Goodman Group (GMG) Earnings Call Transcript & Summary

Welcome, securityholders, proxy holders and guests. The Goodman Group Annual General Meetings will start shortly. Today's meetings are being held in person in Sydney and online using the Computershare meeting platform. Online attendees can watch a live webcast of the meetings, and security holders and proxies can ask questions and submit votes via the platform at any time. Online questions can be asked verbally or by typing in a question. To ask a verbal question via the platform, please follow the instructions written below the broadcast. To ask a question by typing, online attendees should select the Q&A icon at the top of the screen. Type your question in the text box. Once you've finished typing, please hit the send button. Please note that while you can submit questions from now on, the Chairman will not address them until the relevant time in the meeting. Please also note that your questions may be moderated or if we receive multiple questions on one topic, amalgamated together. Securityholders attending in person will also have the opportunity to ask questions at the relevant time in the meeting. Voting today will be conducted by way of a poll on all items of business. The Chairman will shortly open voting for all resolutions. If you are attending online and are eligible to vote, once voting opens, press the vote icon and all resolutions will be activated with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You will receive a vote confirmation notification on your screen. You can change your vote up until the time the Chairman declares voting closed. An online meeting guide is available in the Investor Center 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. For security holders and proxies attending in person, if you are eligible to vote, you should have been issued with a voting card when you registered today. The items of business are on the reverse of the voting card. Further instructions will be provided following the items of business. The Chairman will now open the meeting.

Okay. Good morning, and welcome to the 2023 Annual General Meetings of Goodman Group. I'm Stephen Johns, an Independent Director and Chairman of the Board. I extend a warm welcome to everyone here in the room with us in Sydney as well as those of you who are online. Before I begin, I'd like to acknowledge the traditional owners of the land on which I am presenting from today, the Gadigal people of the Eora Nation and I pay my respects to elders past and present. I'd also like to introduce your directors. To my left, my immediate left is Greg Goodman, our Group CEO; our Company Secretary, Carl Bicego.

Good morning.

Followed by independent directors, Phil Pryke.

Good morning.

Belinda Robson.

Good morning.

And Mark Johnson.

Good morning.

And on my far left is Anthony Rozic, an Executive Director.

Good morning.

