Goodman earnings per security up and expects better times as demand for data centres grows

Goodman Group has turned in an operating performance ahead of guidance and reiterated its future lies in shifting into data centres.

Goodman Group chief executive Greg Goodman. Picture: John Feder

Goodman Group has turned in an operating performance ahead of guidance and reiterated that its future lies in data centres as global demand for AI and cloud computing surges.

The industrial property trust gave strong operating earnings per security guidance of 9 per cent for this financial year – which many analysts expect it to exceed – but it could not escape the global tide of property writedowns and it took a $5.1bn hit across its international funds empire, which sits at close to $80bn.

The company’s billionaire chief executive, Greg Goodman, was bullish about the opportunities that lie ahead as the group moves from warehouse developer and landlord to rolling out large-scale data centres, which will be run by some world’s largest operators. It has major projects under way in Europe and Asia, and also has sites in Sydney and Melbourne, where demand is rising dramatically.

“We’re in that eye of the storm,” Mr Goodman said. He believes rewards will come as the massive complexes are built and it becomes a provider of essential ­infrastructure.

“The growth of e-commerce, cloud computing, and the adoption of new technologies, including artificial intelligence and machine learning, is creating significant opportunity for Goodman to develop the infrastructure our customers are seeking,” he said.

He said the digital economy was growing at a rapid pace and he was staking the company’s future on shifting into data centres – which make up about 40 per cent of its work book – and away from older, commoditised warehouses, which it has been selling off for almost a decade.

Mr Goodman said the company had been positioning itself as a major provider of essential infrastructure globally. He said its outlook was positive as it moved capital into funding sustained earnings growth over the long term.

“While our logistics offering remains core to the business, with sound underlying fundamentals expected to be maintained, data centres are anticipated to be a major area of growth moving forward,” he said.

“We are in active negotiations with several customers for powered shell and fully fitted turn-key facilities across our power bank, with substantial new starts anticipated to commence between now and the end of 2025.”

Goodman lifted its operating profit by 15 per cent to about $2.05bn as it rode the strong conditions in logistics, but some markets, including Australia, have cooled after demand soared during the pandemic.

The company’s operating earnings per security rose by 14 per cent to 107.5c, but the hit from global property writedowns as interest rates rose, which lifted the capitalisation rates by which properties are measured, pushed it to a statutory loss of $98.9m.

The company kept its bullish outlook, saying it expected fiscal 2025 operating earnings per security to be 117.2c – a 9 per cent lift on fiscal 2024 – with the annual distribution maintained at 30c.

Despite the writedowns, conditions on the ground were healthy. Portfolio occupancy was high at 97.7 per cent and like-for-like net property income growth came in at 4.9 per cent.

Goodman is relying on its massive $13bn development work in progress to drive the next leg of its earnings. It has about 80 projects with a forecast yield on cost of 6.7 per cent.

The group’s gearing is at just 8.4 per cent at a headline level. At a look-through level, including its stakes in its funds, it is about 22.7 per cent after it sold down lower-grade industrial properties during the industrial boom. The group has $3.8bn of cash and undrawn lines, while its partnerships have liquidity of close to $14bn to chase opportunities.

The group’s earnings per security were significantly ahead of its original guidance of 9 per cent, and even above the 13 per cent it gave in May, as it continued to execute its strategy in cities with high barriers to entry and limited supply.

Mr Goodman said the company was well positioned heading into this financial year, with a strong development work book, a robust capital position and attractive opportunities.

Investors are expected to back Goodman’s shift deeper into data centres and have already made it the country’s largest real estate investment trust.

“We expect continued optimism on Goodman’s growth outlook, especially from 5.0GW data centre powerbank,” Citi said, noting that the guidance was conservative.

“Although at first glance this growth appears lower than current consensus expectations, we expect this is prudent from the eventual reality of earnings delivery into fiscal 2025.”

Jarden analysts said the result was strong and that Goodman had a strong track record of upgrading guidance throughout the year, and it was comfortable with its 11 per cent growth forecasts.

The broker said Goodman had significantly outperformed the sector and market over the past six to 12 months, so shares may trade sideways in the near term but it continued to be one of the best growth stories.

Goodman shares dipped 1.3 per cent to close at $34.71.