Goodman Group · ASX:GMG
Goodman — Macquarie Goodman Group — FY2006 Earnings Presentation
64 slides from Goodman's earnings presentation, August 2006
Slide 1: Macquarie Goodman Group: Results for the year ended 30 June 2006
Macquarie Goodman Group Results for the year ended 30 June 2006 1
Slide 2: Contents
Contents Section 1 Year in Review 3 Section 2 Financial Performance 5 Section 3 Property Investment 12 Section 4 Management Services 15 Section 5 Development 18 Section 6 People 22 Section 7 Recap 24 Section 8 Appendices 26 2
Slide 3: Section 1 – Year in Review
.°) MACQUARIE Section 1 — Year in Review
Slide 4: Year in Review
Year in Review Æ Reported Profit for the year of $500.3 million with distributable income $403.8 million Æ Operating Earnings Per Security (“EPS”) of 26.7 cents and Distributions Per Security (“DPS”) of 27.5 cents which is in line with most recent forecast Æ Reflects EPS growth of 11%* Æ 87% of earn
Slide 5: Section 2 – Financial Performance
Section 2 – Financial Performance
Slide 6: Financial Performance: Results Comparison
Financial Performance Results Comparison Æ EPS and DPS in line with most recent forecast Æ Annualised EPS growth of 11.3% Æ Importantly, parity achieved between EPS and DPS for 2H FY06 Æ Focus on efficient capital management Year Ending Year Ending Increase/ 30 June 2006 30 June 2005 * (decrease) %
Slide 7: Financial Performance: MGQ Results Year ending June 2006
Financial Performance MGQ Results Year ending 30 June 2006 ($million) Property Investment 375.5 Management Services 102.7 Development 65.1 Operating revenue net of property expenses 543.3 Unrealised gains on investment properties 103.0 Total income 646.3 Expenses from operations (71.7) Net interest
Slide 8: Reconciliation of Distributions
Reconciliation of Distributions MGQ Results Year ending 30 June 2006 ($million) Profit after tax attributable to Securityholders 500.3 Less unrealised gains on investment property revaluations (94.2) Less unrealised gains included in associate share of profits (8.8) 397.3 Add / (Subtract) other AIFR
Slide 9: Financial Position
Financial Position Æ Conservative headline gearing of 32.2% Æ Interest cover ratio of 3.5 times Æ NTA impacted by AIFRS and acquisition of management businesses (Arlington and Eurinpro) Æ Interest rate and FX risks hedged 30 June 2005 30 June 2006 30 June 2006 Target Allocation $billion $billion % R
Slide 10: Business Composition
Business Composition Earnings Æ Significant growth in Management Services Æ Maintaining >80% of earnings from stabilised sources (Property Investment and Management) Æ Management Services 17% of 2H FY06 EBIT provides growth potential Æ Reduction in direct property income supplemented by cornerstone
Slide 11: Business Composition: Earnings (cont.)
Business Composition Earnings (cont.) Æ Geographic earnings (2H FY06) diversification mitigates risk Capital Æ Property Investment portfolio will continue to underpin the strength of Balance Sheet Æ Balance Sheet capacity provides the ability to facilitate new AUM initiatives Æ Current capacity of a
Slide 12: Section 3 – Property Investment
Section 3 – Property Investment
Slide 13: Property Investment
Property Investment Total Property Investments Æ Total property investment portfolio of $4.6 billion Core Property Investments Æ Core Australian portfolio performed strongly across all metrics Æ $41.5 million in new lease transactions secured – 14% of portfolio Æ 3.0% increase in new lease net renta
Slide 14: Property Investment: Cornerstone and Warehoused Investments
Property Investment Cornerstone Investments Æ $0.7 billion in strategic cornerstone investing Æ 6.7% average income yield Æ 7.4% average annual return Æ 13.4% average distribution growth Æ Cornerstone holdings largely represent 15% - 30% of equity of third party funds Æ Strong long term investment a
Slide 15: Section 4 – Management Services
Section 4 – Management Services
Slide 16: Management Services: Performance
Management Services Performance Æ Strong organic AUM growth of 35% Æ Total AUM of $28.5 billion (up +310%) Æ Underlying AUM driven by growth in existing funds and new fund initiatives Æ Positive performance of European platform in first 6 months Æ +16% growth in AUM since acquisition Æ Divisional EB
Slide 17: Management Services: Outlook
Management Services Outlook Æ Demand for well structured real estate investment funds remains positive Æ High quality property assets and future growth opportunities Æ Capable and aligned management Æ Managed financial risk Æ Consistency of asset and equity source Æ Opportunities created from effici
Slide 18: Section 5 – Development
.°) MACQUARIE Section 5 — Development
Slide 19: Development Completions
Development Development Completions Æ Significant development completions during the year - $916 million* Æ 8.5% weighted average yield on total project cost Æ 6.7 years weighted average lease term Æ 55% pre-committed Æ Mixture of developments between Group and third party managed funds Æ 48% comple
Slide 20: Development Commitments and Workbook
Development Development Commitments and Workbook Æ Substantial new development commitments of $1.6 billion* during the year Æ 8.1% weighted average yield Æ 7.6 years weighted average lease term Æ 56% pre-committed Æ $2.5 billion of new product currently under development Æ 60% ($1.5 billion) under d
Slide 21: Development: Financial Performance and Outlook
Development Financial Performance Æ Opportunities to enhance ROC through the early transfer of investments into managed funds Æ ROC of 12% for Group development book Development Outlook Æ Australia/New Zealand development market remains buoyant Æ Continue to investigate development opportunities thr
Slide 22: Section 6 – People
.°) MACQUARIE section 6 — People
Slide 23: People
People Æ Expanded operating platform increased staff numbers by 600 taking the total to 850 Æ Located across 14 countries Æ Integration of Arlington and Eurinpro substantially complete Æ Key focus on local operatives in local markets to maximise competitive advantage and mitigate risks Æ Integration
Slide 24: Section 7 – Recap
.°) MACQUARIE Section 7 — Recap
Slide 25: Recap
Recap Æ Strong operational performance from all business units Æ EPS and DPS targets achieved in line with management forecasts Æ EPS +11% for FY06 Æ Established a full service European platform Æ Organic AUM up 35% underpinned by solid operational level performance of funds Æ Total AUM of $28.5 bil
Slide 26: Section 8 – Appendices
.°) MACQUARIE Section 8 - Appendices
Slide 27: Appendices
Appendices Contents Page Number Total Income by Business Segment 28 Total Income by Geographic Segment 29 Development Income Reconciliation 30 Reconciliation to PDS 31 Key Balance Sheet Impact of AIFRS 32 Movement in Net Assets 33 Financial Position 34 Capital Management 35 Property Investment 41 Co
Slide 28: Total Income by Business Segment
Total Income by Business Segment for the year ended 30 June 2006 Category Total Gross Management Development Unrealised Property Income income Gains on Income Investment Properties $M $M $M $M $M Gross property income 434.9 434.9 Net gain from fair value adjustment on investment properties: - realis
Slide 29: Total Income by Geographic Segment
Total Income by Geographic Segment for the year ended 30 June 2006 Category Total Australia New Zealand Asia Europe $M $M $M $M $M Gross Property Income* 466.1 425.8 16.4 20.3 3.6 Management Income 102.8 22.7 9.3 **6.2 64.8 Development income 65.1 54.9 8.5 1.0 0.7 Unrealised gains 103.0 95.1 7.0 0.9
Slide 30: Development Income Reconciliation
Development Income Reconciliation Transaction 1H FY06 2H FY06 FY06 Disposal Price Disposal Price Disposal Price $M $M $M MGWF creation – Stabilised assets 762.0 - 762.0 MGWF creation – Development assets 267.6 - 267.6 MGWF – Other (December 2005) 39.2 - 39.2 HK property sale to MBL 292.5 - 292.5 Thi
Slide 31: Reconciliation to PDS
| ie Goodman T | ] | | rs » Macquar Major transactional variances from PDS HONG KONG ACQUISITIONS HONG KONG SALES MGWF CREATED ARLINGTON SALES TO MGW SALES TO MGP MGHKWF CREATED EURINPRO OTHER ASSET SALES DRP REPS EPS¢ DPS ¢ Reported on 1H FY06 earnings in March 06 Reported August 06 26.7 5. 31
Slide 32: Key Balance Sheet Impact of AIFRS
Key Balance Sheet Impact of AIFRS Net Tangible Asset Reconciliation $M $M Per Security* Net assets as at 30 June 2005 (Previous AGAAP) 3,093.1 1.96 AIFRS adjustments Deferred tax (12.7) Employee Security Acquisition Plan (ESAP) (19.6) Deferred leasing costs and incentives (6.1) Other (2.4) (40.8) (0
Slide 33: Movement in Net Assets
Movement in Net Assets Net Tangible Asset Reconciliation $M $M Per Security* Net assets at 1 July under AIFRS 2,986.4 1.89 Less: Minority interests (18.2) 0.01 Net assets attributable to security holders 2,968.2 1.88 Revaluation of non-current investments during the year Revaluation of investments p
Slide 34: Financial Position
Financial Position Æ Headline gearing of 32.2% Æ Conservative balance sheet allocation to off shore operations As at 30 June 2006 Australia New Zealand Asia UK/ Europe Total $M $M $M $M $M Investment properties 3,988.4 180.9 20.7 0.0 4,190.0 Investments in managed funds 189.3 155.0 233.5 119.8 697.6
Slide 35: Capital Management
Capital Management Summary Æ New equity raised during the year including Æ Distribution reinvestment plan (“DRP”) – $339.3 million Æ RePs conversion - $74.1 million Æ Institutional placement of $321.7 million Æ Equity issue to vendor of Eurinpro $170.8 million Æ Total group borrowings at $2,172 mill
Slide 36: Capital Management (cont.): Equity
Capital Management (cont.) Equity Æ $936 million in new equity issued during the year Æ Closing number of securities on issue 1,608.8 million* Æ Market capitalisation of 9,652.8 million at a $6.00 security price Securities Issued $M DRP and other 76,755,054 341.1 Conversion of RePS 30,537,580 110.0
Slide 37: Capital Management (cont.): Debt Management
Capital Management (cont.) Debt Management Æ Current Debt Platform Æ Refinancing of Australian bank debt facilities completed in July 2005 with a A$1.4 billion Syndicated Multi Currency facility Æ $603 million of CMBS maturing in November 2006 Funding Diversification Currency Mix 37
Slide 38: Capital Management (cont.): Debt Management
Capital Management (cont.) Debt Management Æ Gearing Æ Total interest bearing liabilities of $2,172 million Æ Target range of 35% - 40% Æ Group gearing of 32.2% Æ Interest Cover Æ EBITDA to total interest expense of 3.5 times Æ Interest rate Æ Interest rates are hedged to 81% over next 12 months Æ W
Slide 39: Capital Management (cont.): Interest Rate Hedging Profile
Capital Management (cont.) Interest Rate Hedging Profile 39
Slide 40: Capital Management (cont.): Risk Management
Capital Management (cont.) Risk Management Æ Capital Hedging Æ The Group, where practical, will fund its international commitments and investments in the local foreign currency. Æ Cross Currency Swaps will be considered on a case by case basis as required. Æ Foreign sourced income Æ Foreign currency
Slide 41: Property Investment
Property Investment Æ 86 properties with a total value of $3.8 billion located across key Australian markets Æ Intensive management and buoyant market conditions delivering strong underlying performance Æ 368,248 sqm ($41.5 million net annual rental) of existing space leased Æ Customer retention of
Slide 42: Property Investment (cont.): Occupancy and Lease Expiry
Property Investment (cont.) Occupancy and Lease Expiry Æ Positive performance in most regions Æ WALE of 5.0 years – in line with historical average Æ Occupancy maintained at 98% Region % of WALE WALE Occupancy Occupancy Portfolio Dec 2005 June 2006 Dec 2005 June 2006 YEARS YEARS % % Sydney South 16
Slide 43: Property Investment (cont.): Leasing Deals
Property Investment (cont.) Leasing Deals Æ Leased 368,248 sqm of existing space (14% of the portfolio) Æ $41.5 million net annual rental Æ Average lease term on new deals of 4.5 years Æ Average rental increases of 3.0% on new lease transactions Region Area Net Annual Average Increase on Rental Leas
Slide 44: Property Investment (cont.): Customer Retention
Property Investment (cont.) Customer Retention Æ Solid retention in all key regions: Æ 80% for the year Æ 82% rolling three years Æ 80% rolling four years Region Expiry in period Retention rate % % Sydney South 21 89 Sydney West 30 78 Sydney Outer West 16 82 Sydney North 21 89 Victoria 8 93 Queensla
Slide 45: Property Investment (cont.): Weighted Average Lease Expiry
Property Investment (cont.) Weighted Average Lease Expiry* Æ Stable lease expiry profile Æ 38% of income expiring beyond five years *Calculated on Net Annual Rental 45
Slide 46: Property Investment (cont.): Expiry Profile
Property Investment (cont.) Expiry Profile Æ Manageable lease expiry profile over the next 12 months Region % of portfolio net income expired in the % of portfolio net income expiring in the 12 months to June 2006 12 months to June 2007 Sydney South 2.3 3.4 Sydney West 4.3 2.6 Sydney Outer West 2.8
Slide 47: Property Investment (cont.): Property Revaluations
Property Investment (cont.) Property Revaluations Æ $3.0 billion of properties revalued for year ended 30 June 2006 Æ 3.8% increase over previous book values Æ Solid increases in Victoria and Queensland Æ Revalued portfolio weighted average capitalisation rate of 7.7% Æ MGQ portfolio weighted averag
Slide 48: Cornerstone Investments
Cornerstone Investments Æ MGQ holds strategic cornerstone investments in third party managed funds Æ Provides alignment of interests between MGQ and investors Æ Supplements direct investment income Æ Total investment of $677 million (up 68% from FY05) Æ Strong performance from investments in 2006: Æ
Slide 49: Management Services: Performance
Management Services Performance Æ Solid operational results for all key funds Æ Strength of full suite and in house service offering Æ Active asset management delivering underlying property performance Fund Occupancy WALE Retention % YEARS % A-REIT 95 6.7 65 MGP 98 5.6 87 MGWF 99 8.3 88 MGHKWF 99 2.
Slide 50: Funds Management: Overview
Funds Management Overview Æ Management of third party funds on behalf of investors Æ Total assets under management of $28.5 billion Æ Diversified across public and private markets in Australia, New Zealand, Hong Kong, Singapore, UK and Europe 50
Slide 51: Funds Management: Australia – Macquarie Goodman Wholesale Fund
Funds Management (cont.) Australia – Macquarie Goodman Wholesale Fund Æ Launched November 2005 with initial portfolio of $1.0 billion, increasing to $1.2 billion as at June 2006 Æ Assets sourced from stabilised MGQ portfolio, development activities and on market acquisitions Æ Wholesale investor app
Slide 52: Funds Management: New Zealand – MGP
Funds Management (cont.) New Zealand - MGP* Æ Critical market coverage: Æ Total assets of $0.8 billion and market capitalisation of $0.5 billion Æ 2nd largest LPT in New Zealand, top 25 entity on NZX Æ $286 million of acquisitions throughout the year Æ $260 million from MGQ in March 2006 Æ Strong fi
Slide 53: Funds Management: Singapore – A-REIT
Funds Management (cont.) Singapore - A-REIT* Æ Market capitalisation of $2.4 billion Æ 2nd largest REIT in Singapore, top 50 entity on the SGX-ST Æ Assets under management of $2.4 billion Æ Acquired 28 properties for $543 million Æ Commenced development pipeline with two pre-committed warehouse proj
Slide 54: Funds Management: Hong Kong – Wholesale Fund
Funds Management (cont.) Hong Kong – Macquarie Goodman Wholesale Fund Æ Full service business capability including Funds Management, Property Services and Development Management. Æ Launched MGHKWF in April 2006 with initial portfolio of HK$4.8billion Æ Strong investor demand Æ High quality assets in
Slide 55: Funds Management: United Kingdom and Europe – Arlington
Funds Management (cont.) United Kingdom and Europe - Arlington Æ Acquired December 2005 with £6.7 billion of FUM Æ Focused Funds £2.6 billion and Direct Mandates £4.1 billion Æ As at June 2006 total FUM was £7.8 billion up 16% in 7 months Æ Focused Funds £2.6 billion and Direct Mandates £5.2 billion
Slide 56: Property Development: Completed Developments
Property Development Completed Developments Æ 511,999 sqm of projects completed across all groups in the period Æ End value of $916 million Æ 8.5% initial yield on total project cost Æ Weighted average lease term of 6.7 years Region Area Initial Yield Est. End Value % of Total WALT SQM % $M Developm
Slide 57: Property Development: Committed Developments
Property Development (cont.) Committed Developments Æ $1.6 billion of new commitments secured across all groups at an initial yield of 8.1% with an average lease term of 7.6 years Æ 56% pre-committed (majority of uncommitted space in UK funds) Æ 81% of development projects secured for third party ma
Slide 58: Property Development: Development Work in Progress
Property Development (cont.) Development Work in Progress Æ 1,435,498 sqm of development product over 55 properties currently underway Æ Estimated end value of $2.5 billion with an averaged initial yield of 8.5% and 7.1 year weighted average lease term Æ $1,484 million (60%) under development for th
Slide 59: Development Pipeline – MGQ Balance Sheet
Property Development (cont.) Development Pipeline – MGQ Balance Sheet Æ 3.4 million sqm of developable land Æ Continue to provide high quality investment product for both MGQ and third party managed funds Æ Ability to provide “off-market” organic growth for third party funds management activities Æ
Slide 60: Development Pipeline – MGQ Balance Sheet
Property Development (cont.) Development Pipeline – MGQ Balance Sheet Æ 3.4 million square metres of developable land in the portfolio Region Total Site Area Committed Committed Remaining % of Area Area as % of Area Land SQM SQM Total Area SQM Bank Sydney South 77,033 60,128 78 16,905 1 Sydney West
Slide 61: Acquisitions and Disposals
Acquisitions and Disposals Acquisitions Æ $1,042 million in acquisitions for the year Æ $545 million in Asia Æ $182 million in Europe Disposals Æ $2,559 million in disposals for the year Æ $1,378 million in Australian Æ $1,286 million to Australian Wholesale Fund Æ $831 million in Hong Kong for crea
Slide 62: Customer Base
Customer Base Top 20 MGQ Customers (by net income) 62
Slide 63: Geographic Coverage
Geographic Coverage Æ Total industrial and business space assets under management of $18.9 billion Assets Properties People $9.5 b 301 370 $0.8 b 8 162 $2.4 b 67 20 $5.4 b 132 251 $0.8 b 28 47 $18.9 b 536 850 63
Slide 64: Thank you / Disclaimer
Thank you Disclaimer This presentation for the year ended 30 June 2006 has been prepared by Macquarie Goodman Group (Macquarie Goodman Management Limited ABN 69 000 123 071 and its controlled entities; Macquarie Goodman Funds Management Limited ABN 48 067 796 641; AFSL Number 223621, collectively “M
Macquarie Goodman Group — FY2006 Earnings Presentation on 6ix