Goodman Group (GMG) Earnings Call Transcript & Summary

Good morning, and welcome to the Goodman Group FY '25 Half Year Results and Equity Raising Presentation. Due to legal restrictions, we are unable to discuss any details around the equity raising other than the basic terms referred to in the announcement and investor presentation released on ASX today. Please refrain from asking questions about the equity raising beyond such basic terms as we are legally restricted from answering those questions on the call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the call over to Mr. Gregory Goodman, CEO. Thank you. Please go ahead, sir.

Yes, thank you very much. Good morning, everyone. Goodman is in a very strong position, having established ourselves as infrastructure providers through our logistics facilities and data centers in key markets around the world. Our business is robust with solid financial outcomes delivered consistently, quality assets and a targeted land bank with significant embedded value, all supported by strong growing partnerships. Importantly, today, we're launching a $4 billion capital raising to fund the execution of the next phase of Goodman's growth with very clear opportunities before us. The raising will help us further strengthen the capital structure of the group, providing flexibility and undertaking a large development program, predominantly in data center activity to drive long-term sustainable growth. The escalating demand for data centers has created a step change in the growth of our business. This is being fueled by increasing cloud use, migration of cloud of data to cloud, and AI and machine learning. The impacts of technology are not only being seen in data centers but also in our sophisticated industrial facilities around the world, where robotics and automation are helping boost productivity and giving us significant growth opportunities also over the longer term. Over the last few years, we've expanded our power bank to 5 gigawatts across 13 major global cities, primarily in metro locations to service customers' cloud requirements for low latency infrastructure. We've been making steady progress and currently 46% of our $13 billion development workbook is in data centers. And importantly, we have been executing the physical works program needed before going vertical on data center builds by securing power and planning and commencing infrastructure and groundworks to increase speed to market, which is very important. By June '26, we'll have our 500-megawatt program of powered shells and fully fitted data centers well underway. We are building into strong demand primarily in high availability zones in Sydney, Melbourne, Los Angeles, Tokyo, Paris, Amsterdam and Hong Kong. These developments will have an estimated end value of more than $10 billion. The mix determining this end value is mostly fully fitted but could change depending on customer requirements. We can build with flexibility to accommodate their needs. We offer a number of customer solutions, and we'll operate the infrastructure if required, build to suit when required or joint venture. We see the opportunity to progress the data center development program and are fortifying the capital structure of the group to secure its robustness and give us the ability to do this work safely and most importantly, sensibly. Also in the first half of FY '25, we've had a very strong result. Over $1.2 billion of operating profit, gearing within our acceptable range and the fundamentals of our industrial portfolio are sound. We've got a good base land bank, which we're working through and strong work in progress. We continue to optimize our partnerships and recycle capital, overall producing solid, sustainable growth. Now I'll hand over to Nick for some more detail.

