter, it the time in production doesn't go down immediately. It'll stay around that that level. It'll it'll take a bit longer for it to go down back to eighteen months over a year.
Okay. Okay. And then just switching gears on to the AUM. You mentioned in the release that there was a lot of existing regeneration and refurb of your existing book out of the your total AUM. How much would you say is its future development potential as a percentage of that have you booked currently?
Yeah. I'll I'll give you a good example. And while we use one a bit closer to home, that's probably it'll be easier for you to sort of identify. But in Australia, we've got assets knocking around June of about 20,000,000,000. There's about another 10,000,000,000 of development in Australia over the next, probably five, six years that take to around 30,000,000,000.
That is primarily a big portion of that is actually redeveloping what we've already owned, particularly where I'm sitting here in South Sydney in Rosebery. We have 4,000,000,000 assets within five minutes, ten minutes to the office. That's another reason why we're down here quite frankly. We put ourselves amongst our ships, which we think is is a good place to be. But primarily, Australia is a really good example.
Some of that is in land and sites we've got in due diligence at the moment in buying, but a lot of that 10,000,000,000 is in the regeneration and the reworking, remodeling of what we've got. And even on the front of the release today, we've got a multi story that's actually in Houston Road. We'll be kicking off planning through place. We've got one down the road as well. Multi story will be kicking off.
So I think if you extrapolate that around the world, there's a similar there's a similar, thematic in regard of what we do. And we are buying, you know, older buildings. We bought a few in The UK last year and beginning of this year that are probably good for redevelopment in five, six, seven years' time. Give us cash on the in in between. So it's sort of part of what we do and very much part of the operating platform and strategy of Goodman, specifically.
Yes. So sort of 40%, fifty % or thereabouts based on that $10,000,000,000 depending on the level. And then on the just finally on the revals, could you break out the change in sum? What was from asset sales rate like for like growth And this asset sales and acquisitions, have any FX impact for the quarter?
Is that sorry, Shultan. Was that on the AUM growth?
Yeah. What, yeah, what was the change to the asset sales, and FX on that and like for like sales? Yeah.
Yeah. Yeah. Yeah. Okay. So FX FX is about 300,000,000 negative.
Valves was about around a billion positive. And then for the net acquisitions, about 1,000,000,000.
1 billion. That helps. Yeah.
Yeah. And then acquisitions was minus a hundred.
Okay. Perfect. Thanks very much for your time, guys.
Thank you so much.
Sorry. Sorry. Just wanted to clarify. Sorry. Just and and the other bit was the developments, which added 500.
Sorry. Just to round out that that question. Sorry. Continue.
Thank you. And your next question comes from the line of Grant McEaster from UBS. Your line is now open.
Good morning, Greg. And just one question. If we look at the or even the Goodman share, the would essentially gone from 1,000,000,000 to 2,000,000,000 over the last twelve months. Is there anything different you need to do to, yeah, maintain gearing levels? Or should we expect gearing to increase going forward?
Or the other option, are there sort of incrementally new development partnerships that you'll be looking time to take around the world?
Yes. Look, I think we've set the distribution policy, very deliberately and very carefully. And we've set that, a number of years ago to cater for what we would see we were doing in regard to strategy around development and development start. So we read it probably, Nicky, four or five years ago, and that's when we started moving to more retention. And I think you'll find that the retention of the earnings, the rotation of assets, some on the balance sheet.
We've got $1,800,000,000 on balance sheet. You'll see some of those rotators that come through their value add phases into partnerships that you'll find that, that will cater for our needs around capital and effectively gearing will be within the range that we've stated. So you won't see it uptick in gearing, and we don't see a company like Goodman with a big development book that is growing clearly that levering up would make any sense at all.
Yeah. I I
think, Grant, we did we did say, I think, at at the half year and and and I think probably every reporting period that there are interim gyrations of working capital requirements between, you know, half years where sometimes we're building up the width and fundings more yeah. Funding more of the width through to completion, particularly on presold projects. But that's not structural change in gearing. That's kind of more come and go capital. I think Greg's called out that the structural element is the distribution policy.
The 2,000,000,000 number that you're talking about, I'm not exactly sure where you get that from. But if you if you extrapolate that from the 6,000,000,000 production rate, you gotta remember that the 6,000,000,000 is the end value, not the cash cost. So the the capital needs aren't 2,000,000,000.
Okay. Excellent. Thanks, sir.
Excellent.
Thank you. And your next question comes from the line of James Dreusch from CLSA. James, can we now ask you a question?
Yeah. Hi. Good morning, Greg. Good morning, Nick. Greg, just interested in some of your comments around multistory in Sydney.
You've got a stat in the quarterly talking about 60% of current with this multistory. How do we sort of think about that share over the medium term?
Look, I think with ages, obviously, multistory is is the discipline that's used certainly in China, certainly in Hong Kong, certainly in Japan. So and that's a big, you know, big market for us, a very, very vibrant market and a very one that's going very successfully with a good team over there. So I think if you extrapolate that through the numbers, and I think they're close to around 50% of the development book currently, multi story will be a big a big number. It might be 50% some years, but it's certainly gonna be up there. You will see more intensive use in places like Sydney, potentially in Melbourne, where land is moving in value.
So a block of land in South Sydney now is probably $4,000 a meter if you wanna if you wanna knock a building off it. There's no fundamentally brand new buildings coming out of the ground in South Sydney. No new space effectively. And we just put a very good customer of ours into a reworked old style warehouse for parcels and what have you. So, you know, we we need we need some contemporary space.
The way you can make the economics work is through multistory. There's some compromises. Obviously, everyone likes to have a single story, but multi story works where you don't have an opportunity or an option, and that's what happens. In China, for example, Shanghai, Beijing, we don't have a choice. We have to build multi storey in around Beijing and Shanghai and certainly down in Shenzhen, so you don't have a choice.
So I think that work where land is intense. Customers are wanting contemporary space. And effectively, the barriers to entry for this sort of stuff is high because it takes a long period of time and a lot of capital. So it's got all the attributes we really like about it, and I think you'll find that it'll be a big big portion of what we do continuing as it has been over the last ten years. We've been doing multi stories for twelve, fourteen years.
Okay. Fantastic. Thank you.
Thank you so much. And your next question comes from the line of Simon Chan from Morgan Stanley. Simon, you may now ask your question.
Yes. Hi. Good morning, everyone. I just got a follow-up to a previous question about valuation uplift, etcetera. Can you confirm whether or not you whack through any cap rate compression to get that billion dollars uplift in in in valuation this quarter, or do you are you saving that for the June?
I don't I don't don't want to be saving anything. I think the reality is with the activities that are going on in the market, there would be a expectation. If you look at where our valuations are, that June will be a very, very strong half for us. So a lot of assets we've got are going into rotational phase, the valuations, and I think that's because of market evidence and other things in Australia and other parts of the world. So look, expect a reasonably robust valuation uplift coming through June, which I think would be expected.
And effectively, it's growth in cash flow as well as, I think, pure cap rate compression. We're more focused on a growth in cash flow, to be honest, but the hard reality is that there's more capital wanting to own industrial than there is industrial for sales. So that is pushing, obviously, tightening cap cap rate regime. I think the other thing that's pushing it is the resilience that industrial shown up around the world in the last twelve months during the pandemic. It's really been a strong performer globally in regard to once again occupancy and cash flow.
So you could imagine a lot of investors are going a pretty safe place to park your money at the moment with a future that looks very good.
Great. And just looking at your list of projects there, I think, Greg, in the past, you've mentioned that you don't want to grow for the sake of growing. You want to work within yourself, don't want to stretch yourself. FY 'twenty had 46 projects going on. Today, you said you've got 64 projects going on.
Can you handle it?
Because I think we've been building towards it over the last, as I said earlier, five years. This is not a surprise for Goodman. So we've been putting in people, particularly around the production area, to cater it. And because these projects are ones that go through planning and take a lot of lead time, you build into it to make sure you got the right resources. So, yeah, we can handle it.
We can actually handle substantially more with the teams around the world. So I think from that point of view, we're in a we're in a pretty good spot.
Actually, Simon, just it's a
good observation. One thing we'll call out is that some of those projects that just came on are are programmatic. So they've come on, yeah, through a particular customer program with almost pre agreed or pro form a terms and conditions in place. So we're able to roll that out quite efficiently for both parties. So we've been advocated for it that way.
And obviously, I mean, we knew it was coming as well. So, you know, we're we're well resourced there.
Okay. Great. And trust that you guys enjoy joining the new office down there, mate. Thanks.
Yeah. No. It's it's good. It's good to be back. I think I started down here thirty years ago, so I think it's good to be back back home.
Thanks, sir.
Thank you so much. And your next question comes from the line of Suraj Ngani from Citigroup. Your line is now open.
Oh, thanks. Thanks, guys. Couple of questions have been answered. Just two quick ones. So on the increase in WIP, can you say which particular regions will be driving this or is this is this across the board?
Yeah. Look. You know, Australia's got a rising couple of billion in WIP. US will add another billion in July. Couple of projects we've just got in planning, and we're finalizing.
Europe is incredibly strong. And as you'd know, we've rebased our business back into the major markets of Europe. UK's got a couple of really, really good projects in around the m twenty five. China, I think we've got about couple of million meters of space coming out. That's probably twice what we were doing, you know, three or four years ago.
Japan has got a couple of big projects coming out. One will be in the data center space as well. So look, it is all over, and I think we feel very comfortable moving into '27 to '23 that we're going to have some very, very good projects. But the important thing is the projects we're producing, 90% thereof, they're not available for sale on the market. So to retain those within your own body of investors, many of them already sitting in the partnerships now, obviously, is giving us the benefit being a very good product for our own for our own investment partners, but also importantly performance.
And, all our partnerships around the world this year will be in the, effectively in the mid teens, on average, and certainly, in a few locations in the in the twenties again this year. So very, good performance, but it comes back to the quality of what you're owning. And when you look at that development portfolio, which is it's a it's a medium sized property company every year effectively, you know, that's highly desirable, but unattainable if you wanna buy it on the market.
Okay. Thanks for that. And just another one on volumes. Greg, like, is is there any change in views from the investor base around the recent move in volumes, or is that not really a concern at this point?
Yeah. Look. I I reckon there was a really good conversation we had probably around the half year around bond yields where they were gonna go. I think on the other side of the equation, though, there's an understanding and realization that if you own real estate in good locations and bond yields are moving because the world is a happier place, that's a good thing. So I think there's a plus and minus on that one, and and we're pretty comfortable, on that front.
We're really focused not on the last 25 points on the 50 points on the cap rate. What we're really focused on is grant and growth in cash flow. And we talked about it two or three times, talked about it in the speech. Let's forget about the cap rate just for a moment and think about what's gonna drive value. And it doesn't matter whether you're in industrial or you're in technology or in any other sector in the world.
It's gonna be the growth in cash flow that hits the bottom line that's going to basically determine value. So we keep reiterating it because with what we're doing and what we're looking at around the world, we are really trying to look at those pockets of growth and expansion in growth in cash flow. And we think the valuations in the mine will look after themselves in the bond rates to pop because global growth is better, where we might get a little bit more growth out of the cash flow. So just be in the demand areas of demand and make sure you're building to relevant, and I think, it's the way we look at it and our partners as
well, quite frankly.
Yeah.
Thank you.
You. You so thank you so much. And your next question comes from the line of Richard Jones from JPMorgan. Richard, your line is now open.
Thank you. Greg, just a completion run rate. Would would you expect a much higher level of completions in Q4? It's obviously tracking significantly below your commitment levels. Or is it more kind of '22, '20 '3 story that you're kind of guiding to?
Yeah. It's more of 22, 20 three. I think you'll find the development number in June from a profitability point of view is robust, from a p and l point of view. And I think there'll be a lot completing the first half of twenty two, and into the second half of twenty two. So, yeah, that that completion rate will lift.
But, yeah, I I think you've you've, you're looking at it in the right way. Yeah.
Okay. And then we we've obviously seen, you know, a couple of significant transactions within Australia that's kind of repriced the market. Is that Australia playing catch up, or or you're still seeing kind of, you know, cap rates head even even firmer in in in the other major markets you're in?
Yeah. Good question, James. Look. US prime starts with a three. Europe prime starts with a three.
Probably mid three to be fair, three seven fifty. Although, I think it's a bit of catch up. I'd it it sort of demonstrated over the last twelve months resilience of the sector, and it's fair to say that, I said 50¢ in every dollar. I think last time I talked to you guys was going towards industrial, probably a little higher than that at the moment. So, yeah, I I think you'd expect whether you're in New Zealand or Australia or through parts of Asia and and Europe and US, that that is three is knocking around, $3.07 fifties.
To be fair, though, if we've got a $3.07 50 in LA, it's growing at four or five. We're not fifties and fours are sustainable if rents are gonna go backwards. And not all industrial is treated equally, and we've said that before. So I think we've just gotta be careful that we don't just look at valuations, generically. We look at them specifically.
And I think in good locations, in strong growth corridors, we're genuinely getting toward a 3% to 4% growth, zero vacancy. We can see the rationale for a 4.25% cap rate. We can't see the rationale for 4.5 cap rates in markets where land is plentiful, easy to build, and you're buying a big premium to replacement cost. So that's not what we're about. We're about the the early plan.
Keep it straight. Keep the direction in the high growth markets. And I think the cap rates will be around that four, four point two five mark, but the growth will be there as well. And
our last question comes from the line of Ian Randall from Goldman Sachs. Ian, your line is now open.
Thank you. Good morning, Greg Nick. Look. Just just going back to the reg you gave, Nick, on the fund growth. I think that was for extra for total fund.
Do you have those numbers just for external fund?
It's the the movement's about about the same. There hasn't been much change in the directly owned, so it's that's pretty much the work for the external.
Alright. And so I suppose just just touching back on Richard's comment about completions. It looks as if if development only added around 500,000,000 to fund, I would have thought there'd be some some fund growth through work done rather than just completions. Is there it looks looks as if the throughput rate is also running a little bit below what would be implied by the whip in the duration. Is there is there something there over the quarter that sort of was anomalous?
The development number that I gave is the throughput number, not just completions. Yeah. So, remember, that's cash flow. Right? So that's CapEx cash flow essentially because net acquisitions were minus a hundred.
So we are adding, but we're also funding a lot of that. We did fund a lot of that through divestment over the quarter as well. So that's why it's a little bit anomalous. Looking at it on a quarterly basis, you know, you you probably need to you probably need to sort of take an an annualized view is probably a better way to look at it, Ian, I think.
Yeah. Look, it's fair to say, look, the assets under management will be, I think, knocking around 57 ish in June, again. Then we go through 60 strong 60 in the twenty two year. And that's just the stuff being run off the book, and we're keeping 90% of what we're doing is keeping. So if you extrapolate out $10,000,000,000 plus change, most of it we're keeping.
And probably that 10,000,000,000, if you actually put the contemporary cap rate on it today is higher. Right? Because a lot of these feasibilities are twelve, eighteen months in the making, and we don't tend to change those numbers on the way through. So I think you'll find that running into '22, we'll be through 60 strongly.
And and I think we
answered the question on on completions earlier. Think Greg called it out. Mean, there's I mean, we flagged it as we're going through this period of transition where the longer dated projects are coming in, some shorter dated projects, there was always going to be this period of transition, which will normalize. I mean, a lot of projects frankly, a lot of projects will complete in July, not June as well. So you got to as I say, you got to look at it, I suppose, on an annualized basis as well.
Okay. Great. Thanks.
Yes. Thank you.
Thank you so much. If there were no further question at this time, I will now hand back over to our speaker, Mr. Gregory Piedmont. Thank you. Please go ahead.
Hi. Thank you very much, and thank you very much everyone, on the line. Stay safe. Let's not get complacent about COVID because it's still around in the communities around the world. And let's feel for all our mankind.
We certainly feel for all our people around the world who many are in a lot more difficult circumstances than we are here in Australia. So, thank you very much.
Thanks.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.