Goodman Group books $2.3bn profit as industrial property surges

Goodman Group is stepping up industrial property development to meet demand from big companies for space as consumers turn to e-commerce in the pandemic.

Goodman Group, has reported a 54 per cent jump in annual net profit to $2.31bn. Picture: James Croucher.

Goodman Group has delivered a 15 per cent jump in annual operating profit to $1.22bn and flagged a 10 per cent rise in earnings this financial year as the industrial property developer rides the e-commerce boom.

The company, which has gone from a traditional warehouse owner to a global funds manager with operations spanning Australia, Asia, Europe and the US, has come through the crisis stronger as customers switch to online shopping.

Goodman generated a 14 per cent lift in operating earnings a security to 65.6c, and has consistently beaten its guidance as the warehouse sector takes off globally, prompting expectations that it would upgrade guidance further on Thursday.

The group gave forecast operating earnings per security for the 2022 financial year of 72.2c a security, up 10 per cent from last year. It also forecast a full year distribution of 30c a security, but some analysts had expected even more and the stock slipped on Thursday.

Chief executive Greg Goodman said there was strong demand from tenants and the disruptions around the world caused by the Delta variant were also reshaping the landscape.

He said these influences were “just consolidating that position where customers want to have a business to consumer supply chain”.

The company has built up a $58bn global network of warehouses and is headed through the $65bn mark by the end of the financial year.

Mr Goodman said that lifestyle changes wrought by the pandemic meant more lasting changes with people wearing masks, and sometimes closing offices even in international cities where populations are highly vaccinated.

“Even with vaccination rates in the 70s you’re still going to have various disruptions and things around the world for quite some time in the future,” he said.

Goodman has already ridden the tide of e-commerce and fresh foods but is now seeing renewed activity around pharmaceutical industries. “We see those sectors are very busy at the moment,” he said.

“We see more growth in those areas, particularly around the major cities of the world, which then means we‘re doing more development,” he said.

Mr Goodman said that buyer demand for industrial property was strong and there were still more buyers than opportunities for modern warehouses and the company is planning to roll out next generation warehouses.

Goodman’s statutory profit soared 54 per cent to $2.31bn from $1.50bn last year as industrial property values also jumped.

Mr Goodman said that after a robust year, “we expect the current levels of development activity to be sustained over the coming year”. “The group is well positioned to maintain work-in-progress of around $10bn throughout fiscal 2022, with multistorey developments remaining a meaningful contributor,” he said.

“Customer demand in our markets is also translating into high occupancy, rental growth and strong investment returns which should see assets under management grow to in excess of $65bn and support the performance of our management business.”

JPMorgan analysts said Goodman was carrying material development and performance fee profits into future years and they expect at least 10 per cent earnings per security growth for the next three years.

The group also had strong growth in development volumes with work in progress rising 63 per cent. Goodman is also reaping strong development margins and the yield on development cost was up slightly, and capitalisation rates used to value the properties continue to compress globally, and are now at 4.3 per cent. “The large spread between yield on cost and cap rate will ensure margins remain elevated,” JPMorgan said.

JPMorgan said that Goodman’s guidance was conservative at a 10 per cent lift, while the consensus among analysts was closer to 14 per cent. But they said it was typical for Goodman to lift guidance through the year.

Jarden analysts said Goodman’s guidance for flat distribution per unit may disappoint as the market was hoping for a resumption in growth. “Overall solid result but unlikely to drive consensus upgrade so could see the stock stall after a strong run,” they said.

Goodman securities closed down 2.25 per cent at $22.64.

Originally published as Goodman Group books $2.3bn profit as industrial property surges