Yes. Thanks, Greg. Before we get into the detail of the results, there are a couple of things I'd like to point out. Our portfolio of investment properties has withstood the moderate economic growth and rising interest rate environment. The higher-than-average barriers to entry in our markets has held us in good stead. Occupancy remains high and rents continue to grow. Cap rates have been stable and property values have grown modestly. Our developments continue to perform well with our $13 billion of work in progress supporting a steady production rate of new high-quality assets. The impacts of the data center opportunity have not yet been fully reflected in these numbers. There were a couple of partnership reorganization transactions completed very late in the half, which resulted in an increase in our direct property investment and a reduction in our cornerstone investments. As we've been saying for the past year or so, investors are looking to realign their exposures geographically across asset types and investment versus developments. We're taking this opportunity to match the opportunities to their needs by bringing new investors into certain partnerships and matching the needs of existing investors to these new opportunities. The North American transaction with Norges Bank Investment Management is a good example of this. We've welcomed here a new partner for the core GNAP portfolio who's investing alongside us for the first time. Whilst it has resulted in a temporary increase in gearing, we are comfortable with this position given the significant increase in investment assets on the balance sheet. We've also seen other investors stepping up at current pricing levels to make additional investments with us. We established a new data-center-focused partnership in Europe with an existing partner to acquire one of our developments. We're also in advanced negotiations with a new partner who is interested in a portion of the assets with portfolio -- with potential value-add opportunities from the portfolio of U.S. assets now on our balance sheet. With that, let's turn to Slide 21, so we can run through the numbers in the usual way. We'll first cover the items that relate to our cash back measure of earnings, which we define as operating profit and then discuss the items at the bottom of the table that get us to the statutory profit. The statutory profit includes 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. Overall, FX movements had an $11 million negative impact on the translation of our foreign-denominated operating result for interest when compared to the prior period. This was offset by a commensurate benefit in our borrowing costs. This is the result of movements in realized costs on our debt and derivatives, and that's how our hedging strategy is designed. Since it's less than 1% of income, we'll just talk about the key drivers of the operating performance over the period. Looking specifically now at the movement in investment earnings. Direct property net rental income is a little higher. The balance sheet was relatively neutral over the 2 periods but for the transactions that occurred at the very end of December. The bulk of our investment income, however, comes through our co-investments in the partnerships. Compared to the same period last year, cornerstone investment income increased by $30 million. Rental growth accounted for $14 million of the increase, which is the result of a 4.7% growth in the like-for-like NPI comparative. The portfolio remains 17% under rented, and we see this continuing to support NPI growth going forward. Net investment contributed nearly $18 million to the growth. Excluding the partnership reorganizations, we've been growing our investments. Over the last 18 months, we've added a net $1.9 billion into the stabilized property within partnerships globally. This includes the impact of the stock we were given as part of the internalization of GMT last year. Of the investments overall, $0.7 billion occurred in the past 6 months up until the last week when $2.8 billion of divestments and noncash distributions of assets directly to the group took place as part of the reorganizations. Over time, we want to grow this part of the business as we continue to expand our portfolio of assets under management and our investments in it. The creation of new partnerships and the ongoing growth of the existing ones should support this. Management revenue was up $102 million over the prior corresponding half year. Our total portfolio stood at over $84 billion at the end of December. Of this, $71 billion was in external assets under management. The stabilized third-party assets under management averaged $64 billion in the period. That's down marginally from the half year of -- first half year of fiscal 2024. This is mainly the result of the GMT internalization, which we exclude from this calculation since its internalization. The impact of the reorganizations this half had no material impact on the average though. As a result, base management income was flat because the declines in investment management income were offset by the growth in leasing activity and rents, which has driven an increase in property services income. Performance and transactional revenues contributed $238 million this half compared to $136 million in the prior corresponding period. Total fee revenue for the period as a percentage of average stabilized third-party AUM was above average for the half, but we expect it to be around 1.2% for the full year. 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. Our realized development earnings for the half year were $701 million, which is down by $104 million on the prior corresponding period but up significantly on the sequential second half of fiscal '24. The half year result is over 50% of the full year result of FY '24 because FY '24 was very much front-end skewed. We expect this year to be more even than last year, so we're on track to deliver year-over-year growth in this segment. The impact of movements in the average annualized production rate and project margins have not been significant, but we have been originating a greater portion of the developments on the group balance sheet. That means a greater portion of development income is reflected in our operating results rather than a share of revaluation gains. Included in these results are $87 million of operating profits related to the reversal of prior period revaluation gains. As a reminder, this relates to gains on the 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 transaction's 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 dipped over the past 2 years as we consider the alternatives such as multilevel logistics and data centers. We've recently begun the commercialization of a few of the data center sites. 