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Edited Transcript of GMG.AX earnings conference call or presentation 14-Aug-13 11:30pm GMT

Preliminary 2013 Goodman Group Earnings Presentation

Sydney, New South Wales Jul 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Goodman Group Pty Ltd earnings conference call or presentation Wednesday, August 14, 2013 at 11:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gregory Goodman

Goodman Group - CEO

* Nick Vrondas

Goodman Group - CFO

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Conference Call Participants

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* Paul Checchin

Macquarie Securities - Analyst

* Stephen Rich

Credit Suisse - Analyst

* John Kim

CLSA - Analyst

* Richard Jones

J.P. Morgan - Analyst

* Philip Cheetham

Citigroup - Analyst

* Simon Garing

Merrill Lynch - Analyst

* Simon Wheatley

Goldman Sachs - Analyst

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Presentation

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Gregory Goodman, Goodman Group - CEO [1]

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(audio in progress) Goodman's full year results presentation for financial year '13 together with the financial outlook for '14. With me this morning our CFO, Nick Vrondas is also present with me on the call and he'll be making some comments during the presentation. Firstly, turning to slide 5. I'm pleased to report the full year operating profit of AUD544 million with operating earnings per share of AUD0.324 which is up 6% compared with financial year '12. We'll pay a distribution and dividend for the full year of AUD0.194 per security, up 8% on last year, representing a payout ratio of 60%.

The result reflects the competitive advantage which comes from the global diversification of our business with a quality product and the consistent and reliable execution of our operational activities around the world. We have built a leading brand, as one of the largest operators of industrial property globally. We have size and scale with an operating platform spanning Australia, New Zealand, Asia, Europe, North and South America. Our geographic diversity gives us exposure to different economic cycles, presenting Goodman with a broad range of opportunities to drive earnings growth.

The full year result provides us with strong momentum and positions us well for the coming year. We're forecasting an operating profit of AUD594 million for financial year 2014, equating to operating earnings per security of AUD0.343, up 6% on financial year '13 and a forecast distribution of AUD0.207, up 7%. The growth of our global business has been measured and well considered, with our offshore business now contributing 48% of operating EBIT. We expect to see the benefits of Goodman's global diversification increase significantly over the next three years in line with the growing contribution from our international operations, particularly as we continue to build our capabilities in Asia and the Americas.

The strong underlying performance of our business can be attributed to the focused delivery of our strategy and day-to-day operations. Total assets under management have grown to AUD23 billion, up 15%, due to the strength of our business offering. Goodman's active development and management businesses contributed 42% of operating EBIT. This is an increase of 25% on financial year '12 and we expect the continued strong performance of these businesses.

We have enhanced our market position as one of the leading developers of industrial real estate globally securing AUD2.2 billion of new commitments. We expect our development book to grow to AUD2.5 billion during the current financial year. This is being driven by structural changes taking place in the industrial sector globally including the rapid growth of eCommerce, supply chain efficiencies and 3PL consolidations. A key competitive advantage of Goodman is the ability to finance and attract capital for our development activities.

We are well supported by our capital partners in financial year '13, raising AUD2.8 billion of third party equity with an additional AUD1.2 billion completed since 30th of June. Turning now to slide 6. We have continued to adopt a prudent capital management strategy focused on pre-committed and pre-sold developments, capital partnering and capital recycling. We have reduced gearing to 18.5% with a strong liquidity position of AUD1.8 billion, our debt maturities are covered to calendar year 2018. Goodman expanded and strengthened its business during the year which is now fully operational in key logistics markets globally.

We entered the Brazil market and consolidated Goodman's interest in the Japan management company in line with the substantial opportunities we see in that market. We are now also fully operational in the US, in the core East and West Coast markets with development and fund management capabilities. With good visibility in the future earnings this gives us confidence to forecast 2014 operating profit of AUD594 million, equating to operating earnings of AUD0.343 per security, up 6% on financial year '13.

Now turning to slide 7. We have robust property fundamentals with high occupancy of 96% and like-on-like rental growth of 2.6%. 2.9 million square metres of space was leased across the Group and funds, equating to AUD270 million of property income. Development work in progress, as I've stated, AUD2.3 billion with active developments in all our markets. We have 69 projects across 11 countries including development starts in the US and Brazil. In Australia activity remains strong with AUD850 million of new commitments with urban renewal also enabling higher and better use opportunities for the Group.

