Goodman Group (GMGSF) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Goodman Group Q1 FY '26 Quarterly Operational Update. [Operator Instructions] On the call today, we have Mr. Greg Goodman, CEO; and Mr. Nick Vrondas, CFO. I would now like to hand the conference over to Mr. Greg Goodman. Please go ahead.

Yes. Thank you very much and good morning, everyone. Goodman is progressing a range of logistics and data center opportunities as customers increase their capital expenditure on technology and infrastructure, is driving our development workbook, which sits at $12.4 billion, but is importantly forecast to be greater than $17.5 billion by June 2026. This is largely due to the significant data center projects we're building in key markets around the world, Sydney, Tokyo, Hong Kong, Paris, Amsterdam and Los Angeles. Currently, data centers make up 68% of our work in progress, and it's expected to grow to more than 75% by June. Our sites are predominantly located in supply-constrained metropolitan markets. We are focused on speed to market, commencing construction and activating sites to provide delivery certainty for our hyperscaler customers. Over the period, we have advanced planning and site works across projects globally, including commencing infrastructure, grid connections and groundworks. This is to enable approximately 500 megawatts of data center projects, which are activating the first stage of 1.8 gigawatts. We have a flexible design, commercial approach that covers a range of deployment options, from powered shell to fully fitted facilities, which also may include the operations where required. Goodman has an active regional capital partnering program alongside the development workbook. We're progressing capital partnerships, specifically for data centers in Europe, and also Australia. Our logistics customers are focused on significant capital investment in AI and robotic technology to drive automation and productivity gains. We're seeing this particularly with large-scale customers. And as a result, we're likely to continue to see consolidation across the sector into larger, more advanced facilities in prime locations. The property fundamentals for our logistics portfolio are robust in most of our markets, supported by low vacancy rates, continued positive rental growth and limited new supply. The group is also progressing a number of acquisitions of multipurpose sites. The recent Silicon Valley purchase is a good example where we have data centers sitting alongside warehouse facilities. I'll now hand over to Nick for a few comments.

Yes. Thanks, Greg. Just a couple of things. I just wanted to confirm that the capital management strategy that we outlined in February this year remains the same. The wholly owned data center commencements to June '26, along with those which are already in partnerships can be funded through to completion of Stage 1 MEP if needed because we have significant liquidity and very low gearing and that will take us through to FY '28. Our plan, though, is to partner all these developments with institutional investors in our usual way. And this will enable us to advance our development activities and maintain our capital management position in line with our financial risk management policy objectives. We're advancing the predevelopment work on these sites that have not yet commenced, which is adding significant value at the moment. Once we start vertical construction and the new partnerships are formed, we can begin to recognize income. And whilst it's still possible that this begins to occur this half, we're expecting the Australian and European ones in the second half and the North American one is not planned for FY '26. And that's all I wanted to add at this stage. Thanks, Greg.

Thanks, Nick. In closing, I'd like to confirm our target to deliver operating EPS growth of 9% for FY '26, which equates to over $2.6 billion of operating profit. I'm very happy now to go to questions.

[Operator Instructions]Your first question today comes from Kane Hannan with Goldman Sachs.

Two questions. Just starting with guidance again, just that second half earnings skew with that development timing. Just a sense of sort of what magnitude of skew you're looking for, whether the first half is tracking much below that high single digit or the 9% growth as a starting point?

Kane, so yes, I think we're probably talking somewhere in the order of $200 to $300 million. So full year targets, $2.6 billion and change in terms of operating profit, first half in and around $1 billion operating profit is currently what we're expecting.

Yes. That's helpful. And just on the data center side of things, good to see the secured power ticking up. Just talk a little bit about your AI factory sort of strategy, just given what we've been seeing across the globe effectively, just how they fit within your planning, your partnerships and the like.

Yes. I don't think we're planning too many factories. We are probably going to be doing some of that infrastructure. I don't think we're a natural owner of it. What you've got on the page today is world-class metro. That's cloud-based. It's right in the hitting zone of the hyperscalers and negotiations on that 500 megawatts of space we're producing and have already started a lot of it is good. So this is our natural habitat. It's around the big cities of the world. It's the stuff that we need every day. Now if we do some big campuses around the world, we'll call them out when we do them. There will be a big announcement and a lot of noise and a lot of gigawatts, but this stuff is really, really valuable. This is the stuff our partners want. This is the stuff that we want to own a portion of ourselves. And this is our next 10 years building this stuff for the market, which is your garden variety cloud operations, which is what we're all about.

Your next question comes from James Druce with CLSA.

Just looking at the secured power, there's a pretty big jump to 3.4 gigawatts. Can you just talk to the major drivers of that? Is that more Tokyo going into that secured power bucket? And can you provide a bit of color on the delivery of that power, please?

Yes. Look, it's just the fact that we started Tokyo. So it's just the fact that it's started and now it's all locked in and we're moving on. There's nothing really else to say about that.

Okay. And just an update maybe just on the funds management side. I mean, you are raising some capital across the globe really at the moment. Can you provide any color on the progress of that? Or you just want to wait until it's done?

Look, the progress is good. I think that's a '26 discussion, but we're in the process. And I've got to say, if you look at that list, which we provided you on Slide 4, that is some of the top, if not the top locations outside the U.S. through Europe, in particular, and Tokyo and Australia. They're the top locations around the world for primarily cloud data center around those big cities. You can imagine that investors are pretty excited about that.

An. Okay. And one more, if I may. Do we have a kind of run rate now for industrial development starts like starts have been a little bit subdued for a couple of halves now. How do we think about the run rate going forward?

