Goodman Group (GMG) Earnings Call Transcript & Summary

Welcome security holders, proxy holders and guests. The Goodman Group Annual General Meetings will start shortly. [Operator Instructions] As set out in the Notice of Meeting, security holders can also vote live during the meeting. All resolutions at the meeting will be determined by a poll. The Chairman will declare the poll open at the beginning of the meetings. You can then vote by clicking the voting icon on your screen. The relevant meeting resolutions will be displayed, and you can vote by tapping one of the voting options. Your response will be highlighted. If you would like to change your vote, simply tap a different option. The poll will close 5 minutes after the end of the meeting. The number of items you have voted on or are yet to vote on is displayed at the top of the screen. If you have logged into this meeting as a guest, you will not be able to ask a question or vote. A virtual AGM online guide is available on the Goodman website and includes step-by-step instructions on how to attend and participate in the meeting. The guide includes a phone number to call should you require assistance during the meeting. The Goodman Group Annual General Meetings will now begin.

Good morning, ladies and gentlemen, and welcome to the Goodman Group Annual General Meeting. This meeting, of course, is electronic and as a consequence of COVID where large assemblies of people is not possible. At the meeting today, in the company's premises, I have Greg Goodman, our Chief Executive Officer, who is well-known to you; Stephen Johns, who's an Independent Director; Mark Johnson, an Independent Director; Anthony Rozic, an Executive Director; and Penny Winn, an Independent Director. As well, we have in the premises here, Carl Bicego, our Company Secretary. Off-site, because of COVID, we have Rebecca McGrath, an Independent Director; Danny Peeters, an Executive Director; Phillip Pryke, an Independent Director; Chris Green, an Independent Director; David Collins, an Independent Director. The meeting today will have me, of course, continuing speaking for a little while with my address, followed by Greg, who will give you his CEO's address. Following that, we'll deal with the formal business, where the various resolutions will be debated, put to the meeting and voted upon. During the year, this very challenging year, Goodman's priority has been on the health and well-being of our people, our teams, our customers and our charity partners around the world. Like all businesses, our team of 950 people moved quickly to remote working in all of our markets around the world. Whilst this was challenging in many aspects, their resilience was tested and their flexibility to adapt and continue to deliver proved invaluable. As well through the Goodman Foundation, we increased our support to the most vulnerable in our community with a specific focus on mental health, domestic violence and feeding the homeless and underprivileged. The financial results for the year were very strong. The operating profit of $1.060 billion was up 12.5% on the prior year. Statutory profit was $1.5 billion. Our operating earnings per security of $0.575 were up 11.4% on the prior year, an impressive increase. Our distribution per security was $0.30 a share. Our gearing at 7.5% was down from 9.7% in the prior year; and our group liquidity of $2.8 billion, including $1.8 billion in cash. As well, we had $16 billion of equity commitments and cash in undrawn debt in our partnerships. And so the twin aspirations on profitability and liquidity were achieved during the year, an outstanding result. Goodman first listed on the ASX in 1995, 25 years ago. Can you believe it? It started with 8 people and 8 properties in 1 city with just over $75 million of assets. It's expanded today into almost 400 properties across the Asia Pacific, Europe and the Americas, with over $51 billion in assets under management and a team of 950 people. Today, it has emerged as one of the largest property groups globally, and 1 of the top 15 companies listed on the ASX, a pretty impressive performance in those 25 years. Goodman has stayed true at all times to its strategy of being customer-focused, having strategically located properties and a strong team of people. The group has established strong leadership teams, financial resources and a strategic real estate portfolio. But what makes Goodman unique and sustainable is the strength of its people and its inherent expertise in the industrial market, and the ability to fund the expansion of the group and the partnerships through equity and not debt, 2 very important considerations. Our Australian heritage and culture has helped the group assimilate into local markets as we've expanded globally. This has contributed to our success. In fact, it's been fundamental to our success. Over time, customers and capital partner relationships have extended across multiple regions, allowing our intellectual property to be shared and leveraged at scale. A distinct and unique attribute is that Goodman has not only been successful in its