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, 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're 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 themselves considering their own approach. We aim to optimize capital allocation and ROA 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 $6.5 billion. The expected yield on cost on our WIP has remained at 6.7% since last June, and our pre-lease levels are at 64%. The new commencements are expected to have a yield on cost of 6.6%, and they are 64% pre-leased. The yields on the projects commenced in the December quarter are reflective of the high proportion of lower-risk refurbishments. $1.4 billion of developments completed this half, 86% of which are already leased. We originated around 55% 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 a better use of our sites is, however, occupying a greater portion of our opportunity set. This is limiting the amount of new industrial development we're undertaking. Overall, we remain enthusiastic about the prospects for development demand, and this bodes well for future revenues as well as growth in AUM. The increase in our underlying operating expenses have been moderate, but we've had a more even split of the annual STI accrual this half compared to the pcp where the accrual was $9 million higher. Our net borrowing costs were down $20 million. The $11 million benefit on the FX hedge to earnings I mentioned earlier compares to the $23 million cost in the pcp. At the same time, we've earned $27 million in interest compared to $18 million in the pcp. Our development assets have increased, so capitalized interest is also up by $16 million to $28 million. Our cost of borrowings on our loans is currently 4.2%. But taking into account the interest rate and currency hedges, the net WACD is around 1.6%. These benefits have been partly offset by the higher average debt balance and the higher rate of interest on the floating rate portions. As far as the nonoperating items are concerned, we had $159 million of unrealized valuation gains in the half, which represents the group's share of the $1 billion across the entire portfolio, and that's after the $87 million deduction for the now realized prior period gains. Cap rates came in 3 basis points to 5.14%. It was growth in market rents and developments that contributed to the growth in asset values. Another customary area of difference between operating and statutory profit is the fair value movement on hedges. The currency decline in December gave rise to a $0.4 billion decline in the value of the hedges, but you can see a $0.7 billion increase in the foreign currency translation reserve. 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 decreased mainly due to the pace of change in the security price on the ASX. A few remarks now regarding the balance sheet on Slide 22. The wholly owned stabilized asset portfolio has increased for the reasons discussed earlier, and our share of the stabilized assets within our cornerstone investments in partnerships were down commensurately. Compared to June 2024, our development holdings were up by $0.9 billion as we continue to be a net investor in our business. You can see this from the balance sheet movements and cash flow statement. This is consistent with the higher capital intensity of the new projects as well as the higher proportion originated on the balance sheet. Overall, we have generated over $1 billion of cash through operating -- operations this year. Over $0.3 billion of this is reported through the statutory operating cash flow statement. However, the statutory statement for operating cash flow includes outflows associated with investment in development inventory. Also as usual, a portion of our earnings arise from the sales of assets that are included in the investing cash flow for the statutory reporting purposes. So the combined effects of these development activities explains around $0.3 billion of the difference between operating cash flow and operating profit. There's always a difference between the timing of distributions and income recognized in partnerships. The reorganization of the partnership's assets was partly affected by way of distribution of properties. So it didn't appear in the cash flow statement, but it could be viewed as an operating cash inflow and investing cash outflow as these decisions will be made separately. Other working capital movements and the mismatch of timing and method of recognition of incentive payments as are usual for this time of year. The combined impact of these items is $0.6 billion. Our retained earnings are designed to contribute to funding the investments we make, which is consistent with the design of our long-term capital management plans and the distribution policy. That's a good point to turn to Slide 23. As we said before, we'll operate our gearing in a range of 0% to 25% with the level to be set reference to the mix of earnings and activity levels. In light of the recent changes to the balance sheet, we are comfortable where we are at December. We have an identified means by which to return to below the midpoint of the range through the impending new partnership initiatives. This will result in a reduction in investments and a reduction in gearing. The money we're raising today is to facilitate the increase in the development of working capital needs over the next few years. We estimate this will be in the order of $2.7 billion for the specific data center projects alone. The additional funds we are raising will result in a significant reduction in gearing in the near term. This and the potential for new partnership capital will give us the opportunity to undertake more development activity and accelerate our investment program whilst maintaining the strength of our balance sheet. Over time, we expect to hover around the midpoint of the gearing range once we get further into the data center construction activity. Our earnings guidance takes into account the dilution from the equity issue. The EPS target, excluding the dilution, is 10%, but we've retained our 9% expectations after adding the new securities and taking into account the interest savings for the rest of the year. And that's all for me. Thanks, Greg.