Yes. Look, I think for the rest of '26 or going into '26, I think we're positioning ourselves around good sites and good pieces of infrastructure for industrial. Some of that industrial will actually coexist with data center, and we're seeing a fair bit of that actually at the moment in the U.S., which we're spending a lot of time on that plan and on that strategy, particularly. But we have some big inquiries coming through now, which will be more of a '27, '28. And I was chatting to Steph yesterday, actually, she's the Head of Industrial for New South Wales. And we've got some big inquiries for Western Sydney, but they're 60,000, 70,000, 80,000 meter buildings. They've got -- it's all about the tech going in them. It's about consolidation. It's about driving productivity. And this is a theme we've been talking about for a while around the world. That is going to be our main -- that's going to be our main menu on that. So consolidation, productivity, big infrastructure going into these. And just as also a bit of a shout out to our Tokyo team, we've just finished 130,000 meters in Tokyo. That's now, I think, just gone through 90% leased, and that's been a big effort over the last 12 months. So we are actually leasing big chunks of space around the world, but look to us to be doing the larger, bigger infrastructure plays around industrial, where we're adding in the infrastructure, the power, the things you need if you want to run fully automated basically peopleless warehouses, dark warehouses, that's the future.

Your next question comes from Simon Chan with Morgan Stanley.

I was just wondering, in your prepared remarks, you talked about how much work is being done. How come commencement was only $300 million according to the table in Slide 2?

Yes, Simon. So the starts on the list of projects that we've got on the page there, that's the thick end of the starts for the year. And what we're saying is that they start going vertical either towards the end of this year or into the second half of the financial year, and that's when you really kick in. And I think it's sort of -- if it backs on to James Druce's question, just what we told everyone, we've been saying for about a year or 2 now is that we're going through this transition. So we firstly, in response to market conditions. But secondly, and more importantly, as we've reconsidered and reorientated our available sites, we've been replanning, restrategizing, converting stuff into industrial, so getting the power, getting the planning, getting them ready -- converting, sorry, to data centers or more intense use industrial. And that doesn't happen overnight. So we're going through this transition, and this is why we said that the actual WIP balance may be a little bit volatile, but the general trend is up. And so you will see some very significant commencements through to December and probably more significantly through the second half through to June. So there's a problem with 1 quarter of observations. It's kind of a small sample.

I mean I saw a video recently of the substation going into Frankfurt. So that doesn't warrant -- that's not a milestone that triggers WIP?

No, no, no. No, no. So that's kind of land development, the above ground WIP won't go in until we start going vertical.

Yes, which means yes, we've led the contract. We're buying the lead items and the thing is being built as well. And you've got to be careful of what you hear around the market at the moment. There's a lot of comments about data centers in the space globally. There's global exaggeration to the extreme. You need RFS states. You need to sit down with the hyperscaler and go your first 12.5 meg is beginning at '27. If you can't say that, keep your trap shut and don't say anything at all.

Okay. Fair enough. Greg, I think you mentioned about the Europe, Australia this year and North America is not going to be a 2026 story. What's happening there? Like was Vernon ever going to go in? Or were you always going to just turf Vernon once you've built it? Because that one would be one of the more advanced ones in terms of what it's topped out, right? So what's happening in North America?

Simon, it's Nick. I think the comment you're referring to, I think, was the one I made around the timing of the formation of a partnership, a development partnership.

Yes, sorry. It was you, yes.

Yes. So -- and the reason for that is we're very advanced stages or we're in sort of heavy negotiations at the moment as to how we might take that forward around and what the design is, who the customer will be and how it's operated. And so we want to kind of land that first before we start offering partners the opportunity to join us in that. So that's why we're saying we're not expecting it to happen this half. Now in terms of physical work, if you look -- you can see online, I mean, it's topped out. LAX01 is topped out and now we're going to the next stage. So we're sort of just fine-tuning the last bits of the design and the operating structure.

Yes. And there's other plots in the area, as you know. And just to add to that, there's some pretty significant sites we believe we'll be buying in the U.S. over the next 6 months or so. Now you've seen one in Palo Alto with some industrial and data center. There's others like that, which should fit right into our strategy about creating the infrastructure and the power for these things to happen. So that San Jose site in Palo Alto is actually a really, really good opportunity for us around light industrial, a couple of data centers as well. That fits into our plan. We've got a number of those in the U.S. at the moment. So we're using balance sheet. We'll use balance sheet. We've got the 2 partnerships we've created until we're ready, and then we'll bring in some capital. But the I think to Nick's point, the focus at the moment is Europe and Australia, which are the thick end of what's on that list we gave you on Slide 4.

Your next question comes from Cody Shield with UBS.

I just wanted to pick up on some of the comments around those multiuse sites, some of those larger projects. You've spoken to the past about not wanting to mix the industrial and DC risk and return. So what approach would you take to kind of partnering on some of those larger sites?

It's pretty straightforward. You cut off the industrial, you cut off the data centers. We're doing that at the moment and just have a different investor profile, return profile and to your point, risk profile. Capital spend is very different, timetable to completion is different. Yes, you split them. And there's a couple we're looking at the moment where there might be 100 on the end and there's a few hundred thousand meters of industrial just you split them.

Your next question comes from Solomon Zhang with JPMorgan.

I might just follow up on Simon's question just on the data center starts. When you identified the $13 billion of starts, the 500 megawatts by June '26, can you confirm how much of that $13 billion has been -- is currently in WIP at the moment or has already started?