We also have a number of directors joining us from overseas. In New York, our independent directors, Chris Green, Hilary Spann and Vanessa Liu. In Asia, we have our Hong Kong independent directors, Kitty Chung; and David Collins. Independent Director, George Zoghbi is joining us from South Africa, where he's currently traveling on business. And in Brussels, we are joined by Executive Director, Danny Peeters. I now declare the meeting open. For those participating online, voting is now open. Goodman delivered another very strong result in 2023, where the group has again demonstrated its ability to adapt to changing and challenging market conditions. Significant contributions were made from all areas of the business, which saw operating earnings per share increased by 16%, well ahead of our initial guidance to the market of 11%. Greg Goodman will talk in greater detail about the operational and financial performance of the group in his CEO address. The long-term sustainability of our business remains a priority. In addition to the strong financial performance, Goodman has made considerable progress against its sustainability targets and remains focused on delivering on and indeed being ahead of our 2030 ESG targets. We continue to be cautious and prudent with our capital management strategy, which allows us to retain significant resources and liquidity to manage through uncertain economic environments. The location of our global portfolio is providing value-add opportunities, both in our traditional real estate activities as well as in other uses such as data centers. Greg will talk in more detail about these opportunities. The value provided by Goodman is the outcome of a number of factors: the successful execution of our long-term strategy to focus on high barrier to entry markets in urban infill locations, our innovative culture and the quality of our forward-thinking team who understand the key structural trends underpinning our business. In October '22, the Board established a Sustainability and Innovation Committee, which has been focused on initiatives that support sustainable developments, including energy generation, low-carbon building products and sustainable logistics solutions. The committee also assesses the impact and opportunities that emerging technologies, such as artificial intelligence are expected to have on Goodman, our customers and more broadly, the way people will live, work and consume. For Goodman, sustainability and the way we handle environmental matters are not seen merely as a compliance matter or compliance function, but as an essential element in our long-term business strategy. Having received a strike for our remuneration report at the 2022 AGM, we again engaged with a significant number of institutional investors during the year. The feedback from the vast majority of these large securityholders provided the Board with continued confidence in our remuneration structure, and importantly, its alignment with securityholders' long-term interest. The remuneration decisions made by the Board this year reflected this feedback while also rewarding management for the exceptional results achieved in FY '23. In summary, for our key management personnel, the short-term incentive component for FY '23 was reduced by 10%; the quantum of the FY '24 performance rights for the long-term incentive plan was reduced by 10%; and challenging operating EPS hurdles were set for the long-term incentive plan with 6% to 11% compound annual growth over the 4-year testing period. It's important to note that these challenging earnings targets were set in the context of the deteriorating global, economic and operational environment. And the group's exceptional results in the past 2 years, which had established a much higher earnings base from which to grow. The Board firmly believes that Goodman's remuneration plan provides a fair balance between incentive and reward. Feedback again has been positive for our plan with over 87% of the proxies received, supporting the adoption of the remuneration report. This year, we appointed 3 nonexecutive directors Belinda Robson and George Zoghbi to the Goodman Limited Board, and Kitty Chung to the Hong Kong Logistics, the Goodman Logistics Hong Kong board. Belinda, who is based in Australia was appointed in March and brings over 30 years experience in retail and commercial funds management. George Zoghbi also based in Australia was appointed in April. He is the CEO of the Arnott's Group, and brings extensive international consumer packaged goods and supply chain experience. Kitty Chung based in Hong Kong was appointed in July and has over 35 years audit and business advisory experience. Their resumes are set out in the Notice of Meeting. Their knowledge and experience are well aligned to our long-term strategy and values, bringing greater geographic skills and gender diversity to the Board while helping to continually shape Goodman as a progressive company. As you'll see from the chart on the screen, we continue to focus on the diversity of our board. Over the last 18 months, we've appointed 5 new nonexecutive directors, 4 of whom are female and 3 are international residents. As a result, 40% of nonexecutive directors are female and 50% are based overseas, reflecting the international nature of our business. As previously announced, Phil Pryke will be retiring from the Board in 2024. Following this, 4 out of 9 of our nonexecutive directors will be female and 5 will be offshore residents. During the formal business section of today's meeting, each director standing for election or reelection will address the meeting. As announced at last year's AGM, after 11 years, Rebecca McGrath retired from the Goodman Limited Board in February this year. We again thank Rebecca for her considerable contribution to Goodman. I'd also like to acknowledge our long-serving director, Phil Pryke, who as I just mentioned, will be retiring from the Board in the first half of 2024. Phil, who Chaired the Remuneration Committee from 2010 until early this year, has been instrumental in the formulation of the group's remuneration strategies and a key contributor to Board deliberations more generally. He has helped steward a successful international business with strong shared culture and long-term focus that is testament to the policies promoted by the Remuneration Committee. On behalf of the Board, I would like to thank Phil for his dedication and commitment to the group over the last 13 years. Thank you, Phil. In closing, Goodman has built a sustainable business with solid long-term strategy to deliver on future growth opportunities. This is underpinned by our high-quality global industrial real estate, a committed and experienced management team, a proven business model, supportive capital partners and a strong balance sheet. On behalf of the Board, I sincerely thank our people for their commitment and determination in achieving excellent results in FY '23. I'll also extend my gratitude to you, our securityholders, for your ongoing support of Goodman. Before I hand over to our Group CEO, Greg Goodman, we'll show you a short video to highlight some of the strategic drivers Goodman's global business as providers of essential infrastructure for the digital economy. Thank you very much. [Presentation]

