Good day, and thank you for standing by. Welcome to Goodman Group's Q3 FY2025 operational update. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you need to press Star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press Star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chief Executive Officer Greg Goodman, CEO. Please go ahead.
Thank you very much, and good morning, everyone on the call today. Goodman has had a strong quarter. Our logistics customers' increased need for productivity, automation, and mechanization continues to support long-term demand in our locations around the world. However, uncertain economic and trade conditions are delaying customer decisions. In the data center space, rising demand for cloud and AI services is contributing to growing data center ecosystems in metro areas close to end users, where the majority of our sites are located. The environment, however, is producing valuable opportunities for those with patient, long-term capital. We're using this time to take advantage of long-term regeneration opportunities, and our teams around the world are reviewing NR and due diligence on a number of these sites that could potentially serve as high-value logistics, data centers, or due-purpose developments in future periods.
A recent purchase of a second land parcel in Luton in the U.K. is one such opportunity. The substantial size and scale of the brownfield sites will see us invest significantly in building world-class infrastructure, including industrial and data center complexes. And as a result of the urban locations we operate in and the limited supply in many of these markets, our occupancy remains high, and we're seeing positive rental reversion. Valuations are also positive, with some cap rate tightening recorded during the quarter. Our total portfolio now stands at $ 86 billion. More than half our 13.7 billion development work in progress is in data centers, and we're making steady progress against the 0.5 gigawatt of projects we expect to have underway by June 2026. These developments span eight metro areas across North America, continental Europe, Japan, Australia, and Hong Kong.
Our focus is firmly on execution, and we continue to advance detailed infrastructure works on these sites, including demolition, power connections, substation installations, procurement of long lead equipment for these projects, along with above-ground construction already underway at LAX01 and HK10. These all help to reduce time to market and provide customers certainty on delivery and, importantly, timing. The secured portion of our 5 gig global power bank has increased to 2.7 gigawatts, and we have been building out the delivery team, making significant hires during the quarter, particularly in the operational space. Capital remains a key barrier to entry in this industry. However, the group's liquidity of over 6 billion provides a strong base to execute our program. Our long-term capital needs continue to evolve with our operations.
We're in the process of transferring completed data center projects into data center partnerships in continental Europe and Japan, and continue to deliver and actively rotate our capital to fund sustainable earnings over time. Goodman has always worked to unlock the highest and best use of our sites around the world. We continue to optimize the long-term value of our assets through strategic planning outcomes. Regenerating sites is providing future development and growth opportunities in addition to logistics and data centers, and the group is making progress towards the monetization of residential sites, primarily in Australia. Development activities are forecast to continue to provide attractive margins. We expect supply constraints in our locations to support rental growth over time and maintain high occupancy in logistics and support leasing for data centers in the near term.
Hyperscaler CapEx programs are escalating and accelerating, and Goodman is well positioned to benefit from this, with access to power on existing sites and a proven track record in delivering complex infrastructure developments. Substantial data center development commencements are expected to be reflected in work in progress through to June 2026. And just in closing, the Goodman team is focused on executing our significant opportunity set. We reiterate our forecast FY25 operating EPS growth of 9%, which equates to over 2.2 billion operating profit. I thank you and now take questions.
Thank you. As a reminder, to ask a question, please press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press Star 11 again. Please stand by as we compile the Q&A roster. Our first question comes from the line of Simon Chan from Morgan Stanley. The line is now open.
Hi, good morning, guys. Hey, Greg, you opened with a comment about uncertain economic and trade conditions delaying customer decisions. Are you seeing these uncertain economic decisions impacting capital partners' decisions as well?
Yeah, Chan, it won't be a big surprise that everyone's being very careful about what they do around the world until there's a clearer view on what the trade situations look like. So I think you could extrapolate from what I've said today that, yes, I think customers are pausing, and they're watching what they're doing, and they're being very careful about what they are doing. Customers are doing things now and looking through the haze, if you will, but more quietly. What that has done, though, is developers have pulled the handbrake up pretty well everywhere in the world, which is giving us the opportunity, which I talked about in my presentation, in regard to getting some big regenerative sites that we haven't been able to sort of get at a reasonable price for a long time.
