Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Goodman Group (GMGSF, Financial) reported a strong operating profit of over $2 billion for FY24, with operating earnings per security up 14% from the previous year.
- The company has a significant focus on logistics and data center opportunities in key cities, where barriers to entry are high and supply is limited.
- Goodman Group (GMGSF) has expanded its global power bank to 5 gigawatts, with 2.5 gigawatts of secured power already in place.
- The company is actively embracing sustainability, investing in renewable power, low carbon materials, and contributing $13.5 million through the Goodman Foundation.
- Goodman Group (GMGSF) has maintained a robust development workbook of $13 billion, with data centers comprising 40% of this portfolio.
Negative Points
- FX movements had a $40 million positive impact on the translation of foreign-denominated operating results, but this was offset by a commensurate expense in borrowing costs.
- Direct property net rental income decreased due to $1.2 billion of net divestments over the past 24 months.
- The valuation declines in FX translation were offset by net acquisitions and the completion of development, indicating some volatility in asset values.
- The timing of revenue recognition for development projects has been extended into future years, potentially affecting short-term earnings.
- The data center industry faces significant barriers to entry, including land scarcity, complex planning, regulatory hurdles, and challenges in securing power, which could impact project timelines and costs.
Q & A Highlights
Goodman Group (GMGSF) FY24 Earnings Call Highlights
Q: Just was interested in Nick's comment around the sale of the Goodman management right 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] that you sold it for. So I was just wondering how that will play out over the next couple of years.
A: (Nick Vrondas, CFO) The combined effect of those two is actually its 10 years over which time it will roll out. That's roughly the phasing of continued support obligations and the cost plan associated with that. So yeah, it's going to be over a prolonged period.
Q: Does that imply minimal per annum earnings from here?
A: (Nick Vrondas, CFO) Yes.
Q: And then just a question, I guess, around the data center pace. I'd be interested in understanding what the key constraints in getting those projects into the WIP currently? Is it more around planning or the time taken dealing with counterparties like the hyperscalers that's holding you back from saying that WIP number ramp-up?
A: (Gregory Goodman, CEO) I don't think is anything holding us back. I think we just doing the job properly. The major work you've got to do officially got 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 out substation in Europe EUR75 million for a site to unlock 150 megawatts. That's another scenario you got to work through. And then thirdly, you do need to work through the planning regime and a number of these buildings are multistory. Most, we've got planar multistory three, four levels and effectively high controls neighborhoods. Bear in mind, most of our stuff in the 5 gigawatt is our Metropolitan or in around cities primary data not in the (inaudible). So yes, it's all those things you've got to contend with. And the -- when we talk about barriers to entry, it's money, its land, its people, it's -- and then it comes down to capital as well because if you're doing full turnkey, these things are beginning to thrive, 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.
Q: Can I take you guys to slide 36. Just the yield on cost on commencement there, 7.5% certainly looks impressive. But if I go back to the third quarter, if I go back to the third quarter update, you had kicked off about $3.7 billion of commencements at 7% yield on cost. Mathematically, this implies that whatever you kicked off in the last quarter in the fourth quarter 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 projects you are kicking off?
A: (Gregory Goodman, CEO) Yeah. Look, I'll kick it over to Nick, but look in a minute, but I think we've been pretty clear. I think it's pretty clear around the marketplace that data centers are above where with regard to the cash cost above where we are with industrial, and that's because of time we are complex of the renewals, which also represents need more margin because you have actually more time 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, how we might be six unless it's got a seven handle in front of it anyway. So we're just tightening things up. We've got a bit of a run off of the very, very low interest rate regime where the feasibilities probably made sense at six, seven times and what have you, but we will not get out of bed for industrial project, bearing in mind the ones we are doing a 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 industrial, you should see all have sevens 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 they're bigger, they're more complex, and there's more risk.
Q: So just to take a step further the $5.2 billion of commencements, I appreciate you said 40% of you 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?
A: (Gregory Goodman, CEO) Yeah, there's a few data centers in. The Japan skew, though, is the big coming out at lower top lines. But then I go at it a lot of bottom line so there are exits probably anywhere between 3.8 and 4, something like that. But yeah, you'll see moving forward there is about 1.6 gigawatts, effectively 1,600 megawatts of sites that we've actually getting ready to go. So over the next two years, you see a lot of data center starts coming through and they are in different stage negotiating with customers right now. Effectively, we are spending many hundreds of millions of dollars on activating all those sites. The EUR75 million I used before on a French format is just one part of the equation on one side and we are energizing them. We are 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 will still be doing industrial, but it would be very easy to see data centers go wide through 50% of the work in progress. Work in progress number, I think China will be bigger is the reality of the size and scale of these things so ultimately, we'll bigger.
Q: Have you gone -- have you got 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?
A: (Gregory Goodman, CEO) Yeah. (technical difficulty) you the turnkey is a really good way of getting to market more quickly. I think you save money rather than doing in two phases. So I think there's a lot of opportunity to do that will depend a little bit on the site where it is if there are, 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 the next 12 months, 300 megawatt sites and things of that nature that might be a
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
