Goodman Group (ASX:GMG)

Gregory Goodman
CEO
Market Cap (AUD): 25.4B
Sector: Real Estate
Last Trade (AUD): 13.83 -0.06 (-0.43%)
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1. About

Goodman is a publicly listed global industrial property group. The Company owns, develops, and manages modern industrial real estate including logistics facilities, warehouses and business parks in strategic locations throughout 17 countries. The Company builds mutually beneficial, long-term relationships with its customers who include international market leaders across a broad range of industry sectors including logistics, automotive, retail and e-retail.

The Group manages its portfolios through four unlisted property funds:

  • Goodman Australia Development Partnership (GADP)
  • Goodman Australia Industrial Partnership (GAIP)
  • Goodman Australia Partnership (GAP)
  • KWASA-Goodman Industrial Partnership (KGIP)

2. Business model

 

The Group operates in following divisions:[1]

 

Divisions

Revenue ($M)

% of Revenue

% of Profit (before Tax)

Profit drivers[2]

Australia and New Zealand

$328.7

20.8%

44.9%

  • Goodman achieved an operating profit of $845.9 M for FY18, compared to $776.0 M for the prior year, which equated to an operating EPS of 46.7 cents, up 8.3% on FY17
  • Goodman’s overseas operations contributed 63% of the Group’s operating profit. Dividends and distributions relating to FY18 performance increased to 28.0 cents per security, up 8.1% on the prior year
  • Property investment earnings were in line with expectations, although decreased slightly to $384.8 M from $396.7 M in the prior year due to the completion of the portfolio repositioning programme
  • Goodman’s statutory profit attributable to Securityholders for FY18 was $1,098.2 M, an increase of $320.1 M compared with FY17. This increase was primarily due to the strong property valuation gains in FY18 and the debt restructure expense of $82.8 M in FY18 compared to the fair value adjustments on debt modification of $173.1 M and debt restructure expense of $32.2 M in the prior year

Asia

$216.3

13.7%

23.2%

Continental
Europe

$726.5

45.9%

21.4%

United  Kingdom

$196.0

12.4%

1.4%

Americas

$115.2

7.3%

9.0%

3. Strategy

 

Key strategies include:[3]

 

Goodman Group’s vision is to be a global leader in industrial property. This vision is executed through the integrated “own+develop+manage” business capabilities

 

These business capabilities are supported by five strategic “pillars”

  • Quality partnerships – develop and maintain strong relationships with key stakeholders including customers, capital partners, suppliers and employees
  • Quality product and service – deliver high-quality product and customer service in key logistics markets globally by actively leveraging Goodman Group’s industrial sector expertise, development and management experience and global operating platform;
  • Culture and brand – promote Goodman Group’s unique and recognisable brand and embed Goodman Group’s core values across each operating division to foster a strong and consistent culture;
  • Operational efficiency – optimise business resources to ensure effectiveness and drive efficiencies; and
  • Capital efficiency – maintain active capital management to facilitate appropriate returns and sustainability of the business.

4. Markets

 

The Group operates in the following industries:[4]

 

Industry

Industry Revenue (2018)

Growth Rate

Commercial Real Estate (Global)

$4 trillion

2.9% (annual 13-18)

Retail Property Operators (Australia)

$23 billion

6.0% (annual 13-18)

Fund Management Service (Australia)

$8 billion

3.8% (annual 13-18)

5. Competition

 

Major competitors Include:[5]

 

  • Scentre Group Ltd (ASX:SCG)
  • Gpt re limited
  • Mirvac Group (ASX:MGR)

6. History

 

2005[6]  

Acquired North Shore Corporate Centre  

 

2006   

Acquired European Development Platform: Eurinpro

 

2007   

Goodman acquired strategic investment in ING Industrial Fund

 

2008   

Macquarie sold its HK interests in Macquarie Goodman Asia

 

2009   

GAIF announced capital management initiatives to raise $320m  

 

2010   

GMG consortium announced recommended offer to acquire IIF

 

2011   

In March, Goodman Group announced that it had signed a contract with Amazon, one of the world's leading online e-commerce providers, to develop an approx. 110,000 sqm logistics centre in Rheinberg, Germany

In August, Goodman Group announced that it had exchanged contracts to acquire a 60,000 sqm prime development site in the Osaka Bay area of Japan

 

2012   

Goodman successfully completes Security Purchase Plan

Goodman successfully completes $400m institutional placement

Goodman completes US$1 billion Japan Development Partnership

Malaysia's EPF and Goodman acquires second portfolio

 

2013   

Goodman fund acquires interest in Hong Kong asset

Goodman Australia Industrial Fund completes equity raising  

 

2014   

In January, Goodman Group announced that it has signed an agreement to develop a 46,700 sqm built-to-suit facility for Yunda Express in Chongqing, Western China. Yunda Express is one of the largest privately-owned express delivery companies in China

 

2015   

Brickworks and Goodman agree to sale of Coles CDC facility

Goodman building toward US$3 bn development pipeline in USA   

 

2016   

Goodman and Giesbers partnered to develop new European distribution centre for Nabuurs in the Netherlands

 

2017   

Goodman to repurchase USD 325 M of notes.