So we're using that as an opportunity on that side of the equation. So I think on the capital side, we are closing partnerships and capital at the moment, but you just need to allow more time as people absorb what is going on around the world and sort of get adjusted to the new reality. How long that may be, we'll wait and see. But yeah, things are taking longer, and we've adjusted our program towards that.
Right. Whatever you were doing in the US, I recall as part of the GNAP restructure, you had planned to do a few things there. I know the Lloyds partnership was one of them, but you had stuff on balance sheet that you were going to vend into the second fund. I assume that has not closed yet, and on the back of your comments today, there might be some delays there.
No, look, we're just progressing along in a sensible fashion. We think, actually, in the US at the moment, and we are looking at a number of site acquisitions there at the moment, exhibits very, very good value. And effectively, we're taking advantage of that on the buy side, but we're still progressing with the programs and the plans that we had six months ago when we did that transaction in the U.S.
Great. Just looking at the WIP commencements, etc., that's actually gone up quite significantly versus what you disclosed at the half-year result. Can you perhaps give a little bit of color on what went in and what went out? I assume that the big uplift is due to Vernon. Am I correct? And is that pretty much the reason why the yield on cost went up so significantly?
Yeah, look, you could say it's data center orientated. It's full build-outs of data centers, which we think will be a big feature over the next 12 months, and you'll see that, I think, in the full-year result. You'll also see that going into the half-year in December for this year. Certainly, from where I'm sitting at the moment, I've just been in the U.S., that we're going to be doing a high proportion, I think, of turnkeys. And why I say that is because we've got a lot of demand that wants to be in a year and a half out. So you need to keep building through your program, which is what we're doing. We're staging those programs globally. We'll be kicking off, for example, a time in here shortly, which is a five-story, pretty major piece of infrastructure.
And effectively we're making sure we get closer to the game line so we can offer our customers outcomes where they might be a year and a half from being able to get their facilities into a powered-up and powered-up form. So yeah, you' ll see work in progress as they move as these projects start coming into WIP. I think you've seen a little movement at the moment, but that obviously will be a lot greater as we go over the next 12-18 months.
So is LAX01 and Hong Kong 10 in there as powered shell or fully fitted at the moment?
10's a shell. Vernon is fully fitted.
Great. Thanks, Greg. That's all I've got this morning. Cheers.
Thank you. Just a moment for our next question. Next, we have Tom Bedor from UBS. Your line is now open.
Good morning, Greg. I was just interested in your comment. I think you just mentioned in passing there that you do expect some DC leases in the near term. Just be interested in how that's progressing with the various hyperscalers. And then also, how are you thinking about forming capital partnerships potentially to do the developments? Is leasing really a precondition to forming those capital partnerships?
Yeah, probably the opposite, actually. The capital partners we're talking to like the development process, to be clear. And I think pre-commitment's not a cursor to it. What we're doing on the customer side, we're having discussions with customers all around the world. Some of those will be floors. Some of those will be two floors. Some of those will be buildings. Some of those might be turnkeys where they went away and at the end. Some of those might be shells that are on-sold. Effectively, some of those might be site sales and all of the above. So we look at ourselves globally not as a co-lo or an operator. We look at ourselves and effectively are very, very focused on building excellent infrastructure. And that is for everyone that's in the industry, whether a co-lo, whether a hyperscaler, whether they want one floor, half a floor.
And effectively, we'll make sure we can build that high-quality infrastructure, deliver it on time, and we're building into the best markets in the world. The top data center markets outside the U.S., which Virginia obviously is strong, you're talking about London, you're talking about Frankfurt, you're talking about Paris, you're talking about Tokyo, you're talking about Sydney. And we're in all those markets, and we're getting starts in all those markets over the next, except London, over the next 12 months. We're building in the very best markets, the most high barrier to entry markets where there is very, very good solid demand and negotiations going on in all those markets at different stages. But what we are doing to tighten up the gap in the program or the time-in program is make sure we move forward along lead items.
We're ordering a lot of generators all around the world. We're putting power infrastructure in. We're going vertical on shells in two-stage arrangements where we'll have a contract for a shell and we'll have a contract for a build-through. And we'll keep closing up that time frame so we put ourselves in the best position to negotiate outcomes.