Good morning, and welcome. Hopefully, that video was informative for you here this morning. We certainly got a very, very broadly based business around the world. Goodman Group has had a strong year. We delivered operating profit of approximately $1.8 billion, translating to operating earnings per security increase of 16%. Operating profit has almost doubled over the last 5 years. The average operating earnings per share growth is 17% per annum. Despite the macro uncertainties we're seeing around the world, the structural forces in our markets remain intact. Our concentration on supply-constrained markets means there's strong demand for our property around the world. Customers are looking to improve their supply chains with more strategic locations, mechanization, automation and AI. On top of that, we're seeing unprecedented demand from data center users as the growth in cloud computing and AI expands. Group and Partnerships have strong balance sheets and liquidity. In FY '23, we raised $1 billion of new equity commitments in Partnerships and completed $6.4 billion of debt refinancing. Importantly, the group has low gearing, no debt maturities until late 2025 and significant hedging in place. And as a result, we are well positioned to adapt to the changing environment and pursue investment opportunities. Our portfolio continues to be in demand with strong fundamentals as our properties are in the best markets around the world. We still have almost 0 vacancy globally. And our like-for-like net property income growth has increased to approximately 5%. Goodman's development earnings for FY '23 increased $1.3 billion, which is up 35% on the previous year. Our development workbook stands at $12.7 billion. And notably, in the last quarter, we had $1 billion of completions, which were 98% leased, underscoring the strong demand. We're very measured and very careful around development we're starting, and it's only the most constrained markets around the world is where we're developing. Assets under management have grown to $83 billion, driven primarily by development completions, acquisitions and revaluations. We delivered an average total return of 7.3% for our investment partners and expanded their investment management platforms. Guided by our 2030 Sustainability Strategy, we continue to integrate ESG into the business. Our focus throughout the year remained on incorporating sustainable design features into developments, reducing carbon emissions in line with our targets, and highlights include reaching around 75% of our 2025 solar PV target and contributing over $10 million to community causes by the Goodman Foundation. And as you saw in the video played earlier, the digital economy is providing opportunities across our business with data centers a significant opportunity for Goodman moving forward. Data centers are measured in power rather than square meters, and Goodman has delivered 0.6 gigawatts of powered sites. One of the many advantages we see in the space is our significant land bank globally, where we've got options for industrial development or in specific cases where we can get the power and planning data centers. We currently have a global power bank in 3.7 gigawatts, of this approximately 2 gigawatts have been secured with the remainder in advanced stages. Data centers are currently 25% of our work in progress, and you'll see from the map that there's opportunities in our major markets around the world. We expect to develop this existing power bank out over the next 7 to 10 years. Coming into 2024, we expect continued disruption and volatility in real estate markets globally. However, Goodman is well positioned to not only withstand these challenges but also capitalize on opportunities. Our customer focus on maximizing productivity and efficiency in this environment continues to support our portfolio. The opportunities in data centers are going to be increasingly a bigger contributor to our growth as escalating technology and computer processing power requirements generate unprecedented demand. A conservative approach means we have low gearing, we have strong liquidity and no immediate debt maturities. This puts the group in a strong position to take advantage of the emerging opportunities we're seeing around the world. We believe Goodman can continue to deliver despite the risks associated with current market volatility. We expect FY '24 operating EPS growth to be 9%, which equates to over $1.9 billion of operating profit with a full year distribution of $0.30 per share. And finally, I would like to thank the Board, the Goodman team around the world, our security holders as well as our customers, and all stakeholders for your continued support. Thank you, and I hand back to Stephen.

A reminder that securityholder questions will be addressed during the formal business section of today's meetings. Online attendees can ask a written question at any time by selecting the Q&A icon, type your question into the text box. Once you have finished typing, please hit the send button. Please ask your questions concisely. If they are particularly lengthy, they may be summarized in the interest of time. Questions may be moderated to avoid repetition. If you are attending online and would like to ask a question verbally, please follow the instructions written below the broadcast. Securityholders attending in person are also invited to ask questions. If you would like to do so, please approach the microphone stands on the meeting room floor after the Chairman asks for questions in respect of the relevant resolution. For those attending online who have not yet voted, you can vote by pressing the vote icon and all resolutions will be activated with voting options. To cast your vote, simply select one of the options. There's no need to hit a submit or enter button as the vote is automatically recorded. You will receive a vote confirmation notification on your screen. You have the ability to change your vote up until the time voting is closed. For securityholders attending in person, you will be asked to cast your vote by placing your voting card in one of the ballot boxes available at the end of the meeting after all the resolutions have been considered.

