Goodman Group (GMG) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to Goodman Q3 FY '26 Operational Update. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Greg Goodman, CEO. Please go ahead.

Thank you. Good morning, everyone. Today, we're going to spend some time going through our strategy. I'll also go through progress on development and leasing across some of our key industrial and data center projects around the world. Then Nick will then cover capital management and our forecast earnings for the 2026 financial year. We are in the early stages of the most significant technological transition of the 21st century. Goodman is a global provider of the physical infrastructure that makes this possible. AI adoption is accelerating and compute capacity remains constrained. Demand is concentrating into metro markets where inferencing workloads require approximately to end users. Energy availability is the most significant constraint to delivering the required infrastructure. In addition, the scale of data center investment required to meet global industry demand is likely to exceed the current funding capacity of global capital markets. As a result, the gap between demand and supply is expected to widen. Consumer and business expectations are driving a structural shift in the supply chain. Robotics and automation accelerated by AI are being adopted at great pace. Goodman Group has progressively repositioned its portfolio towards large-scale industrial and data center infrastructure. Across both asset classes, the focus remains on creating a portfolio to meet our customers' evolving requirements. Goodman's strategy is clear. Our portfolio is concentrated in prime urban infill locations and low latency metro markets to cater to the respective needs of our logistics and data center customers. These are locations where demand is most durable and assets are becoming hard to replicate. The scale of land required, the complexity of approvals and the power procurement and the capital needed to execute increasingly favor a small number of groups. As a result, the barriers to entry are getting higher. Our focus is on industrial properties capable of supporting full automation and robotics, where customers invest significant capital alongside Goodman. In data centers, we offer a range of deployment models from powered shelves to fully fitted assets with operations when we are required. The development pipeline remains a primary source of value creation and growth, driven by the strength of our property locations and facilitated by our integrated capability across land, planning, power, design, construction and leasing. We have continued to execute our development program and expect work in progress to be around $18 billion by June 2026. The industrial projects on Slides 3 and 4 show the scale of the development sites we've secured. These projects offer the infrastructure, our customers need to support increasing levels of automation and operational efficiency. Together, they have an expected value on completion of more than $18 billion. We're also executing our data center strategy with development projects underway and capital partnerships in place to deliver at scale globally. During the quarter, our global power bank increased to 6.4 gigawatts, primarily driven by an increase in Australia. Now as shown on Slide 6 to 9, we are progressing construction. We are securing capital, and we're advancing leasing across our data center projects globally. The scale of our data center development program is significant, supported by our financial position and access to capital. We've established a range of data center investment vehicles with our capital partners. And very importantly, 90% of these projects depicted on Slide 6 sit within these partnerships. Commercial terms with customers are well advanced across a number of projects globally with negotiations progressing in parallel with -- importantly, construction. Deployments will range from 100 to 250 megawatts IT for individual buildings and campus scale deployments. We also expect to secure a number of contracted commitments across the remainder of this calendar year. I'll now hand over to Nick for a few comments on capital management and earnings.

Yes. Thanks, Greg. First on the capital side, I just want to put our recent financing activities in context. Our capital management strategy and financial risk management policies are customized for our business, near some of the key considerations we're solving for. We are a long-term investor, so the long-term funding makes sense for asset liability duration. There's a large development pipeline, so low gearing, strong liquidity buffers and co-investing in partnerships are all desirable. We operate in many countries, so match currency denomination and access to a wide variety of global markets makes sense, and we'd like to limit the impacts of interest rate volatility, so we take on fixed rate debt or put hedges in place. With these considerations in mind, our retained earnings allow us to fund our share of the long-term holdings in the assets we're developing without excessive reliance on debt. Over the next 5 years, you can see a scenario will raise over $10 billion through retained earnings. That said, long-term debt funding arrangements can also be used proportionately alongside retained earnings without exceeding our desired gearing parameters. We just raised $2.7 billion in debt, mainly in 7-, 10- and 20-year bonds and some bank loans for the group. This has added to our cash holdings and undrawn credit lines. We now have cash and bank facilities that match our development working capital needs and then we have equity and long-term debt to match our long-term holdings. Since the equity raising of last year, we kicked off several DC projects as expected. We then brought in outside equity from partners and have executed a substantial amount of debt in partnerships for maturity extensions and growth. This has given us capacity to start more projects. With the current funding plan and strategy, we can create a significant volume of assets in the coming 5 years and maintain appropriate levels of liquidity and gearing. We're staying ahead of the capital needs of our development program and actively managing our debt maturities. With regard to our earnings, our target of 9% EPS growth will be achieved as a minimum. The investment portfolio has performed in line with expectations and sufficient transactions necessary to achieve the target are now contracted. We'll go through the drivers in detail with the full year results. And that's all for now. Thanks, Greg.