Our development activity continues to grow in China with current development volumes of around 600,000 square metres reflecting the ongoing under supply of quality space and the growing wealth of its population. In Europe we're maintaining solid activity levels and retain our market leading position with our assets under management growing to over AUD5 billion. Strong customer demand, particularly from the eCommerce sector, third party logistics and automotive sectors remains robust.

Our third party assets under management have grown strongly to in excess of AUD19 billion, up 21% highlighting our contemporary fund management and independent governance structures. Goodman's funds raised AUD2.8 billion in new equity during the year and extended terms of two funds in Australia and Hong Kong. Our management platform is exceptionally well placed with AUD3.8 billion of undrawn debt and equity available to participate in a range of development opportunities globally. The Group maintained its focus on prudent capital management throughout this year, retained its strong financial metrics, low gearing, strong liquidity and well diversified debt sources.

On that note I'll hand over to Nick Vrondas to talk through the financial highlights. Thank you, Nick.

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Nick Vrondas, Goodman Group - CFO [2]

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Thanks, Greg. So I'll touch on some of the key messages from the result and how the themes that Greg's just spoken about have manifested themselves into the results. Firstly, let me say it's very pleasing to report our operating profit and EPS as slightly higher than our initial guidance. In terms of what drove this we continue to see consistent income growth from our property investments but this year's results are boosted by faster than expected growth from management and development.

We also benefit from our geographic diversity. Our Australian operations have done well again and despite a tough European market that business has again contributed meaningfully and we've had another strong performance from our Asian business this year. It's very pleasing to see the benefits of the investment we've made over the past few years. We believe that our recent expansion to the Americas will deliver similar benefits into the future. In the process of achieving these results we've also lowered the risk profile of the Group and maintained our discipline. We have low leverage and high liquidity and our approach to development remains prudent.

All this enables us to remain a strong counterparty to our customers, our financiers, our service providers, our staff and our investment partners. We have capacity therefore to deliver our security holders consistently competitive returns with relatively low risk. At this moment visibility into future earnings is good. Our quality development book is growing nicely, it's delivering good investment property for us to deploy capital and enjoy strong returns from and our funds have significant capacity to grow to. In all we have confidence to yet again target 6% EPS growth for the upcoming year.

Turning now to slide 10 and a bit more detail on the result. Firstly, the items reconciling operating profit and statutory profit are summarised at the bottom of the table on the slide. You will also find further detail in the appendices, these are in a format that allows you to reference them into the published accounts. As usual these items include property valuations, derivative mark to market and items such as share based payments and transaction costs.

I'd like to spend a moment explaining the FX impacts on our results for the period. You can see in the table an item of AUD293 million which is largely the FX mark to market. The average FX rate for the period was broadly in line with last year. So the translation of our income was not hugely affected and as you know we do have hedges to offset that anyway. But the sudden decline at the end of the year did however result in significant unrealized mark to market losses on our hedges. Because we don't hedge account for them, these swings flow through the income statement but what you cannot see in the income statement is the translation of the underlying net assets which is what these derivatives are hedging.

They rose significantly in Australian dollars which you can also see in the balance sheet and in equity. Overall though our net asset position is largely hedged, as is intended. On the unrealised property valuation movements you'll see that they were down AUD37 million for the full year but it's worth noting that the second half result was up. The UK valuations were down a little but the rest of the markets were flat to up. Over the past 12 months we've not seen much cap rate compression in our valuations but with conditions stable and sentiment improving we believe there is propensity for more upside from here in capital values.

You'll see that we've had a restructuring provision this year. It highlights our focus on cost and risk management. This provision predominantly relates to some changes we are making in our European UK business park operations. We have undertaken a strategic review of the market for facility management services and of our own operations in that context. We've found that we could outsource some of the functions to high quality parties but at the same time maintain control of the value add and customer service. By doing this we can simplify a significant part of our shared services platform and rationalise our accommodation needs.

