Business Strategy & Outlook

Goodman Group is one of the world’s premier developers and managers of industrial property projects and investments. The group was cofounded in Australia by Gregory Goodman who remains CEO, and now has projects and customers in Asia, Europe, and the Americas. A typical project involves obtaining a development site, signing tenants onto leases, and attracting investors who pay for the development and buy the completed project. Goodman typically retains a minority stake and continues to manage sites after completion, collecting development fees, leasing fees, management and performance fees, and a share of rent. The group’s development pipeline has grown substantially, driven by the race to build e-commerce capability, modernize supply chains, and build data centers. Most of the group’s development projects end up in Goodman managed investments, boosting the group’s assets under management enormously. This is to continue for the next few years as the race continues for the best logistics and data center sites, closest to transport links and the end consumer. Goodman should benefit from its expertise, and its legacy holdings of property, many of which are close to urban centres, and therefore more attractive than outlying greenfield industrial sites.

However, the remarkable returns eventually slow down to a more modest level. First, there is only so much existing property that can be sold and developed, before new sites need to be acquired, likely at substantially higher prices. Second, much greater competition in future is visible as many rivals are growing their presence in industrial property. GPT sold its stake in iconic office building 1 Farrer Place, with its rationale in part to rotate more capital into industrial property. Likewise, Dexus, Charter Hall, Mirvac, Stockland Growthpoint, and Cromwell are all eyeing opportunities on the sector, plus Goodman must content with major overseas players such as Prologis and others.

Financial Strengths 

Goodman Group is in strong financial health. Gearing (net debt/assets) on the company’s balance sheet was 8.5% as at June 30, 2022, which is at the low end of the group’s stated gearing range of 0-25%. Look-through gearing (incorporating debt within Goodman’s investment vehicles) was 19.6%, which is still modest considering the long leases to strong tenants, and valuable assets owned by the funds. Both measures of gearing are likely to creep up in the next few years as Goodman increases development work in progress. This is due to new projects in the pipeline commencing, plus larger scale projects that take longer to complete. However, Goodman has a high proportion of pre-commitments from strong tenants, reducing the risks around servicing debt. Most development spend will be funded by Goodman partnerships, limiting Goodman’s own outlay. The large number and variety of partnership vehicles limits the risk for Goodman Group. Should any one investment run into trouble, the risk is likely to be contained to that vehicle, though there could be reputational risks for Goodman.

Bulls Say

• Investment in industrial property is ramping up as retailers recognize the importance of e-commerce, and also move to add certainty and efficiency in their supply chains.
• Global capital is still chasing exposure to property, and particularly industrial property given strong rental growth at present.
• New fund inflows add to Goodman Group’s fee revenue. Although it is not risk-free, long lock-ins on its funds management vehicles bestow annuity-like characteristics to this revenue.

Company Description

Goodman Group develops and manages industrial property investments worldwide. Rather than taking all risks on its own balance sheet, most Goodman developments are on behalf of end-user tenants, and funds management clients. A typical deal involves purchasing land for a tenant who wants to occupy the site, and/or an investor who will own the asset via a Goodman investment vehicle. Goodman charges leasing fees for locking in tenants, and fees for managing the development. Completed projects reside in Goodman investment vehicles, and Goodman charges asset and investment management fees to investors, in return for collecting rent and managing the site. Goodman retains a minority stake in many projects, generating rental income and aligning its interests with its fund’s management clients.

(Source: Morningstar)

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