Good day. Thank you for standing by. Welcome to the Goodman Group Q3 FY 2021 quarterly operational update conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, you will need to press star and one on your telephone. If you require any further assistance, please press star and zero. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Gregory Goodman, CEO of Goodman Group. Thank you. Please go ahead. Yeah, thank you very much. Good morning, welcome to our quarterly operational update. I've got Nick Reeves with me on the call. We have produced another strong quarter as we continue to deploy capital into our growing development pipeline, particularly through multi-story projects or where we can intensify existing urban locations. This has seen our development workbook increase to AUD 9.6 billion, which is likely to grow further by June 30. Changing consumer habits across the physical and digital space is fundamentally increasing demand for our property around the world. We believe this will continue over the medium to long term. Customers are wanting more automation, higher speed to market, greater resilience in their supply chains. We're well-positioned to support the structural demands we're witnessing around the world. These trends are underpinning high levels of utilization and new space requirements, delivering importantly sustainable cash flows, which is reflected in our occupancy at 98% and like-for-like rental growth of 3.3%. This strong performance is a result of our deliberate strategy of owning assets in markets where barriers to entry are high, supply is limited, and demand is robust. We are very active around the world in developing sustainable world-class assets for the long term. The volume and scale of our projects continue to increase, with approximately 60% of our development workbook now in multi-story development. We are very focused on the development of brownfield sites in urban infill locations. We also continue to acquire sites in line with customer demand. We're actively working with planning authorities on the highest use of existing land and buildings built across our business to support future development growth. A significant portion of the development is expected to be retained in our partnerships. Assets under management have increased to AUD 53 billion, driven by growth and development, positive revaluations, strong cash flows, and continued high occupancy. Collectively with our customers and individually, we are working diligently towards carbon-neutral buildings and decarbonizing our development projects. We are focused on long-term sustainable approach that leads to positive economic, environmental, and social outcomes for our business, our stakeholders, and the world more broadly. We also believe that reducing our carbon footprint in the construction process is a critical part of this solution. This includes the impact of steel, concrete, and other emissions. We're very well positioned operationally and financially with significant liquidity and low gearing. On that basis, we can confirm, reaffirm our earnings guidance coming into June with a FY 2021 operating profit of AUD 1.2 billion, representing earnings per share growth of 12% on the prior year. Finally, I'd like to thank all the Goodman people around the world for a really strong performance operationally in sometimes very difficult circumstances globally. I thank them very much for their efforts. I thank you for the call, and we are now turning over to questions. Thank you so much. As a reminder, to ask a question, you will need to press star and one on your telephone. To withdraw your questions, please press the pound key or hash key. Please standby while we compile the Q&A roster. Again, it's a star and one on your telephone keypad. Again is star and one if you wish to ask a question. All right. Our first question comes from the line of Mr. Stuart McLean. Your line is now open. Good morning. My first question was just on the yield on commencements. On page three of the presentation, the yield there is 6.8%. I think it was 6.3% at the half year. Just what's grown, or sorry, what's changed to see that yield increase? Is it sustainable at 6.8% going forward? Yeah, good question. Look, there's a bit of geography in that. I think also we're bringing on a lot of sites online that we've been working on for four or five years. I think the 6.8% is reflective of that as well. Sites that, some of them I think would be five, probably even seven years in the making, which is very much what we do. What we're buying and doing today is probably for 2024, 2025. I think it's just reflective of the nature of what we're doing in very constrained environments. Primarily the infill and the high barrier to entry markets drive that number. Okay. Going into the yield that you're able to achieve on double story developments, for example, are they structurally higher yields, higher returning? I think what we do is just really difficult. To put it clearly, it's not a merchant developer type approach. We're in and out in nine months. This is years in the making. I think that's reflective of the difficulty, the time, the expertise, the people, the infrastructure required to do it. That's what it's reflective of. Providing we keep our discipline and we keep buying in the areas we want to buy, and developing through, I think you'll find that we can have some pretty good returns. Thank you. My second question is on the duration of build. Seems to have elongated by an additional month. Where do you think that duration will land over the next six to 12 months? Could we be talking about 24 months build time, or is that a little bit too long? Yeah. No, look, I think we're about where we're going to be. It might come back a little bit from where it is at the moment. Pretty much most of the starts coming in over the next 12 months. A lot of multi-story. I talked about that today, 60%. A lot of also refurbing old buildings into new facilities, particularly for parcel operators, with a lot of van-type parking and what have you. A lot of these projects now are complex in planning as well. You've got infrastructure around EV charging and things of that nature. All of it requires permitting and planning. In general, I think it's going to be at the longer end, but 19 is probably at the extreme end at the moment. Okay, thank you. A final question, just on underlying rental growth. Instar-owned portfolio went from 3% to 3.3%. What is driving that? Also, can you give an idea of rental growth that you are seeing in your infill locations globally? Yeah. Look, bear in mind we've got a global portfolio, so it ranges anywhere from 1% in Japan to 5% in the U.S. and anywhere in the middle. I think 3.3 is a good representation of the AUD 50-odd billion around the world we own. It's in that parameter, so it depends on where the weighting of assets are primarily. We're seeing good growth in the infill markets. In the markets we're developing, we're seeing short supply with demand that is pretty robust. Once again, it's going to the structural change of the digitalization we're seeing around the world. That is not reducing. It's actually increasing significantly. Over the last probably quarter, I would've had 30 customer calls with all our big customers around the world, and all of them need solutions. Without a word of doubt, all of them are growing and growing their footprints. They want more efficiency. They want to be faster to market. They want more automation. Importantly, also, they want sustainable features in the building. That's why today we're talking about going to carbon neutral builds. That means carbon neutral steel and concrete. We're doing some at the moment, and in the future periods, that'll be the standard for Goodman. Thank you. Thank you so much. Your next question comes from the line of Sholto Maconochie from Jefferies. Sholto, your line is now open. Thanks. Hi, Greg and team. Just to follow up some of Stu's questions. On the WIP, it went up across all regions, like the mix was broadly unchanged at the percentage it was split. Where's the demand? Is it coming from all the existing customers that you talked about already, or is there any incremental demand from different types of customers that you could elaborate on? Yeah. Look, it's fair to say, probably no surprise in the last half, there's been a big pharma increase, so pharmaceutical companies. There's no surprise. I expect that they need more infrastructure for the long term because I think everyone is going to be building redundancies into their supply chains, particularly in that sector. Generally speaking, across the board and very, very good growth. It is all about speed to market and convenience, and how you do it more cheaply. Also, everyone's conscious of the emissions coming out of trucks as well. Transport, effectively. That's a big problem for all our big customers around the world who take sustainability obviously very, very seriously, and they have their own targets and goals. That's an important thing to try and resolve for them as well. How we get transport times, get it into EVs quicker, more effectively. That's a big body of work we're doing with most of our big customers around the world, which is then leading to, you'll find some pretty robust development programs for us with our customers. Just sticking on the development side, you said WIP is expected to increase again in June. Do you have a level where you think it'll go to? I think you were saying over AUD 10 billion recently at last. Is that where that's going to land at June? Yeah, it'll land over 10. Yeah. I think in 2022, it gives you a good insight into 2022. Clearly on our development book is going to be strong and development margins are good. I think that gives you a lead into 2022. Just on that, if you've got AUD 16 billion of production, you annualize it to if you're doing circa AUD 10 billion, and it goes back down to 18 months, that implies around an annual production rate of AUD 6.6 billion. Is it so we should have for earnings recognition targets at a AUD 6 billion-AUD 7 billion as a circuit production run rate on the next sort of 12, 18 months? I think we've indicated six is a good number, so margins are good. I think six is probably a fair number. Yeah, I think with the AUD 10 billion, Sholto, the timing production doesn't go down immediately. Yeah. It'll stay around that level. It'll take a bit longer for it to go down back to 18 months overdue. Okay. Just switching gears onto the AUM. You mentioned in the release that there was a lot of existing regeneration and refurb of your existing book. Out of your total AUM, how much would you say is future development potential as a percentage of your book currently? Yeah. I'll give you a good example, and why don't we use one a bit closer to home because that probably will be easier for you to identify. In Australia, we've got assets knocking around June of about AUD 20 billion. There's about another AUD 10 billion of development in Australia over the next probably five, six years. That'll take it to around AUD 30 billion. A big portion of that is actually redeveloping what we already own. Particularly where I'm sitting here in South Sydney in Rosebery, we've got AUD 4 billion of assets within five minutes, 10 minutes of the office. That's another reason why we're down here, quite frankly. We've put ourselves amongst our sheds, which we think is a good place to be. Primarily, Australia is a really good example. Some of that is in land and sites we've got under due diligence at the moment and buying. A lot of that AUD 10 billion is in the regeneration and the reworking, remodeling of what we've got. Even on the front of the release today, we've got a multi-story that's actually in Newton Road we'll be kicking off planning very close. We've got one down the road as well, multi-story we'll be kicking off. I think, if you extrapolate that around the world, there's a similar thematic in regard to what we do. We are buying older buildings. We bought a few in the U.K. last year and beginning of this year that are probably good for redevelopment in five, six, seven years' time, give us cash in between. It's part of what we do and very much a part of the operating platform and strategy of Goodman specifically. Yeah. Sort of 40%-50% or thereabout based on that AUD 10 billion, depending on the level. Just finally on the revals, could you break out the change in sum? What was from asset sales, like-for-like growth, and those asset sales and acquisitions and any FX impact for the quarter? Sorry, Sholto, was that on the AUM growth? Yeah, what was the change- Yeah the asset sales- Yeah the acquisitions and FX on that and like-for-like sales? Yeah. Okay. FX is about AUD 300 million negative. Vals was about AUD 1 billion positive. Net acquisition is AUD 1 billion. AUD 1 billion. That helps. Yeah. Yeah. Acquisitions was AUD - 100. Okay. Perfect. Thanks very much for your time, guys. Thank you so much. Sorry. The other bit was the developments which added AUD 500. Sorry, just to round out that question. Sorry, continue. Thank you. Your next question comes from the line of Grant McCasker from UBS. Your line is open. Good morning, Greg and Nick. Just one question. If we look at the WIP or even the Goodman share, the WIP's essentially gone from AUD 1 billion to AUD 2 billion over the last 12 months. Is there anything different you need to do to maintain gearing levels? Should we expect gearing to increase going forward? The other option, are there incrementally new development partnerships that you'll be looking to undertake around the world? I think we've set the distribution policy very deliberately and very carefully. We've set that a number of years ago to cater for what we would see we were doing in regard to strategy around development and development start. We read it probably, Nicky, four or five years ago. That's when we started moving to more retention. I think you'll find that the retention of the earnings, the rotation of assets, some on the balance sheet, we've got AUD 1.8 billion on balance sheet. You'll see some of those rotators that come through their value add phases into partnerships, that you'll find that will cater for our needs around capital. Effectively gearing will be within the range that we've stated. You won't see an uptick in gearing. We don't see a company like Goodman with a big development book that is growing clearly. That levering up would make any sense at all. Yeah. I think, Grant, we did say, I think at the half year and I think probably every reporting period, that there are interim gyrations of working capital requirements between half years, where sometimes we're building up the WIP, and funding more of the WIP through to completion, particularly on pre-sold projects. That's not structural change in gearing. That's more come and go capital. I think Gregory's called out that the structural element is the distribution policy. The AUD 2 billion number that you're talking about, I'm not exactly sure where you get that from, but if you're extrapolating that from the AUD 6 billion production rate, you got to remember that the AUD 6 billion is the end value, not the cash cost, so the capital needs aren't AUD 2 billion. Okay. Excellent. Thanks, sir. Thanks, mate. Thank you. Your next question comes from the line of James Druce from CLSA. James, you may now ask your question. Yeah. Hi. Good morning, Greg. Good morning, Nick. Greg, just interested in some of your comments around multi-story in Sydney. You've got a stat in the quarterly talking about 60% of current WIP is multi-story. How do we think about that share over the medium term? Look, I think with Asia, obviously multi-story is the discipline that's used, certainly in China, certainly in Hong Kong, certainly in Japan. That's a big market for us. A very, very vibrant market and one that's going very successfully with a good team over there. I think if you extrapolate that through the numbers, and I think they are close to around 50% of the development book currently, multi-story will be a big number. It might be 50% some years, but it's certainly going to be up there. You will see more intensive use in places like Sydney, potentially in Melbourne, where land is moving in value. A block of land in South Sydney now is probably AUD 4,000 a meter if you want to knock a building off it. There's no fundamentally brand-new buildings coming out of the ground in South Sydney. No new space, effectively. We've just put a very good customer of ours into a reworked old-style warehouse for parcels and what have you. We need some contemporary space. The way you can make the economics work is through multi-story. There's some compromises. Obviously, everyone likes to have a single story, but multi-story works where you don't have an opportunity or an option, and that's why it happens. In China, for example, Shanghai, Beijing, we don't have a choice. We have to build multi-story in around Beijing and Shanghai and certainly down in Shenzhen. You don't have a choice. I think they work where land is intense, customers are wanting contemporary space, and effectively, the barriers to entry for this sort of stuff's high because it takes a long period of time and a lot of capital. It's got all the attributes we really like about it, and I think you'll find that'll be a big portion of what we do continuing as it has been over the last 10 years. We've been doing multi-stories for 12, 14 years. Okay. Fantastic. Thank you. Thank you so much. Your next question comes from the line of Simon Chan from Morgan Stanley. Simon, you may now ask your question. Yeah. Hi. Good morning, everyone. I just got a follow-up to a previous question about valuation uplift, et cetera. Can you confirm whether or not you worked through any cap rate compression to get that AUD 1 billion uplift in valuation this quarter? Are you saving that for the June quarter? I don't know whether we're saving anything. I think the reality is, with the activities that are going on in the market, there would be an expectation, if you look at where our valuations are, that June will be a very, very strong half for us. A lot of assets we've got are going into rotational phase for valuations, and I think that's because of market evidence and other things in Australia and other parts of the world. Look, expect a reasonably robust valuation uplift coming through June, which I think would be expected. Effectively, it's growth in cash flow, as well as I think pure cap rate compression, where we're more focused on a growth in cash flow, to be honest. The hard reality is that there's more capital wanting to own industrial than there is industrial for sale. That is pushing, obviously, tightened cap rate regime. I think the other thing that's pushing it is the resilience that industrial's shown up around the world in the last 12 months during the pandemic. It's really been a strong performer globally in regard to, once again, occupancy and cash flow. You can imagine a lot of investors are going, a pretty safe place to park your money at the moment with a future that looks very good. Great. Just looking at your list of projects there. I think, Gregory, in the past you've mentioned that you don't want to grow for the sake of growing. You want to work within yourself, don't want to stretch yourself. FY 2020, you had 46 projects going on. Today, you said you've got 64 projects going on. Can you handle it? I think we've been building towards it over the last, as I said earlier, five years. This is not a surprise for Goodman. We've been putting in people, particularly around the production area, to cater it. Because these projects are ones that go through planning and take a lot of lead time, you build into it to make sure you've got the right resources. Yeah, we can handle it. We can actually handle substantially more with the teams around the world. I think from that point of view, we're in a pretty good spot. Actually, Simon, it's a good observation. One thing we'll call out is that some of those projects that just came on are programmatic, so they've come on through a particular customer program with almost pre-agreed or pro forma terms and conditions in place. We're able to roll that out quite efficiently for both parties. We've been able to cater for it that way. Now, obviously, we knew it was coming as well, so we're well-resourced there. Okay, great. Trust you guys enjoy joined the new office down there, mate. Thanks. Yeah. No, it's good to be back. I think I started down here 30 years ago, so I think it's good to be back home. Thanks, mate. Thank you so much. Your next question comes from the line of Suraj Nebhani from Citigroup. Oh, thanks. Thanks, guys. A couple of questions have been answered. Just two quick ones. On the increase in WIP, can you say which particular regions will be driving this? Or is this across the board? Australia's got a rising AUD 2 billion in WIP. U.S. will add another AUD 1 billion in July. Two projects we've just got in planning, and we're finalizing. Europe is incredibly strong. As you'd know, we've rebased our business back into the major markets of Europe. U.K.'s got two really good projects in around the M25. China, I think we've got about 2 million meters of space coming out. That's probably twice what we were doing three or four years ago. Japan has got two big projects coming out, one will be in the data center space as well. It is all over, and I think we feel very comfortable moving into 2022 into 2023, that we're going to have some very good projects. The important thing is the projects we're producing, 90% thereof, are not available for sale on the market. To retain those within your own body of investors, many of them already sitting in the partnerships now, obviously is giving us the benefit then of very good product for our own investment partners. Also importantly, performance. All our partnerships around the world this year will be effectively in the mid-teens, on average, and certainly in a few locations in the 20s again this year. Very good performance. It comes back to the quality of what you're owning. When you look at that development portfolio, which is a medium-sized property company every year, effectively, that's highly desirable, but unattainable if you want to buy it on the market. Okay. Thanks for that. Just another one on bond yields. Greg, is there any change in views from the investor base around the recent move in bond yields? Is that not really a concern at this point? Yeah. Look, I reckon there was a really big conversation had probably around the half year around bond yields, where they were going to go. I think on the other side of the equation, though, there's an understanding and realization that if you own real estate in good locations and bond yields are moving because the world is a happier place, that's a good thing. I think there's a plus and minus on that one, and we're pretty comfortable on that front. We're really focused not on the last 25 points on the 50 points on the cap rate. What we're really focused on is grunt and growth in cash flow. We've talked about it two or three times, talked about it in the speech. Let's forget about the cap rate just for a moment and think about what's going to drive value. It doesn't matter whether you're in industrial or you're in technology or in any other sector in the world, it's going to be the growth in cash flow that hits the bottom line that's going to basically determine value. We keep reiterating it because with what we're doing and what we're looking at around the world, we are really trying to look at those pockets of growth and expansion in growth in cash flow. We think the valuations in the main will look after themselves. If bond rates tip up because global growth's better, well, we might get a little bit more growth out of the cash flow. Just be in the areas of demand and make sure your buildings are relevant, and I think that's the way we look at it. Our partners as well. Makes sense. quite frankly. Yeah. Thank you. Thank you so much. Your next question comes from the line of Richard Jones from JP Morgan. Richard, your line is now open. Thank you. Gregory, just a completion run rate. Would you expect a much higher level of completions in Q4? It's obviously tracking significantly below your commitment levels. Is it more a kind of 2022, 2023 story that you're kind of guiding to? Yeah, it's more a 2022, 2023. I think you'll find the development number in June from a profitability point of view is robust, from a P&L point of view. I think there'll be a lot completing the first half of 2022, and into the second half of 2022. Yeah, that completion rate will lift. I think you're looking at it in the right way, yeah. Okay. We've obviously seen two significant transactions within Australia that's kind of repriced the market. Is that Australia playing catch up or are you still seeing cap rates head even firmer in the other major markets you're in? Yeah. Good question, Jamesie. Look, U.S. prime starts with a three. Europe prime starts with a three, probably mid-3 to be fair, 3.750. I think it's a bit of catch up. It sort of has demonstrated, over the last 12 months, the resilience of the sector, and it's fair to say that, I said AUD 0.50 in every AUD 1.00, I think last time I talked to you guys, was going towards industrial. Probably a little higher than that at the moment. Yeah, I think you'd expect whether you're in New Zealand or Australia or through parts of Asia and Europe and the U.S., that the 3's knocking around, 3.750s. To be fair, though, if we've got a 3.750 in L.A., it's growing at four or five. I don't think 3.750s and fours is sustainable if rents are going to go backwards. Not all industrial is treated equally, and we've said that before. I think we've just got to be careful that we don't just look at valuations generically, we look at them specifically. I think in good locations, in strong growth corridors, we are genuinely getting 3%-4% growth, zero vacancy. We can see the rationale for a 4-4.25% cap rate. We can't see the rationale for 4-4.25% cap rates in markets where land is plentiful, easy to build, and you're buying at big premiums replacement costs. That's not what we're about. We're about the early time. Keep it straight, keep the direction in the high growth markets. I think the cap rates will be around that 4-4.25% mark, but the growth will be there as well. Yep. Okay. Thank you. Thank you so much. Our last question comes from the line of Ian Randall from Goldman Sachs. Ian, your line is now open. Thank you. Morning, Gregory Goodman, Nick Reeves. Look, just going back to the rev you gave, Nick Reeves, on the fund growth. I think that was for total fund. Do you have those numbers just for external fund? Nick, the movement's about the same. There hasn't been much change from the directly owned, so that's pretty much the rev for the external. All right. I suppose just touching back on Richard's comment about completions, it looks as if development only added around AUD 500 million to farm. I would've thought there'd be some fund growth through work done rather than just completions. It looks as if the throughput rate is also running a little bit below what would be implied by the WIP and the duration. Is there something there over the quarter that sort of was anomalous? The development number that I gave is the throughput number, not just completions. The cash flow. Yeah. Remember that's cash flow, right? That's CapEx cash flow, essentially, because net acquisitions were AUD -100. We are adding, but we're also funding a lot of that. We did fund a lot of that through divestment over the quarter as well. That's why it's a little bit anomalous. Looking at it on a quarterly basis, you probably need to take an annualized view, is probably a better way to look at it, Ian, I think. It's fair to say, the AUM will be, I think James knocking around AUD 57-ish in June, billion. I think we go through AUD 60 billion, strong AUD 60 billion in the 2022 year. That's just the stuff being run off the book and we're keeping 90% of what we're doing is keeping. If you extrapolate out AUD 10 billion plus change, most of it we're keeping, and probably that AUD 10 billion, if you actually put the contemporary cap rate on it today is higher, right? A lot of these feasibilities are 12, 18 months in the making, and we don't tend to change those numbers on the way through. I think you'll find that running into 2022, we'll be through AUD 60 billion strongly. I think we answered the question on completions earlier. I think Greg called it out. We flagged it as we're going through this period of transition where the longer dated projects are coming in, some shorter dated projects, there was always going to be this period of transition, which will normalize. Frankly, a lot of projects will complete in July, not June as well. As I said, you got to look at it, I suppose, on an annualized basis as well. Okay, great. Thanks. Yeah. Thank you. Thank you so much. If there were no further question at this time, I will now hand back over to our speaker, Mr. Gregory Goodman. Thank you. Please go ahead. Hey, thank you very much. Thank you very much everyone on the line. Stay safe. Let's not be complacent about COVID, because it's still around in the communities around the world. Let's feel for all our mankind. We certainly feel for all our people around the world who many are in a lot more difficult circumstances than we are here in Australia. Thank you very much. Thanks. Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.