global expansion but also that our people have remained loyal and committed through varying market cycles. Retention of our people is critical. Goodman's global executive team have an average tenure of 14 years. That doesn't come easily or quickly, but it's a very important and confident start that we have based upon that long tenure. Goodman has an alignment of our interest between our security holders, our capital partners and our people, and it's critical to our success. The remuneration structures must align security holders and our people, set ambitious growth targets and be performance-based. Consequence of that activity has been a serious outperformance of Goodman against the peer groups. The fact that in the past 10 years, it has rewarded shareholders to the extent of 600% when compared to the other peer groups is outstanding. A core strength has been the group's strategic vision and selective property acquisitions. Our property portfolio has been developed with long-term requirements of our customers in mind. Since 2013, we've sold $26 billion of assets around the world, something that I think at the time surprised people. But it was a deliberate strategy to allow funds from the sales to be reinvested into more strategically located properties where our customers need to be. That is close to transport hubs, a skilled workforce and importantly, large consumer populations. The combination of strong leadership teams, financial resources and strategic real estate portfolio has allowed us to maximize the sustainability of earnings through different market cycles. The group's strategy is innovative and continues to evolve. It's impossible not to do that if you want to be contemporary. We have continued to develop alongside our partners, providing strong risk-adjusted returns and diversified funding, a mutual benefit of our structure. Let me talk about a very good example of innovation. Interlink in Hong Kong is an example of Goodman's approach to develop a modern, multistory logistics facility in a country with significant land scarcity. A strategic location adjacent to the container terminal and Stonecutters Bridge. The property itself is 225,000 square meters and 22 stories high, and the first 15 stories are such that the vehicles drive up those 15 floors with containers onboard. The last 7 floors have cargo lifts. And so that innovation is quite exceptional and unique. And of course, it has attracted large, global logistic customers and has been awarded a number of certificates for sustainability. The group's strategy incorporates a financially conservative approach in order to grow sustainably through the cycle. Financially, the group operates with very low levels of debt primarily from public debt markets and diversified equity sourced from the world's largest pension and sovereign wealth funds. We have significant undrawn lines and available cash and significant covenant flexibility. Operationally, the group shares the risk and return on development with our global partners, enabling large growth in work in progress across $52 billion asset base. A focus on our underlying cash flow is the other important characteristic of Goodman. We measure productivity earnings and other incentives as a consequence of that. Contrast that to the operating -- the statutory profit of $1.5 billion, which includes revaluations which we don't bring to account. The strict concentration of assets in infill markets with highest barriers to entries also promotes high occupancy and strong cash flow throughout a cycle. Let me now move to the Board itself. Of course, at this meeting, we're talking about Board renewal, and Mark Johnson has joined the Board during the year. Mark is an accountant with a strong professional background in accounting and in public companies and will be a welcome addition to the Board and will chair the Audit Committee in the future when I stand down for reelection. And Stephen Johns is, I hope, reelected today. Stephen will become Chairman of the Board on my retirement. And his 3.5 years with the Board has proven his undoubted skill base that's important to chair a company of this size. Stephen will be a very good Chairman in the future, in my view. My time with Goodman has been rewarding for me and, I trust, for you. The wonderful financial returns the group made in the last decade, which I showed to you earlier on, have demonstrated the undoubted ability of Goodman companies to perform well internationally and for Goodman to be a major player on a world scale. Goodman has succeeded beyond most analyst expectations. The primary reason is its people. The ability to strategize, execute and then manage industrial property throughout the world is largely the result of Greg Goodman's leadership. The foundations are now in place for an escalating output of developments with the result in financial outcomes. This emanates from the group's premium expertise in leadership and Greg Goodman's management team. They are without peer. Thank you. I wish you and the company every continued success. I'll now hand over to your Group CEO, Greg Goodman.

Thank you, Ian, and good morning, everybody. At Goodman, we look at the long game. This year has had its disruptions. The global landscape has changed, and we're in the middle of an event that is causing rapid and profound change in the way we live, work and consume. In response to COVID-19, we have successfully adapted to the new operating environment and implemented a range of proactive measures designed to protect the health and safety of our people. These include flexible working locations, which is expected to become a permanent way of working into the future. The logistics and warehousing sectors globally are playing an important role, providing essential infrastructure and enabling distribution of products to the community. COVID-19 and the associated lockdowns have created new online consumers, which will likely further increase e-commerce sales that are forecast to grow at over 25% in 2020. This in turn will also drive the need for more data storage. Goodman is evolving with the rapid acceleration of the digital economy. We have developed significant expertise, financial strength and a strategic property portfolio to grow our business through various market conditions. Our long-term strategy to own properties in strategic infill locations that are close to consumers remains imperative. While land is scarce in our target markets, we've successfully developed, acquired, upgraded or repurposed buildings that meet our customers' needs for the long term. Our development activity is increasing and remains the key driver of profitability and forecast growth in assets under management. With a large development workbook, we are in a unique position to accelerate commencement of new projects to capture existing and future identified customer demand in markets with limited supplies. Our development workbook in progress reached $6.5 billion during June 2020. We recently announced this has now grown to $7.3 billion as at September of this year and is expected to increase further during the financial year '21. The development pipeline also continues its transition to infill locations with projects that are more intensive, higher in value and take longer to complete, including the development of multi-level facilities. Increasingly, significant investment in technology is being made by our customers in our properties as they look for automated solutions to improve their supply chain efficiencies. The acceleration of e-commerce has made the global industrial asset class increasingly sought after. We are witnessing a further shift of capital towards investment in industrial real estate, which is driving an increase in values. Our assets under management have grown to $51.6 billion, occupancy is approximately 98% and customer demand is steady across most industrial segments, particularly those involving consumer staples, e-commerce and data storage. We're also focused on taking sustainability to the next level. With 2030 in mind, we are committed to building a sustainable business for our customers and delivering returns for our investors. We believe it's important to aim high. So we've increased and fast-tracked our goals for renewable energy and carbon neutrality. Our targets are deliberately ambitious, and we continue to strive to be a leader in the real estate sector. We've increased our target for solar on rooftops from 100 megawatts to 400 megawatts by 2025. This is generating enough energy to power about 120,000 houses per year. We're also aiming for carbon-neutral operations by 2025. The group manages 15 partnerships in 8 regions across our investment management platform. Our partnerships are performing strongly with average total returns of 16.6% for their respective 2020 financial years. Driven by strong income returns and capital growth, this positive performance is expected to continue in 2021, further increasing demand from existing and new investors looking to deploy capital across our investment management platform. The group is also in a strong financial position with gearing down at 7.5% and $2.8 billion of available liquidity as at 30th of June 2020. The combination of our partners and the group's significant financial resources puts us in a robust position to pursue selective investment opportunities in our target markets. This financial strength has also meant that we have been able to further support the Goodman Foundation. This was an extraordinary year with the Australian bushfires and the pandemic. With a focus on critical areas in times of disaster, we provided additional financial support to mental health, distribution of food and essential goods, vulnerable people and domestic violence. And in wanting to make a sustainable and tangible difference to the devastation of the Australian bushfires, we purchased a state-of-the-art firefighting helicopter for the Rural Fire Service, which will be ready for operation this fire season. And in closing, we had a strong financial '20, and are on track to deliver financial '21 operating earnings per security of $0.627, up 9% on last year. I'd also like to take this opportunity to thank our people around the world for their perseverance and hard work in delivering these results for all our stakeholders. And finally, I would like to express my gratitude to our Chairman, Ian Ferrier, for his dedication, strong leadership and advice. Ian has worked closely with the management and the Board on our strategic path over the past 17 years, with 12 of those as Chairman. He's an exceptional leader who has been instrumental in guiding Goodman to be in the strong position it is in today. He is a contemporary thinking leader, and his ability to adapt and embrace change has been formidable. Ian, our achievements would not have been possible without his stewardship and wise counsel. Thank you. On behalf of the team, I also would like to thank our security holders for your continued support of the Goodman Group.

[Operator Instructions] If you have not already done so, you can vote by clicking the voting icon on your screen. The relevant meeting resolutions will be displayed, and you can vote by tapping one of the voting options. Your response will be highlighted. If you would like to change your vote, simply tap a different option. The poll will close 5 minutes after the end of the meeting. The number of items you have voted on or are yet to vote on is displayed at the top of the screen. If you have logged into this meeting as a guest, you will not be able to ask a question or vote. A virtual AGM online guide is available on the Goodman website and includes step-by-step instructions on how to attend and participate in the meeting. The guide includes a phone number to call should you require assistance during the meeting.