Thank you, Nick. We are raising capital today to take full advantage of the opportunities we are creating over the long term. We will maintain our capital partnership approach, and we'll grow our partnerships across data centers and industrial. We'll also continue to actively rotate capital to optimize our long-term capital plan. We're also on track to meet our operating EPS guidance of 9% for FY '25, which includes the larger share count after the capital raising. And we're confirming the distribution of $0.30 per share. And in closing, we've got a big opportunity set for us. The capital raising enables us to leverage this sensibly safely and sustainably. Thank you. And Nick and I will now take questions.

[Operator Instructions] Our first question comes from the line of Simon Chan from Morgan Stanley.

I really appreciate the new details on Slide 17 and 18 in relation to the data centers. Just wondering, prior to actual kickoff commencements of these assets, is the intention that you would already have a customer locked in? Or is there an intention to perhaps kick off on spec and then bring in a customer?

Yes, combination, Simon. What we're doing around the world is advancing programs, spending money on power infrastructure around the land. We're pricing shells, so we'll start some shells. But we're in discussions in all those sites on the page around the world.

And at this stage, have you given thought to how many of those -- how many megawatts of that 0.5 gig will be -- will end up being turnkey versus powered shell?

Yes. The calculation of over $10 billion of value has the majority or certainly plus 70% being fully operational. Now look, as I said in my address, that could change depending on the demand, and we'll do what is economically expedient and we'll also do what makes sense for the customers we're dealing with around the world and make sure that we're a good partner and a good long-term partner.

Terrific. And the next question is more on funding, so perhaps, Vrondas -- this one is more for Nick. Just going forward, Nick, if I think about the medium-term funding of the remainder of the pipeline beyond this initial 500 megawatts, how do you see that being funded? I mean you're raising $4 billion today. $2.7 billion is to fund your share of the 0.5 gig. You've got another 4 gigs in the pipeline. So by the time you kick off the next 500, et cetera, is the intention to fund that via retained earnings and recycled capital? Or do you think alternative sources such as additional equity will be more of a permanent feature?

Yes. Look, I'll answer the first -- firstly, and then I think Nick can move on to his piece of it. But I made it pretty clear in the address this morning. This is an opportunity for Goodman to originate and grow a very big infrastructure business, a big asset business, and we're going to do that. And we'll be doing that hand in hand with our industrial growth, but we're already starting to establish partnerships. We're already looking at taking industrial landholdings that are now being converted to higher and better use into special purpose vehicles. So effectively, we will do, as we've done in the last 25, 30 years. We'll use capital that makes sense for the long term. We'll rotate capital that Goodman had. This $4 billion just primarily gives us plenty of flexibility and plenty of time to execute what we want to execute. So we don't need to execute at all at the beginning. We can execute in the middle, and some of it, Simon, we can execute at the end. But you'll see Goodman growing a very big infrastructure and asset business. And over time, if you extrapolate it out, our plan is to make sure that is a very big enterprise in that area. And it's going to be homegrown, organic. It's coming out of our development programs whether it's industrial, doing bigger states, and we've got a number of those in planning that are multibillion-dollar estates, or they're data centers at $2 billion or $3 billion in value of throw. So that's what we're going to do, the same game plan, Simon, we've had for the last 20-odd years. We've got big relationships and big partnerships around the world. We have very long, long capital, and I think you've seen that in the U.S. just recently with the transaction that was perfected there. But Nick?

Well, yes, I think -- I mean, Simon, you know how we operate in terms of partnerships and how we move through partnering developments at various stages in the process. And I think Greg's right. What we're doing today is making sure the balance sheet is fortified so that we can have ultimate flexibility as to how we do that without being jammed to do something that's not the best thing for the assets and for the company. But you're right. I mean, the way that we presented the $2.7 billion is somewhat conservative in the sense that it assumes we hold everything through for the next few years. Now some of those assets, if they're just powered shells, they may actually even be completed and recycled by the time we get there. So it kind of assumes our current equity interest in those assets doesn't change, but there is a possibility, a strong possibility that, that will change, and that will give us further funding capacity, as you say, in addition to retained earnings over the next 3 years as well. So I don't think we're going into this with a necessarily lazy balance sheet. But likewise, we're not going into it with a balance sheet that's going to be stretched. We think we can make it work with what's in front of us.

