Goodman rides industrial space demand

Rent rises and a warehouse boom are expected to boost the $73bn empire of industrial property powerhouse Goodman Group.

Greg Goodman, Head of Goodman Group, said result reflected the strong demand for industrial space Picture: John Feder/The Australian.

Industrial property powerhouse Goodman Group has pointed to the strength of cash flows coming from rising rents as warehouses fill up around the world and it posted a $3.4bn profit.

Chief executive Greg Goodman said the company’s empire of giant sheds was virtually full around the world and that values would hold up as strong rental rises came through globally.

Despite wobbles earlier this year as Amazon cancelled plans for warehouse space in the US, Goodman said that the overall digital economy was growing alongside its customers’ need for greater supply chain efficiency and sustainable properties close to consumers.

Like-for-like net property income growth was 3.9 per cent and Goodman pointed to rental growth accelerating, which its portfolio will reap the benefit of in coming years.

It is also rolling out new facilities. Goodman’s development earnings were up 34 per cent to $960.7m and the company’s $13.6bn development book is also providing growth as its production rate averaged about $7bn for the year.

The company warned that construction costs have continued to increase globally. But it said margins remain strong as rent growth has accelerated, outpacing the impact of cost jumps.

Mr Goodman said the focus on key locations and capital management was providing resilience during a period of economic uncertainty and supporting the positive outlook for the business.

“Goodman is well positioned to continue to adapt to ongoing market volatility and geopolitical tensions,” he said. “While interest rates and inflation may impact consumers, they continue to seek faster and more flexible delivery.”

This meant that companies wanted more high rise warehousing in big cities to stay competitive and Mr Goodman said that demand was “currently exceeding supply in our markets”.

“We have made a strong start to fiscal 2023 with a significant development workbook underway, continued underlying structural demand from customers, and a robust capital position across the group and partnerships,” he said.

Goodman sold off billions of properties as commercial markets peaked on the back of low interest rates and it is now well-positioned to deal with any global economic fallout. The company is geared at just 8.5 per cent and even when taking into account debt in its network of funds it is still under 20 per cent.

The group delivered an operating profit of $1.53bn, a 25 per cent jump on last year, with operating earnings per security up 24 per cent to 81.3c.

The group forecast an 11 per cent lift in operating earnings per security to 90.3c this financial year but will keep its distribution steady at 30c per security.

Mr Goodman said the result reflected the strong demand for industrial space and pointed to big companies continuing to take up space in major capitals.

“Our customers’ need for more productivity and sustainability from their supply chains continues to drive demand. By focusing our portfolio and $13.6bn development workbook on key infill locations, we have seen accelerating market rental growth, significant valuation uplift and subsequent out-performance of our partnerships,” Mr Goodman said.

The company’s assets under management grew 26 per cent to $73bn, with an average total return of 21.4 per cent as warehouses surged around the world.

Capital is pouring into the sector and the company raised $1.8bn in third party equity and completed $8.5bn of debt refinancings over the year. This has given it a total of $18.1bn of firepower to deploy across its partnerships.

Goodman securities dipped 10c to $20.55 on Tuesday as the guidance was below market consensus.

“We view this as conservative and expect Goodman to upgrade this to more than 20 per cent during fiscal 2023 as there is no evidence of a slowdown in demand,” Jefferies analysts said.