The net result is an immediate benefit to the bottom line and a much lower fixed cost base. We are vigilant on our cost structure so that we can continue to contain our risk profile. You can see this in our remuneration philosophy too and finally we had some transaction related costs, things like the creation of the Hong Kong staple company, business combination costs mainly for the Japan consolidation and some acquisition accounting anomalies. Outside of those items operating EBIT was up by over AUD80 million. In addition to the overall financial targets our divisional KPIs are tracking well too.

Income returns, our investment portfolio benefited from continued stable occupancy and rental growth. The yield is now over 7.25% on an income basis and this is meeting our hurdles and at the same time is providing very attractive investor returns. This is particularly pleasing when you take into account the positive valuation results for the stabilised properties and the sudden FX decline at the end of the year, both of which are not reflected income but do increase the denominator in the ROA calculation.

Our management service business continues to benefit from high levels of transactional activity and growth. In the year we've had good fund performance and a growing number of capital and property transactions. These have had a positive impact on revenues. Cost control in our mature businesses has meant that our margins have increased and we've been able to absorb the cost of our emerging markets. Management EBIT overall was up AUD29 million or nearly 40%. Over the next few years we also hope to see growth in the Americas. This will contribute meaningfully to our management business too.

Development volumes continue to grow and project margins have remained stable and you can see from the very healthy yield on costs we are generating. The mix of fee based and transaction based development income has also remained fairly stable. As a result development profits have increased by AUD26 million or nearly 20%, our ROA from our development business has remained at 10% this year. This is because we have recently increased our allocation development in our growing markets. We are still targeting more than our current 10% but believe it will take a bit of time. Again, we are yet to see the benefits from our investment in the Americas but over the next few years we expect that it will help enhance our returns and further diversify our sources of profitable opportunity.

The final thing to note on this slide is that we have today announced a AUD0.052 per share fully franked dividend from Goodman Limited.

Turning now to the balance sheet on slide 11. Our balance sheet is extremely strong and that gives us a great deal of capacity. Capacity for increased activity levels, capacity for expansion in our new markets and capacity to deliver growth without compromising the risk profile of the Group. We also continue to focus on pre-let and pre-funded developments and again that's been a feature of these results. Our relationship with strong capital partners and the asset rotation within the funds means that they are also well placed. This is a key part of our overall capital planning. Keeping the funds in a strong position has resulted in the material decline in our look through gearing.

In terms of capital allocation our investment portfolio has been relatively stable. We sold a few of our direct properties but we've seen some revaluation gains on the remainder of the portfolio. With respect to our cornerstone investments we have seen flat to positive valuations everywhere except UK business parks. Our net capital investment has been minimal. This is due to the strong demand from our capital partners and the limited supply of investment product. We have again reinvested some profits into some of the funds, alongside the other investors and we expect that this will continue next year.

The Group has also committed to make future investments into the funds over the next year or so. We will expect that this will be the normal trend with Goodman funding its share of the growth in assets under management. Our development working capital has increased. This is the higher allocation to Asia and the Americas in line with our business growth. We've continued to rotate our land inventory in the UK and expect to continue to do so over the coming year and we've seen a small decline in development land values mainly in the UK and Spain but they've been relatively small in the scheme of the overall portfolio.

Now on slide 12, you can see we are currently in an extremely strong capital management position. Our credit metrics are within our target ranges and that is senior leverage at around 25% and 40% on a look through basis. Our senior ICR is 5 times and 3 times on a look through basis. We have significant cash available lines to cover our upcoming commitments. Our main aim this year is to continue to lengthen and diversify debt funding sources for our funds. So in light of our extremely strong position we have deferred the reintroduction of the distribution reinvestment plan.

So in summary, Greg, a good operational result and a strong balance sheet which puts us in a position to continue to consistently deliver on our financial targets in the future.

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Gregory Goodman, Goodman Group - CEO [3]

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Thanks, Nick. In terms of the operating performance we've already touched on key highlights on slide 7. Further details are outlined on slides 14 to 18 for your reference. At this point I think we can move to the outlook and the summary which is slide 20. Goodman is well positioned as a global leader in our sector. We have proven capability and industrial expertise. We are benefiting from the strong demand by investor groups for high quality, stable, high yielding industrial assets and our ability to service our global customer base.

Through the expansion and strengthening of our operations during the year we have built a globally diversified business of size and scale. It provides significant scope to take advantage of opportunities due to the timing of different market cycles and cross border opportunities that flow from our customer and capital partner relationships while also giving us greater stability of earnings.

