Goodman Expects Operating Profit, Distribution Growth -- Update

By David Winning Features Dow Jones Newswires

Goodman Group (GMG.AU), which owns offices and industrial parks in countries including the U.S., forecast further growth in operating earnings as investors bet that it will be a beneficiary of Amazon.com Inc.'s (AMZN) planned retail offering in Australia.

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Goodman said it expects an annual operating profit per security of 45.7 Australian cents (US$0.36) in the 12 months through June, 2018. If achieved, that would be 6% higher than the 43.1 cents reported for the 2017 fiscal year.

The real-estate investment trust said it also expected similar growth in its annual distribution to 27.5 cents in the fiscal year that began last month.

The guidance was provided by Goodman alongside its fiscal 2017 result that included a net profit of A$778.1 million for the 12 months through June, down from A$1.27 billion a year earlier.

Warehouse space and logistics operations close to major cities are increasingly in demand as more consumers buying products online, prompting investors to favor Goodman over shopping mall owners. Over the past year, Goodman's shares have outperformed rival real-estate investment trusts like Shopping Centres Australasia Property Group (SCP.AU), Scentre Group (SCG.AU) and Stockland (SGP.AU).

Analysts view Goodman as a potential beneficiary of Amazon's rollout in Australia because the U.S. ecommerce giant will need several distribution centers to meet customer needs. Credit Suisse has estimated that securing Amazon as a tenant on two sites would add some A$300 million to Goodman's pipeline.

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"Although the evolution of ecommerce and supply chain transformation are still in their early stages, we are seeing increased demand for our expertise in providing high quality logistics facilities in prime locations," said Chief Executive Greg Goodman. "This is a trend we expect to accelerate over the next five to 10 years."

Commercial real estate typically is valued based on its capitalization rate, or the annual net income produced by a property divided by the purchase price. Like bond yields, falling cap rates indicate rising values, and vice versa.

Goodman, along with many real-estate investment trusts, has benefited from strong inflows of capital and asset sales that have tightened the cap rates for industrial property over the past six months.

Goodman has been aggressively pursuing a strategy of focusing on so-called gateway cities such as Sydney, Hong Kong and Los Angeles that share characteristics such as a scarcity of land, close proximity to wealthy consumers, and serviced by modern infrastructure and transport networks.

That strategy has seen it sell assets, while taking additional steps to reduce its debt burden. Goodman said its gearing--a measure of debt relative to equity--fell to 5.9% at the end of June from 8.7% at the end of December.

The company has also invested in new projects that it believes offer superior returns, seeking to lock in tenants to most space prior to the completion of any development.

"Since 2014, our assets under management have grown to A$35 billion despite A$8 billion in asset sales, and over the last five years we have consistently delivered operating profit and EPS growth of greater than 7%," Mr. Goodman said.

-Write to David Winning at david.winning@wsj.com

(END) Dow Jones Newswires

August 20, 2017 19:10 ET (23:10 GMT)