Conservatively Good

1H23 RESULT

Need To Know

• In-line result, strong operational momentum displayed. 
• Operating EPS growth guidance upgraded to 13.5%, remains conservative versus consensus.
• Maintain our Buy Recommendation

Result Highlights

Operating profit A$876m vs A$893 market. Operating EPS 46cps vs 47cps market. 1H23 DPS flat at 15cps in-line with market. Performance fees were lower at A$42m ($74m 1H22) due to timing. Occupancy 99%. Gearing 9.7% (up 1.2%). Total AUM increased 18% to A$76bn. EPS guidance increased to 13.5% growth vs 11% previously.  

Result Detail

Overall, an in-line result with strong operational momentum. The guidance upgrade to the operating EPS is somewhat underwhelming considering the market already has ~15% growth for FY23.  

Development profits and rental growth were attributed as the key drivers for the upgrade.

Historically GMG has been conservative around their guidance. A beat to guidance is a distinct possibility if the timing of developments and performance fees lines up with June 30 this year. Performance fees will need to double in 2H23 to meet upgraded guidance.

Operationally the group is performing well. Group occupancy is 99% with a like-for-like net property income (NPI) growth of 4.2%. Development completions and commencements were both A$3.6bn with A13.9bn of development work in progress. Total AUM management increased 17% over the period with the level of base fee’s remaining at previously stated levels.

The balance sheet remains in a strong position. Gearing increased to 9.7% (from 8.5%) and is 20.7% on a look-through basis. Goodman’s balance sheet management is as conservative as always, which in our view bodes well for current market conditions.

Cap rates expanded 0.28% across the Group level over the period. Key geographies for this increase were the UK (1.2% increase) and Europe (0.9%). NTAps increased 6% to A$8.87 due to partnership investments and development growth.

Investment Thesis

We expect GMG will outperform in the longer term due to the robust development pipeline and fees captured from AUM growth. Cap rates are likely to be a headwind over the shorter term (particularly in AUS and US), but we expect these will largely peak in 2H23. 

Implicit in the guidance is a continuation of development profits which we have confidence will be met due to the strong pipeline as well as the fact the current period of stronger development yields looks to be continuing. We maintain our Buy rating. 

Figure 1: Goodman AUM and partnership AUM (external) growth