GOODMAN GROUP — Interim / Quarterly Report 2017

Jun 6, 2017

GMG Quarterly presentation Q3 FY17 Quarterly Operational Update Q1 2016 - Quarterly operational update 6 May 2015

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• • This document has been prepared by Goodman Group (Goodman Limited (ABN 69 000 123 071), Goodman Funds Management Limited (ABN 48 067 796 641; AFSL Number 223621) as the Responsible Entity for Goodman Industrial Trust (ARSN 091 213 839) and Goodman Logistics (HK) Limited (Company Number 1700359; ARBN 155911142 – A Hong Kong company with limited liability)). This document is a presentation of general background information about the Group’s activities current at the date of the presentation. It is information in a summary form and does not purport to be complete. It is to be read in conjunction with the Goodman Group Financial Report for the year ended 30 June 2016 and Goodman Group’s other announcements released to ASX (available at www.asx.com.au). It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with professional advice, when deciding if an investment is appropriate.
• • This Presentation uses operating earnings per security to present a clear view of the underlying profit from operations. Operating profit comprises profit attributable to Securityholders, adjusted for property and intangible valuations resulting from fair value adjustments, derivative and foreign currency mark to market and other non-cash or non-recurring items. It is used consistently and without bias year on year for comparability.
• • This document contains certain "forward-looking statements". The words "anticipate", "believe", "expect", "project", "forecast", "estimate", "likely", "intend", "should", "could", "may", "target", "plan" and other similar expressions are intended to identify forward-looking statements. Indications of, and guidance on, future earnings and financial position and performance are also forward-looking statements. Due care and attention has been used in the preparation of forecast information. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors, many of which are beyond the control of the Group, that may cause actual results to differ materially from those expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these statements. Neither the Group, nor any other person, gives any representation, warranty, assurance or guarantee that the occurrence of the events expressed or implied in any forward looking-statements in this document will actually occur.
• • This document does not constitute an offer, invitation, solicitation, recommendation, advice or recommendation with respect to the issue, purchase, or sale of any stapled securities or other financial products in the Group.
• • This document does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States or to any “US person” (as defined in Regulation S under the US Securities Act of 1933, as amended (Securities Act) (US Person)). Securities may not be offered or sold in the United States or to US Persons absent registration or an exemption from registration. The stapled securities of Goodman Group have not been, and will not be, registered under the Securities Act or the securities laws of any state or jurisdiction of the United States.

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Contents

• Section 1 Quarterly operational highlights + Section 2 Capital management + Section 3 Quarterly operations + - Appendices Leasing

• Development

• Management platform

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• Section 1 Quarterly Operational Highlights

Centenary Distribution Centre, Australia

Quarterly operational highlights

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+ Our business continues to benefit from the urbanisation of cities around the world and the concentration of consumers

• Changing consumer spending habits and technology are shaping the location of warehouse and distribution assets globally and being closer to the end consumer is vital

+ The Group has sold over $6bn of assets over the past 3 years, concentrating its portfolio in large, wealthy consumer dominated cites around the world

• We believe demand will be strongest in these locations and scarcity of land will see higher value growth over time

• Progress on asset sales continues in line with this strategy

+ Strong operating performance maintained, focus remains on sustainable long term growth

• Ongoing demand for prime industrial space across the global portfolio remains strong, reflecting the quality of the portfolio in gateway cities and customers

• The development business remains a key focus with continued concentration on consumer dominated markets and infill sites

• Performance fees from within the Partnerships expected to continue into future periods

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Quarterly operational highlights

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+ Key highlights for the nine months to 31 March 2017 include

• $2.1 billion of assets disposed (excluding urban renewal) to fund development pipeline

• $2.1 billion of development commencements

• $3.5 billion of development work in progress

• $34.6 billion total assets under management

• 96% occupancy across the Group and Partnerships with positive rental reversions of 2.7%

+ Formalising financial policies in line with current operating practice

• The Group has been actively reducing financial leverage given its desire to run low gearing at this point in the property cycle

• Reduced Group gearing range to 0% - 25% from 25% - 35%

• Group Credit rating has increased one notch from S&P and Moodys to BBB+ and Baa1 respectively

• Bond and bank amendments provide enhanced financial and operational flexibility

+ Urban renewal sales continue to progress, settlements on track for over $1 billion in FY2017

• Continued focus on planning and rezoning of future precincts

+ Reaffirm forecast FY2017 full year operating earnings per security of 43.1¹ cents, up 7.5% on FY2016