Goodman has worked hard to build and maintain its strong competitive position in the current operating environment. We are focused on the consistent and measured delivery of our business strategy and the high quality day-to-day execution of our operating activities including opportunities to achieve greater efficiencies through the tight management of costs. It has been achieved through the work of a stable, experienced and capable senior management team that has successfully led our dedicated people around the world to grow the Goodman business into a global leading brand, a brand that has a reputation for quality, expertise and proven capability across its assets management business, funds management and development activities.

I thank you all for your support for the year and look forward to delivering the financial year '14 forecast operating profit of AUD594 million. Thank you very much and at this point we'll now move to questions.

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Questions and Answers

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Operator [1]

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Your first question comes from the line of Paul Checchin from Macquarie. Please go ahead.

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Paul Checchin, Macquarie Securities - Analyst [2]

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Hi. Thank you, just a few questions. The first is Nick, can you just talk a little bit how you're thinking about your balance sheet? I mean you've obviously emphasised on the call the kind of strategy to make sure risk is mitigated, your gearing is now below 20%, I mean is there any thinking about whether you need the capital you've got? Obviously in fiscal year '13 you repatriated some capital out of a couple of your funds.

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Gregory Goodman, Goodman Group - CEO [3]

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Paul, I can answer that one. Yes, we do and I talked a bit about on the call about our global diversification around the world. We're the most diversified property group in our class, in the industrial class, so we're in more markets than any of our competitors. We have a yard of opportunity, it's our job to sift through the best opportunities around the world and that capital will be required for future periods. So, there's no thought of doing anything else with the capital apart from investing it wisely and investing it where we can get the best returns in the best markets. And we have the privilege of doing that because we're operating in a very diverse number of markets around the world.

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Paul Checchin, Macquarie Securities - Analyst [4]

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Yes and so you still see those kind of opportunities in the next 12 to 24 months, Greg?

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Gregory Goodman, Goodman Group - CEO [5]

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Look, they're expanding at the moment and I think where you see growth coming off from Brazil it's throwing up new opportunities. The US is still going to be sluggish and slow so there's opportunities in the US. I think Phil Pearce, he's been here for the board meeting and he was leasing buildings yesterday when we were in the afternoon in China. We've got opportunities across the park and the capital is required, it's necessary and will be deployed profitably.

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Paul Checchin, Macquarie Securities - Analyst [6]

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Okay, great, thank you and just a second one on your cash flow. Look, there's a little note in your presentation talking about AUD120 million of accrued development income and payments for developments. From what I can gather looking at the reconciliations in the cash flow statement AUD70 million is the investment for developments. I mean, does that mean AUD50 million of your development earnings are accrued development earnings which are non-cash which would basically represent around about a third of your total development EBITDA?

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Nick Vrondas, Goodman Group - CFO [7]

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Paul, it's Nick. Look, there's a couple of items there. There's a little bit of accrued that has settled subsequently and will progressively be being settled but there's a little bit that's released from prior periods as well. So the mismatch between cash and earnings crosses over effectively three periods.

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Paul Checchin, Macquarie Securities - Analyst [8]

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But is the mismatch AUD50 million? Is that the difference between cash coming in from developments where you've previously recognised earnings and income you're recognising on developments where you'll get cash flow in future periods? Is AUD50 million the net number or the gross?

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Nick Vrondas, Goodman Group - CFO [9]

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Yes, look to be frank with you I haven't actually done that calculation the way you're looking at it so I might have to do that and come back to you offline if that's okay?

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Paul Checchin, Macquarie Securities - Analyst [10]

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Yes, no problem and look, just a third question just on your development work in progress. Can you just comment on two things that look to have changed reasonably substantially from the third quarter, one being the decline in the WALE on the work in progress and the second in Europe, it looks like the pre-commitment level has dropped? So is that just the case that you've started one development speculatively?

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Nick Vrondas, Goodman Group - CFO [11]

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No, I think Europe is still primarily a 90%-odd market in regard to pre-let and that won't change. I think in regard to the WALE that's probably good Mr Pearce in China where the lease terms are sort of like three to five years and as you're doing more volume that WALE is coming back a bit. So Australia we're still actually doing some very, very long, 10 year long leases. So it's a bit of a mixed balance around the world, Paul.