What percentage of those 9 projects on your balance sheet versus in the funds at the moment?

About 70% is the sort of weighted average economic interest that we have.

Next question comes from the line of Lou Pirenc from Jarden.

Just maybe I'm reading too much into it, but your language around the commencements of these projects seem to have shifted by 6 months or so. Am I reading too much into it? Or are these signing the dotted line just taking longer than previously expected?

No, we're just making sure, Lou, we do it sensibly, properly. We're going vertical on a couple very, very soon. I'm talking about weeks, not months. These are big capital expenditures, and we're just making sure we do it right. One of our big competitive advantages in this industry, data center industry is our land bank, our power bank, our attention to detail around the -- around those planning aspects and the construction. And I think you'll find that we'll be very, very competitive in the way we build, how we build and how long it takes us to build. That is our very big competitive advantage in the sector.

Okay. And then can you talk about because -- I mean following up on the previous question. I mean, it is a bit of a game changer that you haven't used equity to fund growth for a while. Is it any reflection on the appetite of co-investors to basically play the long game for these data centers? Or is it just you wanting more upside from the developments on your own balance sheet?

Yes, it's been 12 years, Lou, since I think we went to the equity markets, Carl, is that correct?

Yes, that's correct.

Yes. So we're doing this, Lou, with serious intent, Lou. We're doing it to make sure that Goodman has the financial flexibility to do these things. And as you know, the level of capital required for this type of infrastructure is next level from industrial, it's 5 -- or 6x next level to be quite frank. One thing you don't want to do, and we're seeing it through the whole industry, is there's a lot of leverage on balance sheets appearing all around the world in the -- in this infrastructure product. That is not us. That's not what we're going to create. We're creating stuff with sustainability. We're creating stuff that's great for investment partners. And our investment partners clearly want to see us get the stuff started. They will join us at the beginning, and we've got a number that will join us at the beginning. They'll join us in the middle, and they will join us at the end. And we will just work through, as we have for the last 20-odd years, industrial. We'll work through with the biggest names in the world to make sure that we deliver them first-class returns and first-class product for the long term. And we've seen industrial, Lou. We've seen all the AUM managers all around the world chase it and chase it hard and effectively, all now -- a lot of them are being found wanting. So we've never chased absolute AUM. We chased performance, and this will be no different. And at the right time, we present opportunities to our investors, which makes sense, that hit their return hurdles, and then we work very hard to make sure that, that happens for them.

Our next question comes from James Druce from CLSA.

Just following on from those last couple of questions. Of the 0.5 gigawatts, you mentioned there's a few starting in a couple of months or weeks. Are we still assuming that the majority of it will start in calendar year '26? Or is it more evenly weighted?

Yes, we're going to have a busy '25.

Okay. That's clear. And then just from your discussions today, I mean, do you expect those first couple to be pre-leased? Or is it you're sort of just going to kick those off and deal with the leases that's built.

Yes. We work on the basis speed to market is pretty important. And when you're doing operating, developments can be up to 2.5, 3 years to get operational, and then they'll be basically taken out in portions as well effectively. So what we're doing is moving forward, and we'll move a portion of the capital to get closer to market, so we can start taking time out of the build process by doing work upfront, procurement of equipment upfront and things of that nature. That's what we're doing, and that is a good reason why we're making sure we have ample capital and a well-capitalized balance sheet to allow us to do all those things that are really important when you're sitting down with your customers.

Yes. Okay. And one more just on the funding side. Are we still thinking about sort of a 50% co-invest for a lot of these assets? Or is it more like 20%? But how are you thinking about the sort of stabilized number for this development pipeline in terms of your ownership?