All right. Thank you. And Greg, thank you for that CEO address. We'll now commence the formal proceedings of the meeting. I tend to answer the questions from those attending in person first, then answer questions received online. This is also an opportunity to ask general questions about the group's business. You'll have an opportunity to ask specific questions in relation to each resolution when those resolutions are formally put to the meeting later on. I'm assisted by one of our senior executives, Alison Brink in moderating and asking the questions that are submitted online. The first item of business is the consideration of the annual report and the accounts of Goodman Limited, Goodman Industrial Trust and Goodman Logistics HK Limited. I table a copy of the annual report before the meeting. Eileen Hoggett, who is sitting in the front row from our auditors, KPMG, is also available to answer any questions that are relevant to the audit. I'll now respond to any questions in relation to the annual report and also to the group's general business. Are there any questions or observations?

Mr. Chairman, Kevin Daly, securityholder.

Mr. Chairman, just a quick question on the development of data centers that you're going about. I noticed you had 1.2 gigawatts of power slated for Europe. And Europe is not too flushed with power just at the moment. So I'm wondering what the time scale is for the development of those data centers?

Well, not just Europe, but generally speaking, the data center developments will look -- will extend over a lengthy period of time, probably more towards the latter period of 5 to 6, 7 years. So when we're planning ahead and we're looking at the future prospects of the group, data centers will be a large part of the work in progress. But not the only part by any means our traditional real estate, industrial real estate will certainly be with -- a major part of our activities as well. But I think from what you saw and heard from Greg Goodman just now, data centers provides a great opportunity for us. And getting the power is the real key on those sites and the fact that Europe might have some difficulties or restrictions on power actually makes the power that we do have even more valuable.

Mr. Chairman, Brian Allison, securityholder.

Data centers are the subject for today, I think. I'm just wondering about some more detail. When you make a new industrial development, are you going to incorporate a data center into each one, which would, I imagine, mean that, that would make it more desirable and maybe higher rents and things like that. Is that how you see it?

Well, firstly, can I say this, and I don't mean to be facetious or silly, but I'm really delighted that data centers or the feature today and not remuneration. And that's actually the way it should be because Goodman has been extremely successful over many, many years with our industrial real estate activities. And data centers is part of that. It's not a diversion, it's not a change into a different business. And I will get Greg to respond a bit more because he knows much more of the detail. But I think what is really important here is that we're really well established. We need a strong balance sheet to be able to do data centers, they take a long time to develop from the first acquisition of the site to actually doing the development we're really well positioned for that. But I think, Greg, you might like to add a bit more detail.

Good question. I think the first point is that the data center is being built out on sites we already own around the world. And we've owned them, many of them for 20, 30 years. And we've actually been building data centers and providing data processing power for customers for about 12 years now. What's changed is that the demand through AI and the other activities that are going on with data generally and privacy has given a kick forward very, very rapidly, and we're dealing with a lot of hyperscalers around the world in regard to data centers. But your question is a good one because in a very big multibillion-dollar development we have in Tokyo and Chiba. There is a number of hyperscalers on that site, including the industrial buildings as well. So it's actually fully integrated. And we picked up the power with the additional site power for data centers on that side, I think about 6 years ago, when we realized that it was viable and we had some inquiry from some hyperscalers. But we are actually developing industrial buildings alongside data centers, fully integrated park in that one example in Tokyo. And that will occur in other areas and other sites around the world as well. So good question.

Yes. Just thinking how disruptive this could be and whether I should take a profit on my Macquarie technology here.

I am.

Are there any more questions. Alison, any online?

There are no further questions, Mr. Chairman.

A question up here in the front. Thank you.

Mr. Chairman, Howard Pasco, securityholder.