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Paul Checchin, Macquarie Securities - Analyst [12]

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Okay, no worries.

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Nick Vrondas, Goodman Group - CFO [13]

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China probably primarily would be the contributor to that.

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Paul Checchin, Macquarie Securities - Analyst [14]

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Yes, okay. Thank you very much.

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Nick Vrondas, Goodman Group - CFO [15]

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Thanks.

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Operator [16]

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Your next question comes from the line of Stephen Rich from Credit Suisse. Please go ahead.

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Stephen Rich, Credit Suisse - Analyst [17]

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Morning, guys, a few questions for you this morning. Just to start with a bit more of a broader question re financing costs. Can you give us a feel for the implications of a bit of a global sell off in yield and specifically with reference to I think you've guided to a 3.21% average cost of debt? Where do you see that trending over the next 12 months?

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Nick Vrondas, Goodman Group - CFO [18]

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Stephen, it's Nick. Thanks, good question. I think as you'll know we have a very high proportion of our costs hedged, so variability in the short term is minimal. It will take some time for it to have an impact. You will also notice that our interest rate swap book is effectively still out of the money. So what that does is provide us with a bit of a buffer, I guess, against shocks in the short term at least to interest rates. So in the upcoming period I don't see any material impact on our funding costs. I think eventually it will catch up when our hedges run out at some point, but that is a natural hedge I suppose in terms of our earnings through the leases and through our operations if inflation kicks up, our real estate does have that kind of hedging characteristic, you just need time to catch up. So I think it's a longer dated issue if it does eventuate.

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Stephen Rich, Credit Suisse - Analyst [19]

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Great thanks, and just in terms of a bit of a geographic split, can you give us an update in terms of Japan and when we should expect to see some proceeds coming through there, and perhaps a bit of a leasing update there?

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Gregory Goodman, Goodman Group - CEO [20]

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Yes, I think Michael's aiming -- Michael O'Sullivan's aiming for the first quarter. I think we'll have some very good news for you out of Japan in the first quarter. Obviously Osaka is the big development there. We're looking to kick off the couple of brand new developments this side of December. Primarily we've gone to contract on those now. So some really good activity and at the moment anyway, the fiscal settings are the new government in Japan seems to be creating a flurry of activity and that's activity we're taking advantage of. So very pleased and quarterly update, I think we'll have some good news for you.

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Stephen Rich, Credit Suisse - Analyst [21]

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Great and just one final question, is there any update in terms of the US work that was underway in terms of specifically Oakland, how's that progressing?

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Gregory Goodman, Goodman Group - CEO [22]

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Oh look very well. All the site prep's been done. We're starting to go vertical, and we've got good inquiry. I think the development book with land now we've either got under contract, do DD, you know we're certainly through AUD1.5 billion of potential build out, but in prime coastal markets, so we're very pleased the way that's going right at the moment.

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Stephen Rich, Credit Suisse - Analyst [23]

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Great thanks guys.

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Operator [24]

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Your next question comes from the line of John Kim from CLSA. Please go ahead.

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John Kim, CLSA - Analyst [25]

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Thank you good morning. I wanted to ask about your guidance for next year of 6%. I appreciate you want to provide a very stable growth target and you've been very consistent with it, but in FY14 you have some one-off items, the full year impact of your 21% external AUM, you have the full year impact of the ATL logistics centre acquisition, as well as the asset sale in GTA to Meriton. Are there other factors weighing down FY14 results which keep it at 6%?

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Gregory Goodman, Goodman Group - CEO [26]

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No look I think the world we live in I still uncertain. The global recovery is still uncertain and we're just being prudent in a world where things may not go all your way, and we believe that is sensible, prudent, gettable without breaking any records, and that's what we're about, consistency moving forward. So let's see what happens with the world during the year, but where we sit at the moment, we think that looks very prudent.

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John Kim, CLSA - Analyst [27]

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What about margins on the management side, they look like they've kind of stabilised at 60%. Is that a good run-rate going forward, and also do you see any other residential conversion opportunities in FY14?

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Gregory Goodman, Goodman Group - CEO [28]

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Oh look I think, I think the management margins are stand outs and they're going very well, and we've still got size and scale to get in some markets clearly. So I think that's a very strong part of the business. Look, it's on record, I think we've got 20,000 residential lots around the country and over the next 10 years, 15 years, hopefully I'm talking to you John, we'll be talking about residential conversions. So in 15 years.

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John Kim, CLSA - Analyst [29]

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Turning to page 31 of your presentation, your top 20 sub-regions. It looks like there's been some movements, but the one that fell dramatically is Midlands, down to 2.1%. Is this from an inventory write down, is it from an asset sale, can you just explain why this movement?

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Gregory Goodman, Goodman Group - CEO [30]

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Oh the sale of Oxford, a development we sold I think in the mid, or mid-late five cap rate, very strong. Actually just to note I was talking to my head of equity this morning, Mr Kurtis, and he believes -- I didn't quite believe him when he told me, but he's confirmed that the [IPD] has now swung in the positive in the UK. So there we go. So I think first time in probably six years. So what we're seeing on the ground there though is cap rates are firming and good quality product is selling in the fives. Secondary product is starting to strengthen and we've just clicked a couple of big leasing deals in the UK, one actually signed last night.

So we've probably got well over [120,000/130,000] metres of brand new space on the go at the moment. So it has turned around and I think this year about a third of the land bank net looks like it will turn over, and may be more. So I think it has turned. It's been disappointing, but we've had to just stick with it.

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John Kim, CLSA - Analyst [31]

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Okay, can I ask about your cash? It's risen now to AUD645 million on your balance sheet in light of the recent asset sales and corner stone sales that you've done. But can you give us an idea of where that sits geographically? Is it in line with your WIP, or is it in line with where you've sold assets recently?

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Nick Vrondas, Goodman Group - CFO [32]

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John you're asking about where the cash sits?

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John Kim, CLSA - Analyst [33]

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Yes.

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Nick Vrondas, Goodman Group - CFO [34]

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The cash is typically repatriated back to Aussie dollar denomination. We're an Aussie denominated company, we don't want to take currency risks there. But since balance date -- I mean what happened was we settled quite a number of transactions late in the period, literally like a couple of days before the end, and we couldn't put it into the paying down the revolvers or put it in the right place. Effectively what we have done subsequently is repaid revolving credit facilities and effectively get the best use of that cash. But it was just some settlements late in the period which resulted in it being effectively translated to Aussie spot and here in Australia.

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John Kim, CLSA - Analyst [35]

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And your policy on that hasn't changed recently with the change in the Aussie dollar?

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Unidentified Company Representative [36]

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No, the policy doesn't change with cyclical gyrations.

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John Kim, CLSA - Analyst [37]

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Okay and then final question is Amazon, it's your second biggest tenant globally, but it looks like that's completely from contributions in Europe. Can you just give us an update on where you sit with Amazon in the US?

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Gregory Goodman, Goodman Group - CEO [38]

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Oh look I can't really make any comment apart from they're a good customer of ours and we want them as a good customer globally. US is obviously an opportunity, so is China. So can't make any specific comment. But I can say, good customer and we'd like to do things with them in other parts of the world.

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John Kim, CLSA - Analyst [39]

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Has Amazon allocated some of those development requests to other developers in the US?

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Gregory Goodman, Goodman Group - CEO [40]

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Oh look Amazon are a good customer and they are very, very good operator and of course they'll test the market in regard to best price. So the world is a competitive one and it's the world we play in. So we have conversations like other developers I suspect around what we can do for them.

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John Kim, CLSA - Analyst [41]

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Great thank you.

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Operator [42]

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Your next question comes from the line of Richard Jones from J.P. Morgan. Please go ahead.

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Richard Jones, J.P. Morgan - Analyst [43]

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Oh good morning, question for you first Nick, just the transaction costs that you talk about for strategic initiatives. Can you just provide a little more colour? You mentioned kind of three things I think. But just clarify exactly what they are and why they're all non-operating.

