Goodman Group (GMG) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Goodman Group FY '24 Full Year Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CEO, Greg Goodman. Please go ahead.

Thank you. Good morning, everyone. I will give a brief, strategic overview; and our CFO, Nick Vrondas, who is with me in the room, will take us through the results. Goodman has evolved as a provider of a central infrastructure, with our warehouses and data centers supporting the flow and storage of goods and data throughout the economy. The expansion of the digital economy continues at pace. The growth of e-commerce, cloud computing and the adoption of new technologies, including artificial intelligence and machine learning, is creating significant opportunity for Goodman to develop the infrastructure our customers are seeking. This has supported the group's strong operational results in FY '24. Operating profit was over $2 billion and operating earnings per security was up 14% on the previous year. Our focus has remained on logistics and data center opportunities in key cities around the world where barriers to entry are high and, in fact, getting higher, and supply is very limited. The group is evolving in response to the significant data center opportunity before us. We have expanded our global power bank to 5 gigawatts and augmented our existing team of around 1,000 people with more data center talent. In addition, we're optimizing our property around the world, supporting our customers, investments in increased mechanization, automation of their warehouses, and artificial intelligence to maximize productivity. Goodman has maintained work in progress at $13 billion, with data centers making up 40% of our development workbook. Importantly, over the next 5 years, global demand for data centers is expected to be more than double what it is now. The data center industry is grappling with growing barriers to entry compounded by land scarcity, complex planning and regulatory hurdles, and the challenges of securing power. Effectively, supply is struggling to keep up with the demand. Our competitive advantage is that we have the sites, the power, the capability, people, track record and commitment to build the infrastructure to accelerate time to market. We believe, over time, this will generate significant long-term value to the business, our customers and, importantly, our investors. Of our 5 gigawatt global power bank, 2.5 gigawatt is secured power consisting of stabilized, work-in-progress and secured pipeline where substantial power, site and network infrastructure works are already underway. The additional 2.5 gigawatts is in advanced stages of procurement, all on sites we already own and control. In the sustainability space, we're embracing innovation as we look for ways to reduce our environmental impacts and improve social outcomes. We're concentrating on the areas we have the greatest control and potential impact, including procuring renewable power, piloting low-carbon materials and developments, and we've contributed $13.5 million through the Goodman Foundation to build resilience and sustainable communities. I'll now hand over to Nick to take us through the results in full.