Yes. Look, I think, over time, there will be assets that we won't keep. There will be assets we do keep on a 50-50 basis. Some could be 30% and some already are, in fact, is the way to look at it. The metropolitan locations, which is primarily the book we're kicking off or talking about today, metropolitan is where primarily the cloud in the low latency uses are. That is what we're most interested in owning long term with our partners. But there will be some rotation of AI-type campuses and things like that, which we may not own any of over time. So we're providing infrastructure for this sector of the market. And we'll do it in all areas, and we'll do what's expedient from a capital point of view, from a Goodman point of view and our partners to get the best return over the short and long term.

All right. Actually, one more...

Sorry, James, just real quick, just to help you out a little bit with the numbers that, that relates to. And this should be completely and entirely consistent with the way you've been looking at our company for many, many years. But if you project forward, say, 3 years from now, assume that working capital and development is up by, let's say, $3 billion and then that's rotating capital, then at that point in time, all things going well, retained earnings should be generating a couple of billion dollars a year. And if you think about the production rate going in the $6 billion to $7 billion range, if you think about a 30% to 50% equity interest, a moderate amount of leverage, you'll find that the numbers work and that you get to a steady state of trajectory on gearing and cash flow in and out at that normalized point. That's how we're thinking about it if that helps you.

That does. And just one more if I may for Nick just on performance fees. I might have missed your comments. But what were they in the first half? And what do you expect for the second half? And where is the sort of the bucket at in terms of overall quantum that you could pull through?

So yes, so it was $238 million for the half. The -- so the full year number, we're saying 1.2% of AUM, so that's around another $100 million in the second half give or take. It could be a bit more, a bit less, but somewhere in that range would be consistent with what we'd expect. And then in terms of the future that could be recognized, and I think we talked about this -- I think we talk about every quarter actually. But obviously, we've recognized $200 million in the period -- over $200 million in the period. So the tally is down from $500 million to $300 million, roughly speaking. But that's the point in time today. So you got to take a view on where you think performance will go over the next few years when the actual dates of measurement and payment occur to take a view on what that's going to be. If you think that cap rates are stable and certainly in the last 6 months, that's been the case, and rents are growing at a few percent per annum, off the current yield, you're sort of adding to -- with a leverage effect plus development activities, you're adding to the backlog going forward. So yes, I mean it's a combination of performance and time that will get you to your projections. But that's why it's better just to think about a normalized number of 0.9% -- over 0.9%, 0.95%, somewhere in that range of stabilized third-party AUM as a combination of base and performance-related income as your normalized earnings number long term.

[Operator Instructions] Next question is coming from the line of Ben Brayshaw from Barrenjoey.

Greg, just referencing your comments and Nick's earlier that you look to undertake more development on the balance sheet. How do you see the percentage of WIP funded by the balance sheet going forward?

Yes. Sorry, trying to get the button off mute. So look, at origination, at the moment, it's 55%. That could go up to a bit higher than that in the 60s. But remember, we do tend to presell through, right? So the funding on balance sheet at a point in time should be different to that. The -- it depends on when you measure it at a point in time, I think, Ben, is part of the challenge. While I'm a little bit hesitant to give you a number because we'd expect that we are moving through and preselling or prefunding or joint venturing or partnering these progressively, on an average basis, it should be somewhere 60% to 70%, but it may vary a little bit from that at any point in time. And it could be higher than that at a point in time as well. So I don't want to be sort of giving you a specific number but rather think about that range if that's okay.

Yes. And just in relation to the restructuring of the North American partnership. Could you discuss, I guess, the plans for the establishment of a second vehicle in North America and just a mandate for that and how you're currently positioned to, I guess, move forward with raising the capital?

Yes. Well, I can't talk about it because it's in negotiation and very advanced stages. So I won't chat about that. But look, it's, in North America, been restructured. Effectively, Goodman has then the development rights back, which were with the GNAP partnership. And that comes back effectively in line with our view of originating more on balance sheet is the major shift in the U.S. U.S. market is okay at the moment. So we're just finalizing that partnership at the moment, so I won't say too much more about it.

The only thing I will say is, Ben, it's structured on a portion of the assets that we've accumulated as part of that transaction. It's sort of in a position where the people we're negotiating with now could step in or others could step in. It's ready to go.