7. Team

 

Board of Directors[7]

 

Ian Ferrier – Independent Chairman

Gregory Goodman – Group Chief Executive Officer

Chris Green – Independent Director

Stephen Johns – Independent Director

Rebecca McGrath – Independent Director

Danny Peeters – Executive Director, Continental Europe, and Brazil[8]

Phillip Pryke – Independent Director

Anthony Rozic – Deputy Group Chief Executive Officer and Chief Executive Officer North America

Jim Sloman, OAM – Independent Director

Penny Winn – Independent Director

David Collins – Independent Director

Carl Bicego – Group Head of Legal & Company Secretary

 

Management Team

 

Gregory Goodman – Group Chief Executive Officer

Anthony Rozic – Deputy Group Chief Executive Officer and Chief Executive Officer North America

Nick Vrondas – Group Chief Financial Officer

Jason Little – General Manager Australia

Danny Peeters – Executive Director, Continental Europe, and Brazil

Philippe Van der Beken – Managing Director, Continental Europe

Charles Crossland – Managing Director, Logistics, UK

John Dakin – Chief Executive Officer, New Zealand

Paul McGarry – Head of Asia

Kristoffer Harvey – Chief Executive Officer, Greater China

Angus Brooks – Chief Executive Officer, Japan

Nick Kurtis – Group Head of Equities

James Inwood – Group Head of Stakeholder Relations

Michael O'Sullivan – Group Corporate Executive

Alison Brink – Group General Manager, Marketing & Communications

John Taylor – Group General Manager, Human Resources

Scott Farquhar – Group Chief Information Officer, Technology Services

Carl Bicego – Group Head of Legal & Company Secretary


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8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June):[9]

 

Divisions

Revenue ($M)

% Change

Profit (before Tax) ($M)

% Change

Australia and New Zealand

$328.7

(33.0%)

$474.2

(6.2%)

Asia

$216.3

31.9%

$245.1

6.8%

Continental
Europe

$726.5

(16.6%)

$226.2

10.4%

United  Kingdom

$196.0

126.1%

$14.9

(42.0%)

Americas

$115.2

203.2

$94.8

170.9%

Total

$1,582.7

(4.1%)

$1,055.2

5.5%

9. Risk

 

Major risks include:[10]

 

Market risk

 

Foreign Exchange Risk

Goodman is exposed to foreign exchange risk through its investments in New Zealand, Hong Kong, China, Japan, Continental Europe, the United Kingdom, North America, and Brazil. Foreign exchange risk represents the loss that would be recognised from adverse fluctuations in currency prices against the Australian dollar as a result of Goodman’s net investment in foreign operations, future commercial transactions, and other foreign currency denominated assets and liabilities. In managing foreign exchange risks, Goodman aims to reduce the impact of short-term fluctuations on Goodman’s earnings and net assets. However, over the long-term, permanent changes in foreign exchange will have an impact on both earnings and net assets. Goodman’s capital hedge policy for each overseas region is to hedge between 65% and 90% of foreign currency denominated assets with foreign currency denominated liabilities. This is achieved by borrowing in the same currency as the overseas investments to form a natural economic hedge against any foreign currency fluctuations and/or using derivatives such as cross currency interest rate swaps (CCIRS) and foreign exchange contracts (FEC).

 

Interest Rate Risk

Goodman’s interest rate risk arises from variable rate borrowings and also fixed rate to floating rate CCIRS that hedge the currency risk associated with the USD denominated notes. Goodman adopts a policy of ensuring that between 60% and 100% of its current year exposure to changes in interest rates on borrowings is on a fixed rate basis. Goodman enters into interest rate swaps (IRS) to manage cash flow risks associated with the interest rates on borrowings that are floating. The IRS contracts are for 90-day intervals and involve quarterly payments or receipts of the net amount of interest.

 

Price Risk

Goodman and GIT are not materially exposed to price risk.

 

Liquidity risk

Liquidity risk is the risk that Goodman will not be able to meet its financial obligations as they fall due. Goodman’s objective is to maintain sufficient liquidity to fund working capital, capital expenditure, investment opportunities, debt expiries, and distributions. This is achieved through the monthly preparation of a three-year cash flow forecast to understand the uses of funds and to identify potential shortfalls in funding. This allows Goodman to plan for renewal of debt facilities, negotiation of new debt facilities, new issues of securities, including the distribution reinvestment plan, and other potential sources of funding. Goodman’s treasury function is responsible for reporting details of all debt maturities to the Board at its regular meetings. Goodman’s treasury function is also responsible for reporting to the Board all the information and term sheets relating to any financing arrangements being contemplated or negotiated by Goodman, for its review and approval. Goodman seeks to spread its debt maturities such that the total debt repayable in a single financial year does not exceed Board approved policy levels.