Thank you, Greg, for that presentation. We'll now commence the formal proceedings today. If you wish to follow the slides for the formal business, it's recommended, for those of you who are looking at the slide at the stream. Select the top right-hand tab on your screen entitled Slides. The first item is the annual report of the Goodman Group. That is the accounts of Goodman Limited, Goodman Industrial Trust and Goodman Logistics Hong Kong Limited. I table a copy of the annual report before the meeting. Eileen Hoggett from the auditors, KPMG, is also available to answer any relevant questions in respect to these [indiscernible]. I'll now respond to any questions submitted in relation to the annual report and the group's business. [indiscernible] Alison Brink and [indiscernible] in moderating and asking the questions that have been submitted. Alison, have any questions been submitted?

Yes. Mr. Chairman, we have a question from Mr. [ Packwell ] and Ms. [ Aratni ], and that is, what's your process for identifying development opportunities? Are competitors entering industrial at a place that worries you?

That's clearly a question that should be answered by Greg. So I'll pass it to you.

Thank you, Mr. Chairman, and thank you for the question. I think the good news is that Goodman owns and manages $52 billion of assets around the world. And in those assets, there are many opportunities for redevelopment and many opportunities for intensification of use. So Goodman, as an organization, has a wealth of opportunity within what we already own. So we're not in the market necessarily competing in what I think is rightly pointed out, a very competitive environment. But when we do look at sites -- and we do look at sites on a quarterly basis and we play in the global market. So we're looking at China. We're looking at European markets. We're looking at U.S. markets and obviously, Australia and New Zealand. We have the really good base of people, really good infrastructure and really good processes and governance around it. And what we tend to do is look at the sites that are more difficult, that are longer term and primarily better valued right up-front. So we do things that a lot of others don't do. We're not looking for gratification quickly. We're looking at long-term returns. And I think when you look at Goodman and you read the annual report and you look through our notes, I think you'll find that we're very much based on the long term and not short term -- a short-term win necessarily. So we managed to handle those competitive markets quite well. We have been competitive [indiscernible] Korea, I've got to say. And right at the moment, that competition and that desire for industrial is a very good outcome for your company, whose valuations and things of that nature are also increasing. So we're in a good place, and we have a lot of opportunity. Thank you.

Thanks, Greg. Are there any further questions?

No further questions, Mr. Chairman.

Thank you. I'll pass on to general business. I'll now turn to the formal resolutions set out in the Notice of Meeting. My fellow directors and I support the resolutions 1 to 7 with the security holders for consideration. To facilitate the orderly running of the meeting, I propose to combine the discussion and questions on resolutions 1, 2 and 3 relating to the appointment of the auditor and the director elections. I'll then pause for discussion on resolution 4 on the adoption of the remuneration report. And we'll combine discussion on resolutions 5, 6 and 7 relating to the grant of performance rights. In accordance with the Corporations Act and determinations made under constitution, each of the -- today's resolutions will be decided by a poll. I confirm to the meeting that voting is open. You can, of course, vote at any time, and the voting will close after the close of the meeting. For transparency [ on the minutes ]of the meeting, I'll now present the results of the proxy votes submitted on resolutions 1 to 7. These are now displayed on your screen. I'll give you a moment to look at that, but you'll see that each of the resolutions has been passed. And for that, I and the Board are grateful for the support of the security holders. I'll just give you a moment to look at that. Please note that when open proxies are held by me as the Chairman, I intend to vote undirected proxies in favor of each resolution. Resolutions 1 to 7 are all proposed as ordinary resolutions and will be approved if [indiscernible] to the votes cast on the resolution [indiscernible] on the resolution. As can be seen, all resolutions have been passed on the casting of proxy votes. Now as I say and -- I and the Board are very grateful [ for the ] shareholders [indiscernible]. And the first resolution is to appoint auditors of Goodman Logistics (HK) Limited. The first resolution is for members to consider to appoint KPMG as auditors of Goodman Logistics (HK) Limited and its directors be authorized to fix the auditor's remuneration. I'll now move that resolution 1 be approved. Anyone wishes to speak for or against that? Resolution #2 is the reelection of Stephen Johns as a Director of Goodman Limited and an election as a Director of Goodman Logistics Hong Kong Limited. Second resolution [ declares to ] pass and its for members to consider the reelection of Stephen Johns as a Director Goodman Limited and the election of Stephen Johns as Director of Goodman Logistics Hong Kong Limited. I'll now invite Mr. Johns to say a few words in support of his election.