Our next question comes from the line of Tom Bodor from UBS.

Greg and Nick, I was just interested in that North American restructure in terms of what it might mean for both cash and earnings from performance fees possibly in the second half. I presume that anything will come through then given it was a 1 January transaction.

Actually, no, Tom. 1 January was when the final step was completed, but the steps in anticipation to get there did complete in December, just like I think it was the 27th of December. So it's pretty much all in the books now. It's all reflected. The second half impact will be just, assuming we get it over the line, will be just the gearing reduction, the cash inflow from the partnering on the portion of the portfolio that was distributed to us as part of that reorganization in the first half.

Okay. So in terms of the new partnership, there's no P&L impact day 1?

It's a capital management initiative for the group. And we're just going down the road we do all around the world as we started a new partnership as well in Europe for data center partnerships. So it's around capital management is the emphasis on it.

Yes. That's clear. And then just in terms of the broader pipeline, I mean, it's 5 gigawatts. You're talking about commencing 0.5 gigawatt over the next 18 months. How do you see the balance of the DC starts sort of evolving over time? Like is it at 0.5 gigawatt every 18 months will take a while to get through the pipeline? Or do you sort of see that step changing again following that? And then how do you think about that in terms of capital requirements for the group?

Yes. Look, the big pieces of infrastructure, they are complex. They take time. And the one thing you don't want to do is create some sort of race. What you do want to do is put products in the markets we're in around the world. And I don't think there's anyone with a more comprehensive land bank than we have globally quite frankly. If I have, I haven't seen one. And so if we put products into these markets and we consistently do it in line with the demand because we've got to keep an eye on demand, particularly around the cloud and the growth of the cloud, which is primarily where the product is being targeted in those metro areas, we'll just keep working through it. But it's going to be a very, very big stable piece of infrastructure staple for Goodman over a very, very long period of time, and we'll accelerate where we can. But the reason we're raising capital today is to make sure that we can be really prudent, really sensible. Like I said earlier, there is a lot of debt going into some of these SPVs and structures around the world, which is not the way we want to play it. And we're just making sure we're well capitalized to take on an infrastructure program, which is significant. And you can multiply what we're talking about over, $10 billion for 500, you can multiply that out to the 5 gig, and it's a big number, right? So we're very conscious of that. And the customers we're dealing around the world with this product are the biggest companies in the world. So yes, you want money. You want to be careful, and you want to do it right.

The only thing I would add, though, Tom, is that with the additional capital and the growth in the balance sheet over the next few years, we will have the capacity to do more than the 0.5. So I wouldn't necessarily straight line that as a run rate either.

Yes. No, that's clear. And then maybe just a final one for me. The comments in the outlook around the industrial portfolio and customer demand being moderate, I mean, I think that's fairly consistent with where we were 6 months ago. I'd just be interested in any shifts you've seen more recently there and what you're seeing across your more traditional core logistics portfolio.

Congratulations, Tom, first industrial -- yes, first industrial question, so you get a prize. Look, I think it's moderate -- it's stabilized in most markets. It's starting to -- demand is starting to improve. U.S., there is more confidence in -- around the customers in the last month or 2 than there would have been last year, as everyone's sort of trying to work out where the economy is moving to. Europe, I've got to say, is pretty flat, and we don't see any green shoots in Europe. I think there's a lot of -- not so much cyclical but almost structural issues there. So I think industrial is going to be difficult there for a while. In Australia, actually pretty strong site, particularly in Sydney and Brisbane at the moment, got some really, really strong demand. So I think industrial, you will find more surprise on the upside as we move forward with some big pre-commitments and things we're doing. And I think the U.S., Japan, we've got a couple of really, really good projects and sites, which we're putting together at the moment, which will go well, and certainly down in Australia. But look, expect Europe to be a little a little flat, and that's in line with what you're seeing with the economy over there at the moment and some of the issues they have.

I would now like to turn the call back to management for closing.

Yes. Thank you very much.

Thanks, everybody. Have a good day.

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines.