At Goodman’s recently held AGM, the addresses made by Chairman, Ian Ferrier and Group CEO, Greg Goodman provided an overview of the Group’s full year results, key achievements for the 2016 financial year (FY16) and outlook for the year ahead. It was noted that the Group has delivered strong performance over the past five years, building its position as a world class business that is a leader within the industrial sector and driving sustainable long-term growth.
Over the last five years, Goodman has:
- Increased earnings per security by 42%;
- Grown net tangible assets by 67%;
- Significantly reduced leverage from 23% to around 11% currently;
- Almost doubled the development workbook from $1.8 billion to $3.5 billion;
- Achieved revaluation gains of over $1.7 billion, driven in part by urban renewal activities with almost 50% of this to be realised in cash despite not being included in operational earnings; and
- Raised $12.8 billion of equity across our Partnership platform.
These results are underpinned by the ongoing execution of Goodman’s long-term plan, and reflected in our FY16 performance. The success we are achieving is highlighted by the Group’s optimal mix of prudent, uncompromising financial management coupled with entrepreneurial drive. We have worked hard to refine our business, ensuring it is resilient and adaptable to all market conditions, and focused on improving the quality and location of our properties.
Goodman identified and responded early to a number of key structural themes that are transforming our sector, which include greater urbanisation of cities and increased consumerism, the rapid growth of e-commerce and enabling technologies, such as mobile technology, and also customers seeking more value and cost efficiencies from their property solutions. It’s in this context that Goodman has been investing in major gateway cities and this strategy is driving the underlying performance of our business and ability to create long-term value. Our focus is on locations that are attractive because of land, proximity to wealthy consumers, low unemployment, and their modern infrastructure and transport networks. Our preferred cities include Sydney, Auckland, Tokyo, Hong Kong, Shanghai, London, Paris, Frankfurt, Los Angeles and New York.
Through our targeted and structured asset sales programme, Goodman has sold more than $5 billion of properties over the past three years across our portfolio globally. In turn, we have increased the concentration of properties in our preferred gateway cities, with our assets in markets such as Sydney for example, growing to 79% of our Australian portfolio. We have reinvested the proceeds from asset sales into our development business, selecting the best quality opportunities in the best locations in and around gateway cities globally, where demand is strong. This is in turn enhancing the overall quality of our $34 billion portfolio and driving higher long-term returns for the Group and our investment Partners.
Goodman has been investing in major gateway cities and this strategy is driving the underlying performance of our business and ability to create long-term value.
Goodman has made a positive start to the 2017 financial year (FY17) and this is reflected in the strong activity across our development business, with $1 billion of new developments commenced for the second consecutive quarter. Customer demand for our development product is evident through our development work book, which is now at $3.5 billion across 80 projects around the world. A key highlight has been the strength of Goodman’s Continental European business, which has seen its development work in progress increase to $1.2 billion or 30% of the Group’s overall development book. This continued strong out-performance is being driven mainly by customers in the e-commerce, retail and third party logistics sectors, with 94% of projects pre-committed. The ‘Development Update’ section on pages 8 and 9 of this newsletter provides information on some of the developments being undertaken in Continental Europe, together with projects across Goodman’s other operating regions.
The sound property fundamentals experienced by Goodman in the first quarter of FY17 are in line with the quality of our assets and customer relationships. We leased 867,000 sqm across the overall portfolio, representing $109 million of annual rental income. The strong leasing result ensures we have maintained our high 96% occupancy and 80% customer retention. A feature of our leasing activity has been the average 3% higher rents achieved on new leases and the 90% of newly developed space that we have leased prior to completion, further highlighting the improving quality of Goodman’s portfolio.
The ongoing execution of the Group’s urban renewal strategy saw a further $280 million of Sydney sites conditionally contracted for sale during the quarter, taking the total sites conditionally contracted and sold to date to $2.4 billion. We settled $0.1 billion of urban renewal transactions in the first quarter and with $1 billion of settlements expected over the next 12 months, this is providing Goodman with a substantial longer-term source of capital and has enabled us to materially reduce our financial leverage and strengthen our balance sheet position. We have kept our urban renewal pipeline at 35,000 apartments and remain focused on achieving positive planning outcomes over the longer-term.
PARTNERSHIP CAPITAL MANAGEMENT INITIATIVES
In early November, Goodman hosted a property tour for investors of its assets and development projects in the Inland Empire market of Southern California. Together with Greater Los Angeles, Northern New Jersey and Central Pennsylvania, these core logistics and industrial markets remain the focus of our US platform.
Since entering the US industrial property market in June 2012, Goodman has executed a develop to hold strategy, reflecting the operating environment at this point in the property cycle. Our current developments pipeline and assets under management stand at US$1.7 billion (approx. $2.5 billion), and is capable of providing 1.4 million sqm of prime logistics space. Significantly, we are making considerable progress on the roll-out of our pipeline and forecasting strong growth. This puts Goodman on track to achieve A$3 billion of assets under management in the US in the short to medium term.
Group CEO, Greg Goodman commented that: “We are excited by the growth outlook and momentum across our US platform. Particularly pleasing are the development sites we have secured in prime locations, together with the world class real estate we are currently developing.”
Goodman’s US achievements include the completed development of around 200,000 sqm of new logistics space in the Inland Empire West market in Southern California. A significant highlight was the leasing of the entire 1.6 million sq ft (approx. 149,000 sqm) Goodman Logistics Center Rancho Cucamonga to Georgia-Pacific, which is one of the largest leases signed on an industrial development in Southern California in the past 10 years. We also currently have three active projects in the Inland Empire West and Greater Los Angeles markets for a combined 150,000 sqm.