Goodman upgrades as supply chains bolstered amid slowdown

The warehousing property giant says it will keep developing through the downward swing as big funds are still backing its model.

Greg Goodman said the strategy to focus on high-quality properties in high barrier to entry infill locations had produced strong results. Picture: John Feder

Industrial property giant the Goodman Group has bolstered its operating earnings per securities growth guidance on the back of strong demand for space despite the looming economic slowdown.

The company generated an 11.5 per cent jump in its first half operating profit to $877m and said it is well-placed even as the value of warehouses has come off as interest rates rise.

It boosted operating earnings per security by 10.7 per cent to 46.4c and said it was performing better than originally anticipated so it now expects to hit growth of 13.5 per cent, up from the previous guidance of 11 per cent.

The distribution for this financial year is forecast to remain at 30c per security given what Goodman called attractive opportunities to deploy retained earnings into investments and development.

Goodman’s industrial empire is driven by it undertaking new projects around the world with the capital backing of major pension funds. The company’s total assets under management jumped by 17 per cent to $79.5bn as big institutions are still backing the sector.

Chief executive Greg Goodman said the strategy to focus on high-quality properties in high barrier to entry infill locations had produced strong results, with the company’s net profit coming in at $1.097bn.

“Despite the volatility in the global economic environment, we delivered a strong operating performance and financial results, and we expect this to continue into the second half,” he said. ”We’ve seen continued rental growth in our markets which has underpinned strong cash flows.”

The comments contrast with retail landlords who have warned that rate rises will hit consumer spending this year and office companies which have dropped some new projects.

“The general economic outlook is uncertain, however our portfolio is in high demand, rents are growing, development activity and margins are healthy, and we continue to attract capital from our partners,” the chief executive said.

Goodman is looking to develop through the cycle and its work in progress now sits at $13.9bn, which will drive it well past the $80bn funds under management mark. It has 85 projects, with a forecast yield on cost of 6.4 per cent.

The company famously sold billions in assets to prepare for a market turn and is well positioned if opportunities are thrown up.

“We have remained disciplined in our capital management approach, maintaining our strong balance sheet with gearing at 9.7 per cent and $2.8bn of available liquidity across the group,” Mr Goodman said.

He called out the distinction between financial players who have been crunched by higher global interest rates and his company’s operational focus. “We don’t have a lot of financial leverage, so we’re not getting impacted by the interest rate increases,” he said.

“We’re not running around with financial solutions, high leverage, and things of that nature to manufacture returns,” he said.

Goodman’s funds model is also working at a time when many listed property companies are trading at a discount. “The partnerships remain well funded with $18.1bn of equity commitments, cash and debt available across the platform,” he said.

On the ground, the occupancy level in Goodman‘s portfolio remains high at 99 per cent and like-for-like net property income growth was 4.2 per cent.

Goodman said that market rental growth had accelerated in most of its markets, driven by continued short supply and tenants’ desires for better facilities to improve efficiency. It expects rents to rise despite a slowdown in economic activity.

Mr Goodman said the landlord was working closely with tenants to provide buildings that would help them absorb costs.

Development earnings lifted by 7 per cent to $602m and the volume of development work and production rates both increased as big companies chase more efficient properties where they can automate their operations.

Goodman is focused on regeneration of existing land and buildings, with more than half of its workbook on brownfield sites. It is also undertaking more multistorey projects, which make up more than half of new sites.

In a nod to corporate cost cutting, he said that customers across a wide range of sectors were seeking increased productivity from their supply chains.

Goodman securities closed up 2.1 per cent, at $20.23 each.