Mr. Chairman, I come from Stephen Mayne country, which is Manningham in Victoria. And I'd like to report that Stephen, I've got a few questions to ask online, but I went to the annual meeting of the council. And his daughter has now become Deputy Chair -- Deputy Mayor of the council. So that's equivalent to Greg Goodman, all of a sudden has nominated his daughter as being on the Board. That's equivalent to have Stephen and Laura's daughter being on the council. And it's interesting pellet councilor at Manningham Council, City of Manningham, Councillor Anna Chen. She made an interesting observation. She originally -- the family come from Taiwan that at Annual General Meetings of companies in Taiwan, the securityholders get a little gift when they've been to the AGM. Now I know that we have sandwiches and cup of tea and coffee and so forth. So it's an idea, Greg and your Board and Mr. Chairman, a little gift, a tie pin or something of a much Goodman Group for us to wear, it is a suggestion to the Board. That's something that companies in Australia don't do. So it's an idea that I've given you. And finally, some compliments about the signage. If anyone goes down to Moorabbin Airport in Melbourne, Goodman Group for those who don't know, is -- petrols Moorabbin Airport. And they've constructed business complex and the signage around the airport is excellent. And why I say that is I was a Municipal counselor for 6 years, and signage is very important for anyone involved in local government, but the standard of the signage around the airport. And I look at the sign there, that green, everyone loves green, that's a sign of rain and production and agriculture. The color for a start is a winner. And I suggest that your standard of your signage is excellent. Congratulations to the Board and keep up the good work.

Well, thank you very much, and I appreciate the observation. I think the Board doesn't take any responsibility or credit for the signage. I will leave that with management. But as regards to gift, that might be a step too far, but we'll give it some consideration. Maybe just further increase in the share price might be good. Alison, do we have any other questions?

There are no further questions.

Any more questions from the floor? Yes, we do have.

Mr. Chairman, Warren Bevis, securityholder.

Look, just 2 questions. The first one, I noticed you said one of your members and so going over to Africa. Are you looking to expand in Africa? And if so, whereabouts, just out of curiosity? The second question is slightly different. With all the media about hacking and things like that. I imagine you guys retain a lot of information about very high companies. Do you have a very good team or developing an extremely good team to protect against this sort of stuff that's going on?

Well, thank you for those 2 questions. Firstly, no, we have no plans to go to Africa. George Zoghbi in Africa on business. So he's on the Board of Brambles, which is retiring from the end of this year, and this is his final Board meeting and it's being held in South Africa at the moment. So that's the reason why he is there. And he is -- but he's online today, listening in to this meeting. Secondly, just remind me the second question. I got so carried away about Africa. Oh, Cyber, cyber. We -- first of all, we're a business which is a B2B business, business to business, not business to consumers. We don't have a lot of sensitive information about people's credit card details and the like. I'm not saying it's not an important issue for us. It is, it's when we handle very carefully and very diligently. Our IT team look at that. Our Audit Risk and Compliance Committee, who receive regular reports about the activities and the protections and the like that we have there. But overall -- first of all, we haven't had any issues to date, touch wood, and that's important to note. But secondly, it's not a matter which -- we're not an Optus, we're not a company which has got a large amount of consumer information. So from that point of view, we're not a great target either, which is fortunate. But we do take it seriously, and it's very important going forward, and we spend a fair bit of time and resources to make sure that we've got protections in place. Are there any other questions?

No further questions.