Thank you, Greg. If everyone could please turn to Slide 10. We'll first cover the items that relate to our cash-back measure of earnings, which we call operating profit, and then discuss the items at the bottom of that table. Operating profit excludes the unrealized fair market value adjustments on properties, the mark-to-market movements on hedges and the accounting fair value estimate relating to our employee long-term incentive plan. Compared to the prior period, FX movements had a $40 million positive impact on the translation of our foreign-denominated operating result before interest. This benefit was, however, offset with a commensurate expense in our borrowing costs. This is the result of the movements in realized costs on our debt and derivatives. That's how our hedging strategy is designed. Looking specifically now at the movement in investment earnings. Direct property net rental income is lower because of the $1.2 billion of net divestments over the past 24 months. Over the past 12 months, in particular, we had a net reduction of $0.6 billion. The bulk of our investment income comes through our core investments in the partnerships. Compared to last year, cornerstone investment income increased by $45 million. Rental growth accounted for $27 million of the increase, which is the result of the 4.9% growth in the like-for-like NPI comparative. This has been supported by our high occupancy rate and the ongoing reversion to market rents. The portfolio remains 24% under-rented, and we see this continuing to support NPI growth going forward. This takes into account the recent decline in market rents in China which have now also been reflected in the valuations. Net investment contributed $25 million to the growth, and $8 million came from FX translation. This was partly offset by a slight increase in borrowing costs. Over the past 2 years, we have invested a net $2 billion into stabilized property within partnerships, $1.2 billion of which occurred in the past 12 months. Over time, we want to grow this part of the business as we continue to expand our portfolio of assets under management and our investment in it. Through our ongoing active management of the portfolio, we have a specific drive to enhance the returns from these investments, too. Management revenue was up $296 million over the year. This included a $6 million FX benefit. Total fee revenue for the year, as a percentage of average stabilized third-party AUM, was 1.2%. Performance and transactional revenues contributed $331 million this year compared to $42 million last year. Our total portfolio stood at $79 billion at June. Of this, $70 billion was in external assets under management, which now excludes GMT. Stabilized third-party assets under management averaged $67 billion in the period, and that's up marginally from last year. The valuation declines and FX translation were offset by net acquisitions and the completion of developments. By internalizing GMT in exchange for stock, investment income increased by roughly the same amount as the decline in net base management income. There was a gain from the transaction of $96 million that related to future investment management rights foregone. In terms of the outlook for this segment, we expect our third-party stabilized AUM to grow over time, and we remain comfortable with our long-term guidance of fee revenue, representing over 0.9% on average. That's supported by the current backlog of potential performance fees of around $450 million. Realized development earnings for the year were $1.28 billion, which is down by $24 million. This included $35 million of FX-related benefits. Our margins remain adequate. The main reasons for the decline in income is the combination of the increasing duration of project periods and the portion of projects that were originated on the group's balance sheet. This means that the timing of revenue recognition has been extended into future years. The timing of completion and settlement of these developments and the performance fee calculation dates mean that there is a potential second half skew to earnings this coming year. Included in these results are $322 million of operating profits related to the reversal of prior period revaluation gains. As a reminder, this relates to gains on sales of assets that have been subject to fair value movements between commencement and sale. We do not reflect these gains in operating profit until the transactions complete. So that these profits aren't double-counted over time, we notionally offset them against the current period valuation results when we do our reconciliations. Our development work-in-progress temporarily dipped over the past 2 years as we considered the alternatives such as multilevel logistics and data centers. We have recently begun to commercialize a few of the data center sites, which has resulted in an increase in WIP. The multilevel and data center projects will, on average, be in WIP longer than our historic projects. The pause we took also means that there will be a resynchronization that will result in a lower volume of completions in the short term. Given the increased project duration, we also expect higher-than-average margins to compensate. At the same time, we are originating a significant volume of work on the group's balance sheet, so we'll have the opportunity to crystallize a greater portion of the gains in operating profit. This approach will be managed in conjunction with our partners who are also considering their own approach. We aim to optimize capital allocation and ROI on development to achieve an acceptable risk-adjusted return whilst maintaining our focus on EPS targets. Our current $13 billion of WIP represents an annualized production rate of $6.4 billion. The expected yield on cost on our WIP has increased to 6.7% since last June, and our pre-lease levels are up to 63%. The new commencements