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1. Operating EPS comprises profit attributable to Securityholders adjusted for property valuations, derivative and foreign currency mark to market and other non-cash or non-recurring items

Snapshot

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A$34.6 billion A$30.0 billion A$3.5 billion A$4.6 billion
total assets external assets Development work direct property
under under in progress investment portfolio
management management
+
1.4%¹ 2.4%¹ 3.3%¹ 4.9%¹
1,750 30 1,135
customers office locations people
globally (approx) worldwide
378 18.1 million
properties under sqm of industrial and
management business space
under management
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1. % increases based on 30 June 2016 reported numbers

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Section 2 – Capital Management ( COVER Page)

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Improving operational flexibility, reduced gearing targets and increased Credit Rating

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Operating EPS

• • The Group has been actively reducing financial leverage in the business given its desire to run low gearing at this point in the property cycle
• • Group gearing range reduced to 0% - 25% (from 25% - 35%)

• Formalising capital management strategy which has been operating in recent years

• Gearing level will be determined with reference to mix of earnings and ratios consistent with credit rating

• Consistent with practice in recent years

• • Bond and bank amendments provide enhanced financial and operational flexibility

• Bond holders approved amendments to the terms on US$1billion of the Group’s 144a Bonds and the banks amended Common Terms for the facilities

• Key amendments included tightening the leverage covenants by 5% and removing the unencumbered real property assets covenant

Gearing

• • Financial Risk Management policy changes provide operational and balance sheet flexibility along with the ability to absorb changes in market volatility
• • Group Credit rating has increased one notch from S&P and Moody’s to BBB+ and Baa1 respectively

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• Section 1 Quarterly Operational Highlights

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Centenary Distribution Centre, Australia
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• • Underlying property fundamentals in our global portfolio remain sound

• Leased 2.5 million sqm across the platform over the period equating to $296 million of annual net property income

• Maintained occupancy at 96%

• Retention remains high at 81%

• WALE of 4.7 years

• Positive reversions of 2.7% per annum on new leasing deals

• • $0.2 billion of asset sales completed in the quarter (excluding urban renewal sites) across the Group and Partnerships

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Total AUM by type

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• Selective rotation of assets continued but expected to moderate as targeted program reaches completion

• • Continued disciplined execution of Group strategy to invest and develop in quality locations in major urban centres
• • Targeting sites / assets in infill locations or core gateway city markets

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Across the Group and Partnership platform:

• • 2.5 million sqm leased for 9 months to 31 March 2017, representing $296 million of net property income
• • Positive reversions of 2.7% on new leasing deals
• • Occupancy maintained at 96%

Region	Leasing area (sqm)	Net annual rent (A$m)	Average lease term (years)
Australia	915,284	119.2	4.1
New Zealand	155,575	32.2	7.1
Asia	676,218	93.2	3.4
UK	56,909	8.5	6.0
Europe	661,714	43.4	3.6
Total	2,465,700	296.5	4.3

1. Leasing for investment properties only and excludes developments for the nine months to 31 March 2017

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Sale Leasing
Goodman Jinxi Logistics Centre, Kunshan, China Amazon, Pforzheim, GermanMönchengladbach, Germanyy Vatry, FramceGoodman Interlink, Hong Kong
Customer Schenker Customer ESPRIT Customer DHL
Transaction Type Lease Transaction Type Development / Lease Transaction Type Lease
Lettable area 133,000 sqm Lettable area 38,329 sqm
Lettable area 27,100 sqm
Contracted GCLP Contracted owner GEP Contracted owner GHKLP
owner
+ 80,000 sqm expansion to the + Lease renewal for a total of 3 floors,
+ Located in Jinxi Eco-Industrial Park, existing 53,000 sqm facility all with ramp access
a major industrial park close to the + Located in Regiopark, + Warehouse and distribution building
Description boundary of western Shanghai Description Mönchengladbach, a significant Description in Hong Kong. Located at Tsing Yi
location for textile and fashion
+ Warehouse 2 leased to Schenker in the heart of the ports district and
logistics in Western Germany
who uses the space to service GAP adjacent to the Stonecutters Bridge
+ Key ecommerce distribution hub
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• • Development workbook of $3.5 billion across 75 projects with a forecast yield on cost of 7.7%

• Development WIP of $3.5 billion with 67% pre-committed and 78% pre-sold to Partnerships or third parties at 31 March 2017

• Development completions of $2.0 billion with 86% pre-committed and 80% pre-sold to Partnerships or third parties for the nine months to 31 March 2017

• Development commencements of $2.1 billion with 59% precommitted and 65% pre-sold to Partnerships or third parties for the nine months to 31 March 2017

+ Prudent approach to development maintained

Development WIP ($bn)

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• Capital partnering of development projects in most markets

• Limiting speculative development to supply constrained, proven logistics locations given strengthening demand

• New commitments are being selectively targeted within the gateway city strategy

• • Structural and cyclical themes continue to provide positive tailwinds

• Growth in ecommerce and changing consumer spending

• Customers seeking efficiencies in their supply chain networks

Work in progress as at 31 March 2017

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Q3 FY17 Developments		Completions	Commencements		Work in progress
Value ($m)		2.0	2.1		3.5
Area (m sqm)		1.7	1.7		2.5
Yield (%)		8.0	7.6		7.7
Pre-committed (%)		86	59		67
Weighted Average Lease Term (years)		8.6	9.7		9.9
Development for Third Parties or Partnerships (%)		80	65		78
Australia / New Zealand (%) of WIP		29	18		24
Asia (%) of WIP		32	30		28
Americas (%) of WIP		9	0		13
Europe (%) of WIP		30	52		35
Work in progress	On balance sheet	Partnerships	Total end value	Partnerships	Pre committed
by region	end value	end value	$m	% of total	% of total
	$m	$m
Australia / New Zealand	38	774	812	95	79
Asia	55	927	982	94	25
Americas	-	444	444	100	80
Europe	680	545	1,225	45	88
Total	773	2,690	3,463	78	67

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Global development business

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	Lyons Park, Coventry, West Midlands, UK Lettable area 43,378 sqm Contracted owner GUKP Location Lyons Park, Coventry Customer Amazon Description + Located just off the A45 trunk road which connects the M42 and M1 motorways + The facility forms part of Amazon’s Regional Distribution Centres network in the UK + Completion is expected in October 2017	~~Amazon, Pforzheim, Germany~~ ~~Vatry, Framce~~ Sale Leasing Moorburger Bogen, Hamburg, Germany Goodman Logistics Centre, Santa fe Springs, USA Lettable area 34,984 sqm Contracted owner GMG Location Hamburg, Germany Customer Speculative Description + Land from Hamburg Port Authority + This will be Goodman’s third speculative development in the Hamburg Port area after successfully pursuing and leasing 2 previous projects in the Port area + Plans are to develop three units in one phase Lettable area 27,451 sqm Contracted owner GNAP Location Santa Fe Springs, California, USA Customer E-commerce customer Description + Building one of a three building logistics distribution estate totalling ~113,000 sqm + Strategically positioned within Los Angeles infill logistics market + 22 miles from the Port of LA, Long Beach and 15 miles from Downtown LA

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• • External AUM of $30.0 billion

• Development work book and revaluations offsetting asset sales

• • $2.1 billion of asset rotation completed year to date (excluding urban renewal) enhancing the quality of the portfolios

• Primary funding source of developments

• Assets predominantly located across Australia, Japan, New Zealand and UK

• • Management income growth across the Partnerships continues to be driven by transactional activities and strength in asset pricing

Total AUM ($bn)

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• Expected to be leading to performance fees in future periods

• • $10.3 billion in undrawn debt and equity providing the Partnerships with selective growth opportunities

Total AUM by geography

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	GAIP	GHKLP	GEP	GAP	GCLP	GMT	GJCP2	GNAP	GUKP
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Total assets	$6.8bn	$4.7bn	$4.0bn	$3.8bn	$2.8bn	$2.3bn	$1.9bn	$1.3bn	$0.3bn3
GMG co-investment	$1.2bn	$0.7bn	$0.5bn	$0.6bn	$0.4bn	$0.3bn	$0.2bn1	$0.7bn	$0.1bn
GMG co-investment	27.5%	20.0%	20.4%	19.9%	20.0%	21.0%	16.7%1	55.0%	33.3%
Number of properties	95	12	112	38	31	13	11	7	3
Occupancy	95%	98%	97%	98%	94%	98%	100%	97%	100%
Weighted average lease expiry4	4.9 years	2.5 years	5.1 years	4.6 years	3.7 years	5.8 years	3.5 years	5.8 years	8.1 years

1. As at 31 March 2017

2. As at 28 February 2017

3. Built out end value A$

4. WALE of leased portfolio to next break as at 31 March 2017

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