Thank you very much. Well, on that note, I'll move on. And I'll turn to the formal resolution set out in the Notice of Meetings. My fellow directors now support the Resolutions 1 to 10. Please note that where open proxies are held by me as Chairman, I intend to vote these proxies in favor of each of the resolutions of 1 to 10. For transparency and the benefit of the meeting, I'll now present the results of the proxy votes on these resolutions on resolutions 1 to 10. All of the resolutions proposed as ordinary resolutions and will be approved if passed by more than 50% of the votes cast. As you -- as can be seen with the proxy votes received, which account for about 83% of our register. I expect that all the resolutions will be passed on the casting of those proxy events. As mentioned at the commencement of the meeting, the securityholders participating online, polling has opened and will close at the end of the meeting. For those of you who are with us here in the room, we will vote on resolutions 1 to 10 after they have been put to the meeting. So at the end of the meeting. As explained in the Notice of Meetings, as a result of the technical structure of the holding of Hong Kong Securities on the ASX, securityholders cannot vote personally at this meeting in respect of Goodman Logistics HK Limited resolutions. Rather Chest Depository nominees PTY Limited, will vote these interests in accordance with the voting and form directions that they received prior to the close of proxies, which was 10:00 a.m. on the 12th of November. This applies to resolutions 1, 2B and 6. 2B particularly important because it creates my reelection, but that's not the matter. In accordance with the Corporations Act and determinations made under the constitution, each of today's resolutions will be decided by a poll. So the first resolution for members to consider as an ordinary resolution of Goodman Logistics HK Limited is to appoint KPMG as auditors of the company to hold office until the next AGM, and the directors be authorized to fix the auditor's remuneration. I now move that Resolution 1 be approved. Are there any questions from the floor or online?

There are no questions, Mr. Chairman.

Thank you very much, and I think we can move on to the next resolution. The next slide on today's agenda is my reelection as a director. I'll shortly ask Mark Johnson, the Chair of the Audit, Risk and Compliance Committee to Chair this segment of the AGM. But before doing so, I'd like to address the meeting in relation to my reelection. I've had the privilege of being a Director of Goodman Group since January 2017 and the Chairman of the Board since November 2020. Today, I seek your support for a further 3-year term. By way of background, I have been Chairman of 3 large ASX-listed companies. This has given me significant exposure to a range of industries, including property, construction, logistics and infrastructure in addition to valuable experience in relation to the management of listed public companies. I was on Board of Brambles Limited for 16 years, the last 6 as Chairman until my retirement in June 2020. Brambles, as you may know, is the supply chain logistics company with operations in more than 60 countries. My time there provided me with considerable global experience in the logistics sector, which is valuable for my role as a Director of Goodman. Previously, I had been Chairman of Leighton Holdings, at the time, Australia's largest construction company; and Spark Infrastructure, a significant electricity distribution business operating in Victoria and South Australia. My experience in the property sector is both at an operational and Board level. I was a senior executive of the Westfield Group for more than 30 years, during which time, I held a number of positions, including that of Finance Director from 1985 to 2002. Following my retirement as an executive in 2003, I remained a Nonexecutive Director until 2013. I'm also currently a Director of the Garvan Institute of Medical Research and the European Australian Business Council. During my time with the Goodman Board, the group has continued to leverage and benefit from the significant growth opportunities that the digital economy has offered. This has been the result of a well-planned and executed strategy that anticipated customers' needs ahead of time, coupled with prudent capital management and resource allocation. It is the long-term vision and consistent focus of our goal -- on our global strategy that is testament to Greg Goodman and his team. I'm fully supportive of the group's strategy, which is focused on delivering sustainable growth and creating long-term value for all of our stakeholders. I believe I have the relevant international, industry and commercial experience to continue to be an effective Director and Chairman of the Goodman Group. If reelected, I'll continue to serve you diligently by working constructively with management and adding value to Board deliberations, while always maintaining a strong focus on corporate governance and risk management. I now invite Mark Johnson to the roster.

Good morning, ladies and gentlemen. Resolutions 2a and 2b are for members to consider as ordinary resolutions: a, the reelection of Stephen Johns as a Director of Goodman Limited; and b, the reelection of Stephen Johns as a Director of Goodman Logistics HK Limited. I now move that Resolutions 2A and 2B be approved, and I ask if there are any questions that might be submitted in respect to those resolutions. Firstly, on the floor? And then, Alison, are there any questions on the line?

Yes, I have a question from Stephen Mayne. The previous long-term Chair was critical of the way Commonwealth Bank dealt with our company during the GFC when we were forced to do highly diluted equity raisings. Could the new long-term Chair, Stephen Johns and CEO, Greg Goodman, clarify whether we have ongoing dealings with the Commonwealth Bank?