Thanks, Nick. Now just in closing before we go to questions. Goodman remains focused on execution. In the data center space, as Nick has described, we have the capital in place. We have the construction progressing, and you've got some good slides on that in the pack today. And we're now in the customer phase, which we've talked about advancing the leasing negotiations through to the end of this calendar year. Importantly, though, on the logistics side, there's clearly a large opportunity to build into the need for more automation and robotics, so our customers can optimize these operations. You're going to see more billion-dollar warehouses coming from Goodman's pipeline. I can also confirm that the group set a target of 9% operating EPS growth for FY '26. We're currently on track to deliver at least this level of minimum performance. So I thank you, and we can now talk and go to questions.

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

First question relates to your 9% growth. And you said there was a fair bit of conviction there, Nick, about 9% EPS growth will be achieved as a minimum. Can you just give me some in? So what are some of those items that could take it above 9% net?

Yes. So Simon, look, things like, for example, performance fees, subject to the final valuation outcomes. So we've put in an allowance for something that we think is very achievable, but that can move a little bit. Things like calculation of percentage of completion. So you got to do a reconciliation, cash flow timing can impact percentage of completion, for example, in terms of revenue recognition and cash flow timing for the transactions can impact as well. So yes, there are still a few moving parts. And so we just need to land some of those before we come out with the final position.

I think the other thing, Chan, is well, it won't be lost a new global volatility. So there's an element of prudence in everything we're seeing today because the world is a little bit of a different place today than it was maybe 12 months ago. So I think volatility, that is cost in time, right, we're seeing around the world. So we're very careful and mindful of not overplaying our hand either. I'm trying to give a few very, very good basis for you're -- for what you're doing with your analysis. I think that's what we're doing.

CPs for Europe/Paris, et cetera, are they all sorted there?

Yes. That's all closed.

You'll see from our nice picture pack, I hopefully enjoy reading that tonight at home. But we've send you some nice photos. And you'll see that the substations, transformers work going on. Those substations going in because power has been connected and contracts are being let, and buildings are in process of going up around the world. So that program is in place which, once again, over the last 6 months, I won't say it's not challenging around the world around power. It's also very challenging around construction and contracting. Costs need to be under control. And all those things being managed pretty effectively globally, but in difficult circumstances, as you would appreciate.

So is your CapEx program like -- what percentage of your CapEx program where you have a cost locked in? Or have you had to deal with contracts coming to you asking you for more money over the last few months?

Look, it's mainly been around the long lead items. We've been very careful. We've been careful of big escalations and big escalators in trying to lock as much down as early as you can. And we've done that, Channy. So the reason we are building into the demand, which the demand is very strong around the world. The reason we're building into it is that we can actually get certainty in cost and time and space. So we give someone our RFS data of '28, we can hit it, and we don't expose ourselves to risks at the back end, right? So we spent a lot of time in the next last 6 months getting these in order. And as you will see from a number of the photos tell a thousand words, things are in progress. They're going up. Contracts are locked in, and we're very comfortable we've achieved some very good results on this first round of program that's coming out of the ground.

Just 1 more from me, and I'll let someone else have a go. I don't want to sound abrupt, Greg, but why is it taking so long to get customer contracts? Like what's been the most contentious points you reckon? Are you are argy-barging over rents or duration?

No, no, no. No, it's a few states. We need to be in the slot. So we know what we're building, what it's going to cost us. It's fully to do a deal lockdown on rent before you know how much it's going to cost you to build it. And I think you'd know that, right? So we're just being very careful, very cautious. We've got a good book of demand, some of that demand is actually in documentation with lawyers and agreements being lawyered around the world. This is a big program. We've got some demand that wants 200-megawatt programs. There is a number of customers that are actually in diligence now on the buildings and what they want out of the building. So there's some redesign for certain customers that may want certain configurations. So no, I think we are exactly where we want to be. But importantly, if you've got an RFS date of 2028, you want to be leasing that into the end of '26 into '27. There are not too many customers running around for 40 megawatts, 50 megawatts, which is the size we're putting into the market pretty well around our different complexes on average. They want to know -- you're hitting that date, they're not taking '29 orders. So it's working together very, very well. And as we programmed it, I think capital was #1, right? I think Nick's been through that. Construction is #2. We've got that locked down. Customers is #3. That is the point we're at. Then after we've got customers, we will have to sit down and look at the terminal values of these as well. So that will be #4. So we're right where we want to be.

Yes. And I think just again, putting it in context, and I think we talked about this before, but first potential billing dates for LAX's Q1 next year, earliest. So at the moment, we actually can't bill anything. And then it goes from there, right? So European projects, earliest is late 2026, early 2027, and it goes back from there. So just sort of keep that in mind.

Next, we have James Druce from CLSA.

Just first question around the $18 billion of WIP that you're targeting for the end of FY '26, you're at $14 billion today. Can we just talk about the ins and outs that you're thinking about in the last quarter? It looks like the Paris assets, a couple of them, but just a bit more color, please?

Yes. Look, data set driven, I think is the reality. And that's just about property being contracted, final contracting and work in progress. It's really that simple. There'll be a bit of industrial as well. And then Nick, I think we've got a really good industrial pipeline, which we don't talk much about these -- on these calls, but that's world class. And I just go to the locations on what we're building around the data centers around the world, we have a good look at those locations. That's as good as it gets, right? With or without -- with speaking with humility, but that's as good as it gets.

Yes, James, and I think we've -- you can see the list of the projects on the data center slide, which we're expecting to commence. It's all detailed there. That's the thick end of what's going to get us there.

Yes. Okay. And just a follow-up. I think it's on maybe Channy's question. Have you got the general contractors locked in for Paris 1 and 2 now? Is that all sort of signed and dust had settled?

Yes. We've got all preworks done. We've contracted all those and the main contractors in Europe have been over lockdown or being locked down and have been in the main negotiated. That's similar to, obviously, Australia, you can see that's going up. We're in there. Obviously, LAX is well, well advanced. And the inquiry around that building is great from high scalers to primarily wholesale, wholesale and enterprise. So that's going really well. And Tokyo, yet, that's on the way. And you can see the photo there of that moving through, that's contracted. Now that's contract in Tokyo as we're working with customers, right? So we're building in, once again starting earthworks and shelves working into the customer demand. So we know what they want, but to save time and to make sure that we have an RFS date at the end we can hit ready for service, we're advancing these things. So we take the risk out of the back end, and I can't emphasize that enough, right? So the last thing we'd want to do is make a big announcement about a big customer commitment and then have loosey-goosey at the back end of it. And effectively, you'll end up making no money. That is not what we're in this business for.

Yes. Okay. And 1 more, if I may. Around the world, so you're starting to see some sort of stabilized funds being created for data centers. The Australian partnership that you're trying to create, do you think that's going to be -- can you share a bit of color about the nature of that? Is that going to be more in line with the CPPIB sort of partnership that you created? Or will it be something a little bit different?

Yes, it would be very similar to Europe. We're in final negotiations with partners on that at the moment. There is a pipeline as well that some of the big partners around the world want. So we just effectively looking at the pipeline in Australia. So apart from a time, there's a desire to do more. So if we're taking our time on it, that is the reason because it will probably have some opportunities to do more with us, particularly in Melbourne and a big site we've also got in Sydney. So yes, it's -- but that's going well. So I've got to say the partnership process around the world led by the teams globally and also Nick here has gone incredibly well, and we're offering really good products. It's people we know very well that basically want to have the development risk. And at the end of that period, once it's stabilized, then we'll go into long-term holdcos which is more the theme, I think you'll see that the guys in the U.S. are doing in New York Exchange at the moment or they've raised some capital for. So you'll see holdcos become a pretty dominant feature the next 2 or 3 years is a lot of these data centers are completed. And then they're exited into long-term holding vehicles for investors globally.

Next, we have a Cody Shield from UBS.

I just wanted to draw out on Channy's question on costs further. I mean you're saying locking those down, what's the direction of travel for development yields, call it, over the next 12 to 18 months?

Look, on data centers, we're low depending on where it is, 9, all the way through to 11 and potentially more if you're knocking the buildings down into smaller floor-by-floor type arrangements or half floors. So look, it's in good, Nick. The book is looking good. Really important -- I know I've got to emphasize it again on this call, really important dock it down at the beginning, your cost down at the beginning and don't leave the tail waving at the end, 9 year ready for service date, right? You'll get in all sorts of trouble. And I don't think hyperscalers will be too friendly if you don't deliver on time.

And then just for the logistics business?

Look, logistics is good, but it's all about -- it's actually all about big warehouses. It's all about robotics, robotics with AI, the Agentic systems. That's the future of logistics, people as warehouses, things of that nature. And we are really moving hard into that sector. These asset rotation we're doing as well to create more capital in the industrial partnerships to keep moving hard into big modern contemporary powered sites around the world. And we put a splash on the page here today, which hopefully you guys can read at your leisure, but they're great sites, and there will be all robotics going in those warehouses.

Okay. That's clear. Just turning to the Databank JV. Greg, you've spoken in the past about opportunities kind of emerging in the U.S. with some developers getting over their [ skis ]. How are you thinking about that JV and where it could progress to in the coming years?

Look, I think in the release, I'm only repeating what was in release, I think Rahul was saying, from data banking, I think we were saying as well or Anthony was saying, that's the start. There's actually other sites in that L.A. quarter. That actually tripled the size what we're doing now. So that's probably 150 megawatts gross partnership over time, hopefully. And then there'll be other things as well we're looking at in the U.S. as well, which could go into that joint venture, but that's a further discussion and negotiation on that. But that's the intent, yes. We like them. They're a good team, 1,000 people, 90 people -- 90 leasing people, good platform. So we like those guys.

[Operator Instructions] Next, we have Tom Bodor from Jarden.

I'm just interested in where you say the sustainable per annum cadence of putting projects into WIP from a data center perspective per year. I mean you've got roughly 500 megawatts going into production this year. Should we think of that as a kind of starting point for a sustainable run rate? Can you accelerate from there? Or do you think it will take longer given production challenges?

Well, I mean, we can give you a bit of guidance in the short term. I think after that, it's a little bit harder. But -- well, I mean, overall, we've got a potential pipeline of 6 gigawatts, some of that's already delivered and some of that's in WIP. But if you look at just the projects that are coming up, continuing phases in L.A., in Paris, Amsterdam, Frankfurt, Tokyo, you can see a similar sort of run rate in the short term. It's just following one foot after the other, and that's very achievable, fundable. And so comfortable with that. What happens after that? We'll aim to continue to do that. We've got a lot of work we can do, how quickly we do it will depend on a whole bunch of parameters, but we have the capacity and capability to continue this kind of run rate for quite some years.

Because I'm just looking at your overall power bank and it's, call it, 10, 11 years at the current run rate, is that the right way to think about it?

Yes.

Okay. And then just on the sort of discussions with customers across a lot of your projects, the way that you've framed it is discussions with multiple customers. In some cases, you talk about cold facility, top arrangements, but just the change to understand at what point do you go exclusive with the customer, particularly when you're doing design work on a particular side? And I guess, when will we see those convert to leases?

Yes. We're exclusive with the number. We're under a lot of NDAs, and we can't talk about them through those programs. So we're already in that stage. Discussions is probably not the correct descriptor, it's negotiations and finalization is where we're at. The discussions that we're having on, for example, in Melbourne, we've got a big site in Melbourne. I think it's going to end up being a gigawatt of power, which is going to be the Australian significant, there's discussions going on there because we're locking down power. But where we've locked down the power on the project on the page are in negotiation.

Next, we have Richard Jones from JPMorgan.

Just wanted to clarify which projects -- I know it was sort of a question asked earlier, but just which projects are not in WIP that we're going with in the next 6 weeks?

The ones that are on the page, I think we've told you what's in and what's not on -- there's no page number here, but it says data centers at the top and projects. So everything that's not in WIP, we expect to be in WIP.

Okay. And just in terms of the negotiations with the customers, which specific projects would you expect to see formalized leases in calendar '26? You're able to step through 3 or 4 most perspective?

Look, we're under NDAs, all sorts of constraints, exclusive of the arrangements on sites. So I'm not going to pick them out for you. All I would say is there's a body of work going on around that 328-megawatt IT list, which is very, very good. What we're doing is negotiating outcomes for our investors that we think are representative of the risk we're taking and the outcomes we need right? So we're not rushing. We're sensible. We're getting risk out of the back end. And I can't overemphasize that, that risk at the back end in the last 6 months is a lot higher than it would have been even 12 months ago. So we're really making sure that we get this right. To get it right, we need to be building the right building in the right locations, but you need to have your costs locked down and you need to be able to deliver. Otherwise, don't open your mouth, yes? So we're in that process. A lot of it is highly sensitive, quite frankly. And effectively, even when we do, do the -- if we do lease some of the buildings, you'll know their leased to a hyperscaler, but there are a lot of names you won't even be able to talk about, right? And you know how that works.

Yes. Okay. And then finally, just on Moorabbin Airport, is that project sold and settled? And is that going to be a material contributor to profit in FY '26?

I've never said anything about it. I think the press have run a few articles on it. Obviously, there's some work being done on it. But yes, look, I can't really make any comment about that. Because I don't -- we haven't comment -- but it hasn't sold and settled. That's -- we can definitely say that.

Next, we have a Callum Bramah from Macquarie.

Just a couple for me. Just going back to the production rate. So I think at the moment, it's 2.4 years, Nick, and were you confirming that, that is roughly what it will stay out? Or are you expecting that to move out over time?