are expected to have a yield on cost of 7.5%, and they're 67% pre-leased. On the $4.2 billion of completed developments, we are 99% leased and nearly 90% presold. We originated around 50% of development on the group's balance sheet. But the funding that is conducted by or on behalf of partnerships or third-parties remains relatively high at 71%. Demand from logistics users for quality buildings in strong locations remain sufficient for our current activity levels. The diversion to data centers as the better use of our sites is, however, occupying a greater portion of our opportunity set. This is limiting the amount of industrial development we're undertaking. We remain enthusiastic about the prospects for development demand overall, which bodes well for future revenue as well as for growth in AUM. The increase in our underlying operating expenses have been moderate, our net borrowing costs were up by only $5 million compared to FY '23. This is mainly the result of the $40 million FX hedge-related borrowing expense which offset the earnings translation benefit discussed earlier. At the same time, we've had a $17 million increase in the net interest earned on our cash and derivatives. Our development assets have increased, so capitalizing interest is also up by $9 million. Our cost of borrowings on our loans is currently 3.8%. But taking into account our interest rate and currency hedges, the net WACD is around 1.2%. As far as our nonoperating items are concerned, we had $1.3 billion of unrealized valuation adjustments in the year, which represents the group's share of the $5.1 billion across the entire portfolio. From that, we deducted the $322 million of now realized prior period gains to get to a net result of $1.6 billion. The valuation declines equated to a movement in value of around 6%. Cap rates expanded 70 basis points over the year to 5.2%. Growth in market rents and the contribution from development completions offset around half of the impact of rising cap rates. It's worth noting that the cumulative revaluation gains for the total portfolio since 2019 are nearly $13 billion. Another customary area of difference between operating and statutory profit is the small fair value movement of hedges. As usual, we exclude the LTIP accounting cost, but we include the tested units in the denominator when calculating our operating EPS. That's when they actually have an impact on security holders. The accounting cost has increased mainly due to the increased security price on the ASX between June '23 and June '24. A few remarks now regarding the balance sheet on Slide 11. The wholly owned stabilized asset portfolio has decreased due to the sales I talked about earlier. Our share of the stabilized assets within our cornerstone co-investment were down by $0.6 billion over the year. New investments and development completions were more than offset by the valuation declines and FX translation. Compared to June 2023, our development holdings are up by $0.7 billion, with the additions, expenditures and transfers for redevelopment offsetting completions and sales. You can see from the balance sheet movements and cash flow statement, the increase in working capital allocation to the group's inventory and investment property under development accounted for around half of the change. The remaining half came through the increased investment we've made into development activities in the partnerships. This is consistent with the higher capital intensity of the new projects as well as the higher portion originated on balance sheet. Our current WIP is over 70% presold or funded within partnerships or third-parties which gives a degree of cash flow visibility. Overall, we've generated over $2 billion of cash through operations this year. $1.2 billion of this was reported through the operating cash flow statement. However, the statutory statement of operating cash flows includes outflows associated with our investment in development inventory of around $200 million during the year. There was also over $400 million of earnings arising from the sale of development properties which were included in the investing cash flow for statutory reporting purposes. So the combined effect of these development activities explains around $600 million of the difference between operating cash flow and operating profit. There's always a difference between the timing of distributions and income recognized in the partnerships, and that was around $65 million this year. The timing of cash receipts for performance fees and incentive payments collectively accounted for around $150 million of the differences between operating cash flow and operating profit. The internalization of GMT was affected by way of new equity issued to the group. So it didn't appear in the cash flow statement, but it could have been viewed as an operating cash inflow and an investing cash outflow as these decisions have been made separately. In addition to GMT, we invested $0.9 billion into the stabilized properties within partnerships during the year. Our retained earnings are to fund the vast majority of the investments we make, which is consistent with the design of our long-term capital management plans and the distribution policy. It's a good point to turn to Slide 12. As we said before, we'll operate our gearing within a range of 0% to 25% with the level to be set with reference to the mix of earnings and activity levels. So in light of the activity in developments, we aim to maintain financial leverage at the lower half of the band in the near term. In addition, we continue to invest our retained earnings back into the business to generate strong returns and fund our growth sustainably. All in all, we have significant financial flexibility to help manage current market risks and to capitalize on suitable opportunities that may arise. And that's all for me. Thanks. Greg?

Yes. Thanks, Nick. Now turning to the outlook. Goodman has a great opportunity to realize the significant embedded value within our business as a result of the highly concentrated portfolio in the major cities of the world. The scale of the opportunity around data centers would see it be a major area of growth over the long term. We are well positioned heading into FY '25 for the strong development workbook underway. We have a robust capital position, and we have numerous opportunities to optimize value. We expect FY '25 operating EPS growth to be 9%, which equates to over $2.2 billion of operating profit. Thank you. And now Nick and I will take questions.

[Operator Instructions] Our first question comes from Tom Bodor from UBS.

I just was interested in Nick's comment around the sale of the Goodman management rights, on the internalization. You mentioned $96 million, I think it was, of revenue or profit came from that. My understanding is that there might be some future potential earnings from that and some cost against the $270 million that you sold it for. So I was just wondering how that will play out over the next couple of years.

Yes. Thanks, Tom. It's Nick here. Yes, I mean the combined effect of those two is actually 10 years, over which time it will roll out. That's roughly the phasing of our sort of continued support obligations and the cost plan associated with that. So yes, it's going to be over a prolonged period.

Does that imply sort of minimal per annum earnings from here?

Yes.

Excellent. Okay. Great. And then just a question, I guess, around the data center piece. I'd be interested in understanding what the key constraints in sort of getting those projects into the WIP are currently. Is it more around planning or the time taken dealing with the counterparties like the hyperscalers that's sort of holding you back from sort of seeing that WIP number ramp up?

I don't think there's anything holding us back. I think we're just doing the job properly. The major work you've got to do, firstly, you've got to own the land, otherwise, you've got no shot at it. Secondly, you need to then be putting significant amount of money into infrastructure, including power infrastructure. And just the other day, we ordered a substation in Europe, EUR 75 million for a site to unlock 150 megawatts. That's another scenario you've got to work through. And then thirdly, you do need to then work through the planning regime. And a number of these buildings are multistory, we've got plan to multistory 3, 4 levels, and effectively high controls, neighborhoods. Bear in mind, most of our stuff in the 5 gigawatt is metropolitan or in and around cities primarily, not out on the never-never. So yes, it's all those things you've got to contend with. And when we talk about barriers to entry, it's money. It's land. It's people. And then it comes down to capital as well because, if you're doing full turnkeys, these things are a billion a throw, all right? So all those things mean it's not for everybody. And you need to have a serious team and serious infrastructure to be able to handle the size and the complexity of these projects.

Tom, it's Nick. I just want to go back, just on the GMT point, just one thing. I mean you did say minimal earnings. One thing you need to consider, though, is that GMT has now been restructured in such a way that it can enhance its return on assets and return on capital. And so what we're hoping to achieve with that transaction was that they can become a more active investment manager and be able to generate a higher return on assets, and we'll pick up our proportionate share of that benefit as well over time. So what we're saying is, if you look at just on a like-for-like basis, the foregone base management income or EBIT versus the investment income that we've picked up through the stock issue, they're roughly equal. And where the upside is, is if they enhance their return on assets and we pick up our proportionate share, you can see that the value of our investment should increase. So there's a mathematical answer to your question, which is the first one I gave, but then there's a strategic answer as well, which you need to consider, too.

And our next question will come from Simon Chan from Morgan Stanley.

Can I take you guys to Slide 36, just the yield on cost on commencement there of 7.5% certainly looks impressive. But if I go back to the third quarter update, you had kicked off about $3.7 billion of commencement at 7% yield on cost. So mathematically, this implies that whatever you kicked off in the last quarter, in the fourth quarter, it must have been yielding like 9% or maybe even north of that. Can you just give us some insight into what happened in that final quarter and the sort of projects you're kicking off?

Yes. Look, I'll kick it over to Nick in a minute. But I think we've been pretty clear, and I think it's pretty clear around the marketplace, that data centers are, in regard to the cash on cost, above where we are with industrial. And that's because of time complexity, everything else, which also represents you need more margin because you have actually more time and cost, and you actually have more risk. But genuinely, on the industrial, we will not kick off an industrial project anywhere in the world apart from Japan where it might be a 6% unless it's got a 7% handle in front of it anyway. And so we're just tightening things up. We've got a bit of a runoff of the very, very low interest rate regime where feasibilities probably made sense at 6.75s and what have you. But we will not get out of bed for an industrial project. Bearing mind the ones we are doing are bigger and they're very, very prime. So we're not doing commodity real estate pretty well anywhere in the world. We want to get paid for the time, the effort in doing it. So even in industrial, you should see all have 7s in front of them. And you're backing those out at, say, 5%, 5.25%. And data centers need to be north of that because if bigger, they're more complex and there's more risk.

I have nothing to add.

So just to take a step further, the $5.2 billion of commencement, I appreciate you said 40% of your WIP is data center. But that $5.2 billion of commencement, how much of that was DC and how much of that was the traditional industrial warehouse?

Yes, there's a few data centers in it. The Japan SKU, though, they're coming at it at lower top lines. But then they go at it at lower bottom lines. So their exits are probably anywhere between [ $3.8 million and $4 million ], something like that. But yes, you'll see moving forward, there's about 1.6 gigawatts effectively, or 1,600 megawatts, of sites that we're actually getting ready to go. So over the next 2 years, you'll see a lot of data center starts come through, and they're in different stages of negotiating with customers right now. And effectively, we are spending many hundreds of millions of dollars on activating all those sites. The EUR 75 million I used before on a transformer is just one part of the equation on one site. And we're energizing them. We're dropping buildings. We are negotiating. And I think you'll find over the next 18 months, there will be a significant amount of data centers in the work in progress. We'll still be doing industrial, but it would be very easy to see data centers go way through 50% of the work in progress. And the work in progress number, I think, Chan, it will be bigger. It's the reality of the size and scale of these things. So ultimately, it will be bigger.

Great. Makes sense. And just a final question, again, just taking it one step further. I think in your presentation, you've talked about how you're in discussions with hyperscalers or potential customers for substantial new starts anticipated to commence over the next 18 months. Have you gotten a feel for how much of that will be powered shell and how much of that will require the big CapEx because of the turnkey facilities?

Yes. Look, our view is that turnkeys are a really good way of getting to market more quickly. I think you save money rather than doing it in two phases. So I think there's a lot of opportunity to do that. It will depend a little bit on the site, where it is. If they're, let's say, AI-driven sites that are probably further out of city center, and we've got a couple of those probably come up in the next 12 months, 300-megawatt sites and things of that nature, that might be a series of powered shells. Whereas if you're going vertical in something like, say, Vernon, very prime, it's back in L.A., you might see that as a full turnkey as an example. So I look for the prime sites, probably turnkeys, some of the bigger AI machine learning sites may be just a series of powered shells, and we'll see how it all plays out. But it is significant either way. But I think you're going to have a mix and probably not a bad guide, it's about 50-50. My personal view is that will probably be a little higher than that on turnkeys because I think it's just a better way of getting the buildings up and down pretty quickly.

Next question will come from James Druce from CLSA.

I don't want to nitpick too much, but following on, on Chan's question, you're sort of talking to a decent ramp-up in DCs over the next 18 months. What sort of visibility do you have on sort of just the next 12 months? What would we be looking at? I know you mentioned Vernon just in your remarks before.

Look, I think we'll see how we go. We'll give you good guidance every quarter. There's no prescription around these. They're very complex. There's time delays through the whole industry around planning and power. So I don't think we'll get too prescriptive here. But it's substantial, and it will take our work in progress to the next level over the next 2 years. And look, that's pretty obvious from the numbers. You guys can work it out. There's 5 gigs on the page. There's 1.6. We're getting ready to go. That, in itself, is a big, big number. So let's just see how we go quarter-by-quarter. This is real infrastructure. This is real hard to do. And we've got to be just super focused on execution. And that is absolutely what everyone has hit down on execution around here at the moment.

Okay. And just maybe one on performance fees. I think you said you had about $450 million unrealized performance fees coming through. How much of that is coming through this year versus next year? Has it skewed? You might have mentioned it in your remarks, Nick.

No, I didn't. But we're not prescriptive on that because it does depend on timing of recognition and there's a few issues there. So just stick with the 90 basis points on average. That sort of works out to be total management revenue based on projected third-party stabilized AUM in the sort of $650 million area for next year, and that's the best guide we can give you.

Yes. Okay. And one more, if I may. Can you just talk about the Sydney, Melbourne data center opportunity? There have been a few DAs put through recently. It sounds like you've got some decent sites in Melbourne as well. Is that more of a land sale story? Or do you think Sydney and Melbourne are also a turnkey and powered shell story?

Yes. I think, if you look at the numbers where the numbers increase 3 to 5 gigs, it is primarily out of movement in the Australian numbers effectively. And on the secured line in Australia, we've got some starts as well. Look, we're going to be building these things, I think, it's the reality. And if we do have a land sale, that will be a rarity. I think now, we've got the teams. We've got the people. As I said in my address, we've augmented real skill in our teams. Our teams all around the world now are actually operating these data center programs in country. There's no centralized Sydney program. They're all integrated in their businesses. It's energized not only at the sites but it's energizing the people in a world where logistics is a little bit more moderate. So a lot of enthusiasm will be going vertical on the stuff in Australia in the main.

Our next question will come from Lou Pirenc from Jarden.

One more question on the whole data center and turnkey story. Can you just talk about how important turnkeys are? And is it a step change to your growth profile, to your returns? Or is it all within that 9% to 11% on your number and it ends up being 11% to 15% at the end of the year? Kind of how important is it to increase turnkeys in the next 12 months?

Yes. Lou, look, if we just put the EPS growth aside, is it a step change? Yes, it is. Does it change the character of Goodman? Yes, it does. What are we going to look like in 5 years' time? And I think I've tried to emphasize it once again in my earlier comments around strategy. We're a real infrastructure provider globally. And infrastructure to us means big industrial sites, so you'll see some of those pop up. We're working on a couple of multibillion-dollar parks at the moment around the world, which we'll be bringing to planning and production over the next year or 2. So we're working on the big stuff where we can really put the infrastructure in, whether it's power for data centers, whether it's EV charging and infrastructure for the new age of mechanized warehouses. What we're not is a commodity and what we won't be going forward is a commodity, right? So everything we're going to do is going to be very specific. It's probably going to be relatively big. And it's going to have a reason for doing it, whether it's sitting on a port, sitting on an airport, or it's creating the connectivity to the cities that they require for their data and their data management. So yes, we've been moving this way for the last 5 years. I think we've now got the situation where it is, I won't say, a sea change, but I think you mentioned step change. It will be a step change. In the next 5 years, Goodman will look very different.

Just Lou, in terms of the earnings impact, Greg said put it aside, and I think that's the right answer for the moment. We'll update people as we go and as we progress on that. I mean, what we've been saying to date is the opportunity that's here, at the very least, will be a prolongation of our opportunity set, so we'll keep working on that basis for the moment. That's the safest way to start. And then we'll keep you posted from there.

And then just on earnings, I mean, you kind of have been very consistent, which is great, in terms of reporting your earnings. I'm making that when you start doing turnkeys and operating these things that, that will change quite a bit now.

I can answer that one. There's a lot of embedded value in this, Lou, a lot of embedded value. I think the one thing that will be very consistent is our capital model where we partner, we will be growing our funds management business. That will grow strongly over the next 5 years as these roll off. We'll be clever and entrepreneurial in regards to how we monetize them. We want to make sure we protect our balance sheet. So there's a number of different ways. Profits will emerge as they have the way we've run our industrial business. This is going to be very similar, but the numbers are big, right? Good news is the amount of infrastructure capital around the world is also big. So we just need to match one with the other, and I think we can manage through it pretty well.

Our next question will come from Ben Brayshaw from Barrenjoey.

I just have a question on data. I was wondering if you could just comment on how you're seeing pricing across the key regions. Clearly, there is demand from a tenant perspective. But are you seeing that starting to translate into better rents just in relation to the pricing for the power? I was wondering if you could give us some directional feedback on that.

Are you talking about rents for data centers?

Yes, I am.

All right. Yes. Look, it's fair to say the cost of data centers are going up. The cost of land for people will be going up. The cost of construction is going up; time and complexity, working capital, cost of capital, all those things. So I think costs are going up, firstly. And I think, secondly, rents are going up as well. And I think some of the best read-throughs you probably get is with probably some of the colos and some of their results. Particularly some of the bigger ones out of the U.S. will give you a bit of a sense, better than I could give you, in regard to the contemporary view of where their revenues are going. But yes, they're going up.

Okay. And just on the power bank itself, how many sites, are you able to clarify, comprise the 5 gigawatts approximately or how many buildings sit within that backlog?

I can count them up. They're on the page.

I think it's about 80, Greg.

You can count them up, if you want. I've got a page here, which I can't give you, but I've got a page. The reality is, to get the 5, we're working on about 9-plus around the world. It's the reality of what we do, right? So like I said before, we've augmented the team. Our European team, yes, we're doing some sheds in Europe. But pretty well all the development team, 95% of what they do is data center work. And there's a lot of sites that we already own that are not on the page that we're working on as well. So yes, I think going back to Lou's comment, is it a step-change, yes, it is.

So are you able to say where you think in the medium term the scale or the size of the power bank could get to?

What was that, mate? Sorry, I missed that one. Could you speak up just a little bit, mate?

Are you able to say in the medium term where you think the scale or the size of the power bank could get to given that you have more logistics sites that you could potentially add to your backlog?

Look, I think 5 gigawatt is globally large. So let's just roll with 5 for a moment. But some will roll off as we're developing them, and then some will roll on. So I think it's not a bad number to think about as maybe a little bit of a constant for the next 2 or 3 years. They might roll off 300, 400 megs, and then there might be another couple of sites that come on. Some of the big AI centers might distort that up quite markedly, but some of those, quite frankly, 300, 400 megawatts per large site. Some of those sites can be 20, 30 hectares. And that's very different to what we've got on the page at the moment. What we've got on the page at the moment is more the city located data centers, the hot markets around the world, that's primarily what's making up the 5 gig. And certainly, in the 2.5 we're working on at the moment, top locations in Europe, top locations in Japan, top locations in Australia and things like that. So if there's a couple of big AI campuses dropped into that number, it could inflate it quite quickly. So let's go with 5, and I think we'll work on that.

And our next question will come from David Pobucky from Macquarie Group.

Congratulations on the results. Maybe just going back to FY '25 guidance, please. It sounds like the timing of some developments has fallen into '25. So perhaps if you could maybe just highlight some potential upside, where that could come from over the coming year, and any key risks that you're thinking about as well, please?

Yes. Well, there's plenty of risks, around the world, though I think we can deal with that one. Look, I think $2.25 billion, which is basically the forecast for this year, is a lot of money. And I think you're quite right in your first observation about some developments are finishing in '25. They fell across the line into '25, not '24, so I think that observation was right. And we'll just see how we go, and we'll update the market on a quarter-by-quarter basis. We think it's a sensible prudent number. We've got a lot of work to do around our infrastructure program. And I think we're just very, very focused on having consistent earnings, but very focused on the embedded value of the company, and that's really where the focus is.

And just the second one around partnerships, please. Any kind of more color you can provide on new partnerships created or anything that's expected to come up in the near term.

Look, there's data center capital moving around with us at the moment in regard to our programs, and so I don't think that will be a surprise to anyone. And that will be infrastructure capital, effectively. So that's one. I think last year, we created one new partnership, raised $1.4 billion in Australia as well. So that was a couple of things that happened last financial year. And this year we're in now, yes, there'll be, around infrastructure, maybe a couple of industrial partnerships as well. So we'll do it as required. We're not running around with sort of big global programs. And we do it as the availability of product comes through.

Good luck for the coming 12 months.

Yes. Thank you.

Yes. Our next question will come from Liam Schofield from Morgans Financial.

Can you just comment on the local council's willingness to approve data centers in employment lands? Has that sort of changed through time?

I don't know whether it's changed. I know it's gotten hell of a lot more expensive, put it that way. So I've never put planning applications in when I've got to pay $10 million to get it in the council. So I think they're making a lot of money out of it through the planning process. But no, look, I think generally speaking, they're a pretty quiet use on land. They're not creating a lot of traffic. And in some of the zones they're going, quite frankly, for example, in North Ryde where offices might be getting knocked over for data centers, there's no one in the office. So you might as well put something where it was going to create some opportunity in some of those locations. So look, I think it's okay. It doesn't have the traffic issue. I think that's the biggest issue for a lot of the councils. At the moment, we're not putting nuclear reactors in them, so that's not causing a problem. That may be someday in the future in other countries of the world, not here, of course. But effectively, now it seems to be under control. It just takes time, and it's just expensive.

Fair enough. And just on forecasting development profits, given the increase in WIP over the next couple of years, should we still be looking at completions as the primary driver? Or should there be some other methods for sort of forecasting what those development profits might look like?

Yes. Liam, production rate is still the better way to look at it because we earn income in a variety of ways. Part of it is on completion, agreed. But there is a significant portion that is either fee-based or percentage of completion, depending on the nature of the contract. So I encourage you to continue to use the production rate.

And our last question will come from Richard Jones from JPMorgan.

Just following on, on that question, have you got a steer as to where the annualized production may track through '25 given the ramp up in DC starts you're calling out?

Yes. My guess is up, Jones. I think that's right. I think just how much depends on what starts when. I think we'll just keep you posted. But I mean, the production period for some of these ones will be anywhere between a minimum of 2 years and up to 4 years, in some cases. So it's not 1:1 with the WIP. I mean, obviously, Greg talked about the WIPs going up. I think the production rate goes up but maybe not at the same rate. I think that's all I can give you right now. I mean it's going to be probably higher than $6.4 billion. That's easy to say. It's just how much higher will depend, and we'll keep you posted. It also depends on which projects we do a turnkey and which is powered shell. And so there are a few factors in there.

And there'll be some, Nick, that we partner early. We might even partner with customers. There's a number of ways the revenues will come through, which will be a little bit more flexibility than actually we have because of the size and scale of these things, and the demand for them is next level.

And Greg, can you clarify how much of the 5 gigawatt power bank is currently directly held on balance sheet and secondly, what your pro rata share is across the project sitting in partnerships?

Yes. I think we're talking around 50%, Nick, I think, is the way we're looking.

50% on a direct basis. And on a look-through basis, it's closer to 60%.

Yes, it would be 65% with the economics.

Yes.

And Jones, there will be some sites that will come out of partnerships into new partnerships because if you're sitting with an industrial partnership with $4 billion, let's say, of assets and all of a sudden, there's $1 billion data center sitting there on a build-out, maybe that's not what you want to do. Well, some of the investors might want to do it or the other side of their book, being the infrastructure guys, definitely want to do it. So there'll be things moving around as well to make sure that they're going in the right spot for risk and return and the right profile of investor. So it'd be wrong to think that industrial investors that won 5% to 6% rental growth in certain markets all of a sudden want to be building a $1 billion data center as well, which then is going to overshadow almost their whole investment program. So the sites are going to move around. As we get them planned and ready to go, they're going to move around into their right natural home, which also creates opportunity at that point. A different revenue recognition because the land is probably not cost, it's probably moved up and it goes to into a different venture or an SPV and different investors. So there'll be a number of things that will keep you very busy at night trying to track where the revenues are coming from this sort of stuff, I can assure you of that.

What I will say is that there's $250 million of contracted development earnings now, which have come about with all those different methods yet to emerge, but pre-contracting in different ways enables us to recognize income in a variety of different ways.

Yes, manage risk.

Yes.

And as those projects move out of partnerships into new partnerships, should we be thinking that Goodman's ownership percentage goes up when that happens?

It depends on where our ownership of the partnership restarts. So look, if you say it's an average of 30%, some of them might be 50%. I think 30% probably is not a bad average when we get to the end product, but it's going to start higher than that and might end up at 30% on average. Effectively, as we build out the menu of the different vehicles, we're doing one at the moment where it's going to end up, 50-50 with the end product. For example, we own 100 of it at the moment, we'll go to 50%, and we're doing that with a big partner at the moment.

And I am showing no further questions from our phone lines. I'd now like to turn the conference back over to Greg Goodman for any closing remarks.

Thank you very much, and everyone, have a good day or good evening.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a great day.