From a capital partner's perspective, is the desire to not come in, not necessarily require a lease, more a function of wanting to leave leasing as long as possible to maximize potential revenue?
Look, I think with the, to be quite frank, the partners we're talking to around the world are varied. I mentioned in my presentation there's a few data centers that have actually transferred through to capital partners. They have completed product in Japan and also up in Europe, and I mentioned that in the presentation. What you'll see over the years and many years is a combination of built form that going into partners. You'll see a combination of capital coming in at the development phase so we can share the risk. Because our program around the world of 5 gigs is over $100 billion in value, and we're not sitting here today pretending we're going to fund the whole lot.
So effectively, we do want to share the risk on the developments as we go through because we'll have a number on over the next two or three years, and that would make economic sense, but also share the risk. But big capital partners of Goodman's and big capital partners globally like the development process, like the thematic that's running behind the development process, the demand, and you'll see the big CapEx numbers still coming through from the hyperscalers in regard to spends on data centers. A lot of that is in the metro locations that we're in. So it'll be many and varied, and we'll be managing capital and risk and return.
Sounds like leasing's less of a constraint, though, at least at this point in time. Thank you.
Thank you. Just a moment for our next question. Next, we have Ben Brayshaw from Barrenjoy. Your line is now open.
Yes. Good morning, Greg. I was wondering if you could provide a situational update on the establishment of a second partnership in the U.S. to sell down the surplus assets acquired from GNAP.
Look, I mentioned that a little earlier. As we were, I think last time we chatted, we're working through that, we're working through that currently. But I will say, and I said it a bit earlier, that capital is taking its time, people being sensible and cautious, and so are we. But we are using this opportunity to actually pick up some pretty good sites around the world, which we are doing in most markets. So I think there's an opportunity on one side, but you've got to be realistic to adjust your programs, particularly around capital, where people want to be a bit more cautious with what's going on around the world and see a little bit more settlement in regard to certainly what's happening with trade and things of that nature. The U.S., we think, is compelling buying at the moment.
Just in relation to LAX1 and Hong Kong 10, are you able just to, I guess, step through your expectations on the composition of the customer base for those two assets? Are they likely to be, for example, single customer buildings, or are you expecting that there will be a variety of customers that you'll introduce into those projects? And secondly, could you just talk through when you think that the, I guess, the income stream from both of those is likely to stabilize, noting that your comments around completion is the priority? But just curious as to what your expectations are on the yield on cost in terms of that stabilizing post-completion.
Yeah. Look, in Hong Kong, it's pretty clear. Both programs there are shells. You expect in a shell, you're going to have a single customer, whether it's a co-lo that we have in Hong Kong. We've got a number of co-los in our portfolio there. You expect them to be a hyperscaler co-lo, single operator leasing the shell because that's the configuration we're working on at the moment. If that changes, I'm sure we'll let you know in the work in progress number. And I think the yields on cost and things are pretty consistent with what you're seeing in the market. I think the market's looking at anywhere between 9s and 10s, a little bit lower in some of the Asian countries like Japan on shells running through to full MEP fit-outs.
But the program in Hong Kong at the moment, as was the first couple of hundred megs we did in Chunglin West, is around a shell program.
Greg, any comments you could provide on Vernon, given that your comments earlier are that it's likely to be a fully fitted facility?
Yeah, I think it's just the location we think is really good. The amount of power available in some of the key markets in the U.S. is difficult. Lead times on a lot of these products are blowing out to years, not months. So there' s real opportunity there. We want to be in a position where we could do floor by floor if we think that's appropriate. There is co-lo interest in taking the whole building as well. So we are just setting ourselves up to give ourselves the maximum flexibility in regard to the negotiations we are having actually right now. We will have an operating model around it because if you are doing floor by floor, you will need to operate it. There are some hyperscalers that want us to operate. There are some that want to operate themselves. So we will play that out as we see it.
But we're making sure that we're ordering everything we need, and we're going vertical. Then we're closing up the delivery time so we have real power with real delivery dates and real certainty, which is critical in the data center program.
Thanks for your time, Greg.
Thank you. Our next question comes from Lou Perrince from Jardin. Your line is now open.
Good morning, Greg and team. Quick question. You talked about the trade uncertainty impacting customers. Can you talk about what it means for construction in terms of cost, supply chain, just getting generators and whatnot, so how it's impacting the timing of development?
Yeah. No, look, it's not too bad on the construction side. I've got to say, though, I think data center construction in the last 12 months or so is up certainly over 10% in most places in regard to cost. So the costs are climbing on some of those aspects. That's got nothing to do with the trade tariffs we've got on at the moment.And I think in regard to industrial, we've probably got a bit of a pullback in cost on some of those because over the last 12 months, the handbrake's been pulled up by a lot of developers that actually, in some markets, don't have the funding to progress, and the demand with pre-commitments is less robust. So I think from that point of view, it's coming into equilibrium pretty quickly, which is giving us an advantage on the cost side.
At Goodman, we want to build into end of 26, beginning of 27, mid-27. So our program at the moment is, you'll see, we'll start kicking some starts off for that late 26-27 program, particularly in the U.S. and also through Australia, and some also probably in Japan where we think there's going to be a bit of a shortage. So industrial pulling back a little bit. Data centers are a little more expensive, and the amount of contractors globally for data centers is smaller than people would like. In many markets, you've got one or two choices effectively, and that's just because of the demand and also a lot of subcontractors. The ability to get subcontractors is getting strained and difficult. We've even heard that in residentially here in Sydney, subbies are difficult to get for residential because they're actually working on data center projects.
Yeah, watching all that pretty closely.
Great. Thank you. It sounds like, given that you're still talking about 8-10% yield on cost on shells, that the higher cost is offset by higher income. Is that fair?
Yeah. Look, I think the demand is, look, demand is still very good, particularly in the metro locations we're developing in. We're going to go vertical in a time and shortly. That's a big five-story, pretty complex build. Effectively, you've seen what's happening around North Ryde. Barriers to entry are going to be difficult. Planning's not going to be easy. It makes projects like that even more compelling, right? So you can imagine we're relatively comfortable where the economics are at.
Great. Finally, you mentioned the yield on cost expectation for shells. For the fully fitted projects, you're still expecting kind of mid-teens?
If you're looking at development IRRs, you'd be middle 18s. In regard to cash on cost, pretty raw, you're going to be looking for, I think, mid-9 through to early 10, early double digits is sort of where it sits. Depending on where it is, obviously, that's a big difference if it's in Paris to locations in the U.S.
Yeah. Even for fully fitted, so similar to what you said about shells.
Yeah. Shells are a little tighter in regard to cash on cost, so they're probably low 9% to 10%. The fully fitted can be 10% plus, sort of where we're aiming at.
Thanks, Greg.
Thank you. Our next question comes from James Drewes from CLSA. Your line is now open.
Yeah. Good morning, Greg. Good morning, Nick. You touched on time and just before, Greg, I was just wondering if there's any other DC starts which are sort of imminent over the next quarter that you're thinking about.
Yeah, there are. Tokyo's obviously a bought market for us. We're ready to go. I think we talked about that probably a quarter ago. Europe, we're building transformers and ordering all the long lead items. I've ordered, we have ordered, not me personally, but we at Goodman Group have ordered more Caterpillars and MTUs, and we've been making decisions around generators. So yeah, no, we're into it. No doubt about it. We're closing up the gap on delivery, and that's what we want to do. We're not in some of the best markets in the world. We are in the best markets of the world. I think you go and do the global map of data centers and where the demand is and where the barriers to entry and the difficulty to get power.
We're in those markets, and we're up and down it. So yeah, a lot of time, a lot of intensity of work, and there's not many holidays over at this joint at the moment.
Yeah. Okay. Are there any pre-commitment thresholds for the whole WIP that we should be thinking about when you're trying to manage risk as you roll out this DC pipeline?
Look, I think look for capital, and we'll make some comments about capital as we go forward during the year, but look for capital, big partners. The data center program around the world is 100 billion rolls off the tongue pretty quickly, doesn't it? But the amount of capital to get there is big. The risks are not underestimated. The barriers to entry are getting higher, not lower. The complexity around power is extreme in different parts of the world. This is a game where you need a lot of money, and you need a lot of long-term capital, and that's what we're doing right at the moment.
Okay. So the more capital you bring in, the less you're sort of not as worried about pre-commitments, I suppose, is the idea.
You're not running around trying to finance developments and things like that with banks. You're bringing in real money, real time to give yourselves the time to be able to build them out without financial risk. I think the financial risk around data centers and other development as well, where you're building into programs where there is less capital available as well, you'll find there's going to be some things that don't work out terribly well for people. So we're steering away from leverage, which we have been for the last, I think, 15-20 years. Nick Vrondas is actually here. You can ask him a question if you like. We're steering away from obviously leverage, and we're partnering with people with real money that are happy to stand their hand in hand and be able to do this with us.
Yeah. Okay. Maybe just on the logistics pipeline, if we think about that in absolute terms, you sort of mentioned that demand is sort of a little bit difficult in that space at the moment, which is not hugely surprising. Given that you've completed a lot, should we expect that portion of the WIP in absolute terms to actually tail off a bit over the next halves, or do you reckon you can hold that?
Look, this is actually big projects we're working on at the moment. So effectively, it might tail off a little bit, but longer term, the trend's going to be strong because the parks we're doing, it's sort of like AUD 1 billion a park now. We're buying actually bigger sites than we were five, six years ago. There's land with infrastructure transactions we're doing around the world at the moment, which 500 million gets you a start. I'm talking Aussie dollars, and it could be in the thick end of 900 to a billion dollars of land and infrastructure. We're putting more infrastructure in the bigger sites and bigger programs. I wouldn't underestimate it is where I'm at.
Because developers have pulled back around the world and they cannot fund because maybe they need banks to do it, banks not doing it, that comes back to the opportunity I spoke about a bit earlier where we are getting access to some really good regeneration sites that maybe a year or two ago, everyone was doing it. Now they are not. So we see that as an opportunity moving forward. Maybe in the short term, long term, it is going to be pretty solid. The other thing we are a big fan of is the mechanization, the automation. I think you will find fundamentally inside 10 years, there will not be anyone in our warehouses. It will be dark, and it is all robotics with a bunch of engineers.
So you want to set yourself up for those big sites where you can put in big power infrastructure because you need more effectively to drive these things. Yeah, we're making sure we don't end up with stranded assets in the future where if you don't have the power and you don't have the infrastructure around them, you could have a stranded asset.
Okay. One more easy one, if I may. Just the yield on cost for industrial at the moment, is that still in the 6s, or can you get a 7 in front of it for what you're kicking off?
Yeah. We're seven rates, except Tokyo.
Thank you.
Thank you. Our next question comes from Richard Jones from JP Morgan. Your line is now open.
Thanks. Greg, can you just clarify the structure of the data center joint ventures you've got in Europe and Japan and whether other partnerships that you're working on will be different from that?
Yeah. The two specifically mentioned today are buying or participating in shells that were built primarily in Frankfurt and in Tokyo. Now Tokyo had a program of four. We're through three. We've got another one still to go. Yeah, that's in product. I think on the development side moving forward, bear in mind we have, I think, globally one of the biggest development programs in the sector. We're looking for, and we have already, development partners. We've got a development partner, as you know, in Japan where the development partner's on full risk, but they are big financial institutions with big amounts of capital that rely on our expertise to make sure that we keep them safe. And there's obviously big returns at play as well.
Okay. And just the Goodman equity ownership in the end product structures and the development products that you're working on?
Yeah. Development will be 50/50s. End products are anywhere between 20s-50s. Pretty consistent with what we have done around industrial, but any development partnerships will be 50/50s. With the requisite arrangement, Goodman makes over development services and other things like that.
Okay. And then the eight identified development starts that you outlined at the capital raise, should we expect that you have land sale profits out of the balance sheet and the managed funds into these new development partnerships, and then all the construction will be done in those partnerships?
Look, I think you'll find there'll be many and varied ways, but I think I saw your note recently, and I think it was relatively clear what you said. I don't take any issue with your view on how we might do it.
Okay. Thanks, Greg.
Thank you. I see no further questions at this time. I will now turn the conference back to Greg for closing remarks.
I'd just like to thank everyone very much and good day.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.