 

Credit Risk

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. The maximum exposure to credit risk on financial assets, excluding investments, which have been recognised on the statement of financial position, is equal to the carrying amount. Goodman has a policy of assessing the creditworthiness of all potential customers and is not materially exposed to any one customer. Goodman evaluates all customers’ perceived credit risk and may require the lodgement of rental bonds or bank guarantees, as appropriate, to reduce credit risk. In addition, all rents are payable monthly in advance. Bank guarantees are accepted from financial institutions which have an investment grade credit rating from a major rating agency. Concentration of credit risk exists from time to time on receivables for the proceeds of disposals of investment properties. The credit risk is minimised as legal title is only transferred upon receipt of proceeds for the sale of those assets and typically Goodman will have either received a cash deposit or be the beneficiary of a bank guarantee for 10% to 20% of the total proceeds. In relation to material bank deposits, Goodman minimises credit risk by dealing with major financial institutions. The counterparty must have a long-term credit rating that is a minimum of an “A” category (or equivalent) from a major rating agency. The amounts and other terms associated with bank deposits are formally reviewed monthly.

References

  1. ^ Annual Report 2018, P. 84 https://www.listcorp.com/asx/gmg/goodman-group/news/goodman-group-stakeholder-review-and-2018-annual-report-1981406.html
  2. ^ Annual Report 2018, P. 37 https://www.listcorp.com/asx/gmg/goodman-group/news/goodman-group-stakeholder-review-and-2018-annual-report-1981406.html
  3. ^ Annual Report 2018, P. 136 https://www.listcorp.com/asx/gmg/goodman-group/news/goodman-group-stakeholder-review-and-2018-annual-report-1981406.html
  4. ^ https://www.ibisworld.com/globalindustry/global-commercial-real-estate.html
    http://www.ibisworld.com.au/industry/default.aspx?indid=1894
    http://www.ibisworld.com.au/industry/default.aspx?indid=1822
  5. ^ http://www.hoovers.com/company-information/cs/company-profile.goodman_limited.9c54c241cab6ef7a.html
  6. ^ https://www.asx.com.au/asxpdf/20050518/pdf/3qxgnpm0td2w8.pdf
    https://www.asx.com.au/asxpdf/20060525/pdf/3wwq9g3qw2xyz.pdf
    https://www.asx.com.au/asxpdf/20070720/pdf/313jh1bvhk0ysy.pdf
    https://www.asx.com.au/asxpdf/20081028/pdf/31d5w4cpx7q3kq.pdf
    https://www.asx.com.au/asxpdf/20091117/pdf/31m33qh0hdfm08.pdf
    https://www.asx.com.au/asxpdf/20101223/pdf/41vvcq4fwvjt3z.pdf  http://retailinasia.com/in-trends/news/manufacturing__logistics/goodman-develop-logistics-centre-amazon-rheinberg-ger/ https://www.newswire.ca/news-releases/goodman-announces-japan-development-pipeline-with-60000-sqm-osaka-bay-development-site-508676521.html
    https://www.asx.com.au/asxpdf/20121219/pdf/42c1pvzn8134vp.pdf  
    https://www.asx.com.au/asxpdf/20121109/pdf/42b2pqczl3481l.pdf
    https://www.asx.com.au/asxpdf/20130307/pdf/42dj9xd3t8pbsx.pdf
    https://www.asx.com.au/asxpdf/20130430/pdf/42fk7s60wxvdt3.pdf
    https://www.goodman.com/investor-centre/goodman-group-australia/media-releases/20140123-goodman-to-build-46700-sqm-built-to-suit-regional-distribution-centre-for-yunda-express
    https://www.asx.com.au/asxpdf/20150701/pdf/42zjwnf6nv639d.pdf
    https://www.asx.com.au/asxpdf/20151103/pdf/432q78ljwkvf5z.pdf
    https://nl.goodman.com/en/global/investor-centre/goodman-group-australia/media-releases/20160125-goodman-and-giesbers-partner-to-develop-new-european-distribution-centre-for
    https://www.listcorp.com/asx/gmg/goodman-group/news/goodman-to-repurchase-usd325-million-of-notes-1694271.html
  7. ^ https://www.goodman.com/who-we-are/board-of-directors
    https://www.goodman.com/who-we-are/executive-team
  8. ^ https://www.listcorp.com/asx/gmg/goodman-group/news/appointments-to-goodman-boards-1789958.html
  9. ^ Annual Report 2018, P. 136 https://www.listcorp.com/asx/gmg/goodman-group/news/goodman-group-stakeholder-review-and-2018-annual-report-1981406.html
  10. ^ Annual Report 2018, P. 107-113
    https://www.listcorp.com/asx/gmg/goodman-group/news/goodman-group-stakeholder-review-and-2018-annual-report-1981406.html