Goodman Group banks on industrial might to beat market sell-off

The $70bn global property funds manager has raised its earnings forecast in the belief that its model still stacks up in a tougher market.

Greg Goodman’s company has confirmed its earnings guidance of a 23 per cent lift for this financial year. Picture: John Feder / The Australian.

Industrial property powerhouse the Goodman Group says it is on track to grow its empire past $70bn and has upgraded its earnings outlook on the back of strong demand for warehousing.

The Greg Goodman-led company confirmed its earnings guidance of a 23 per cent lift for this financial year and is upping its workbook around the world amid ongoing supply chain disruptions from Covid-19 and geopolitical tensions.

The company warned these factors were placing pressure on already constrained global supply chains, inflating costs and making projects more complex.

Goodman shares were sold off in the market rout as investors dumped fund managers and the rapid growth of online retail sales started to slow as shoppers venture out after the pandemic.

But the company is backing its thesis that consumers are still seeking out faster and more flexible delivery options, which will require more next generation warehouses, packed with robots, as the likes of Amazon distribute products.

Goodman has properties in major global centres that are benefiting from it intensifying their uses which big companies are committing to as they look to boost productivity.

The company expects work in progress at its site to remain around current levels at the end of June, and is working through brownfield sites and regeneration of existing assets. Although building costs are up, yields on cost are expected to remain at 6.5 per cent.

Goodman will break through the $70bn barrier mainly by finishing existing developments and it said that its funds were well positioned as it released its 2022 growth in operating earnings per security forecast of 23 per cent, and a full-year distribution of 30c per share.

Analysts said that this was up from earlier guidance of a 20 per cent lift and was in keeping with market expectations.

Work in progress bumped up from $12.7bn to $13.4bn across 89 projects and Goodman expects projects to be running at about $7bn annually.

The portfolio reported strong like-for-like net operating income growth of 3.7 per cent with occupancy rising to 98.7 per cent, and the lease term hitting about five years.

Goodman shares dipped by 12c, or 0.6 per cent, to close at $19.55.

Mr Goodman said that fundamentals remained strong for warehouses around the world with more demand for space than supply in most markets the company was invested.

Goodman deliberately pared down its portfolio to the best urban development location. “We have a position in a much more uncertain world, moving forward with higher inflation [and] higher costs,” the CEO said.

He pointed to the persistence of growth in e-commerce from before the pandemic and argued that the company was working with more customers and putting more automation into their buildings as they demand greater efficiency.

Rents are jumping in Sydney, Melbourne and Brisbane where they are up by between 4 per cent and 7 per cent. “There is a general lack of space, certainly in and around the infill markets,” he said.

While the era of cheap debt around the world is coming to an end as markets shift to a more balanced state, Mr Goodman said the key was keeping operational growth intact, so markets valued the strength and the growth of cash flows.

“Rather than just tuning up to the game, you’ve actually got to play the game,” Mr Goodman said.

Citi analyst Suraj Nebhani said that with rising inflation, higher bond yields and comments from Amazon indicating oversupply in the market, there had been nervousness around the company‘s growth prospects.

“However, the update highlighted continued strong conditions with potential for near-term upside, highlighting that the backdrop for industrial assets continues to be strong,” he said.

Jefferies trader Michael Vincent said it was a strong result and it appeared as if the funds growth in the fourth quarter was due to late completions.

“We expect Goodman to exceed its fiscal 2022 upgraded guidance and deliver about 25 per cent growth and more than 20 per cent over the next two years,” Mr Vincent said.