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Nick Vrondas, Goodman Group - CFO [44]

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Yes, so the creation of the triple-stapled. So roughly equal portions, the triple-stapled, the Hong Kong company creation, those costs were expensed. We don't believe that we'll be creating another triple-stapled any time soon, so we called them out. In terms of the business combination and acquisition accounting, I think I mean there's a couple of items there. Business combination costs, so the acquisition of Japan, treated technically as an acquisition, and all costs associated with that acquisition under the new standards are expensed. Again, that's not an operating item, acquisition of that management company effectively.

Then the third area is around acquisition accounting for HDL, the Highbrook transaction in New Zealand. And the way that that transaction was accounted for, and we had the same issue I think you might recall with Moorabbin, where the deemed price received for the disposal of the HDL units to GMT was the price of the stock on the day it was allotted to us.

Now that was -- when we did the deal with GMT and exchanged contracts, the price at that time was substantially higher than where it finished up when we got allotted, and since then it's actually increased. But the way the accounting works is it's the spot on that day that determines the acquisition proceeds. But we don't get the -- we don't get to re-mark that up and down. So I think from that point of view, you know, it was viewed as, I suppose, an unrealised loss in that respect. So non-operating in that nature.

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Richard Jones, J.P. Morgan - Analyst [45]

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Yes okay, fair enough. And just any equity raisings that you've got planned for any of your funds in the kind of coming six or 12 months?

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Gregory Goodman, Goodman Group - CEO [46]

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Oh look, Richard we're -- I think as the presentation's outlined, we're in very, very good shape. Our job is to spend the capital we have with our big partners around the world wisely and sensibly and get them, you know, good returns. So I think from our perspective, very well catered for and it will be a little quieter in the next six months on capital raisings because we just do not have the opportunity to deploy it, unless there is a special situation like a corporate acquisition, a property acquisition, something that is not on the plan at the moment.

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Richard Jones, J.P. Morgan - Analyst [47]

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So the gearing levels that are quoted for GAIF and for GELF, are they post the capital raisings?

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Gregory Goodman, Goodman Group - CEO [48]

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A lot of the capital comes down on a draw down basis, so it doesn't immediately hit the gearing, yes for GELF.

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Richard Jones, J.P. Morgan - Analyst [49]

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And GAIF?

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Unidentified Company Representative [50]

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No GAIF is as is.

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Richard Jones, J.P. Morgan - Analyst [51]

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Okay and then just one final question, have you, or are you looking at, kind of any portfolio opportunities that may comprise either a combination of investment assets and development assets in either the US or Brazil?

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Gregory Goodman, Goodman Group - CEO [52]

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Let me think. Oh look from time to time. At the moment is there anything burning, burning desire to buy? No I don't think so at the moment. But look they're coming up, something came our way the other day somewhere in the world, significant. So look I think as the globe is still going to be difficult, it's going to be a hard grind out for growth in most countries. There are going to be opportunities if you have capital, and from time to time those will come before us, like ATL did in Hong Kong. And when it did we took that opportunity. So there will be opportunities, but certainly none that we have baked into our forecasts or pro forma.

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Richard Jones, J.P. Morgan - Analyst [53]

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Okay thank you.

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Operator [54]

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Your next question comes from the line of Philip Cheetham from Citigroup. Please go ahead.

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Philip Cheetham, Citigroup - Analyst [55]

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Oh good morning guys. Quick one from me. Just looking at the proportion of earnings from the trust now, versus the active management business, and in particular development. Development earnings now at 25% of Group, is there a level at which you get uncomfortable with that or you'd like to bring it back, or you know, is there a level that you'd target of earnings between the two?

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Gregory Goodman, Goodman Group - CEO [56]

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I think good question Philip. I think bearing in mind a lot of the earnings out of development are fee for service in regard to our partners and funds, I think that means it's a very different proposition to developing on book for sale. And a big portion of that is fee for service. I think the second thing is with 92% pre-commitments and well over 70% odd plus pre-sold, it's a very strong position to be in so we don't see necessarily risk in our development business that may be in others. So I think 25% we're comfortable and will grow higher. There's no doubt about that over the next two or three years as we trend towards AUD2.5billion to AUD2.8 billion but it's the nature and the characterisation of it which I think is important to understand that it's unusual for developers to have so much pre-sold and pre-committed -- very unusual.

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Nick Vrondas, Goodman Group - CFO [57]

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I think it was last year Greg we indicated to the market that we did expect the active part of the business to go to 50% over the foreseeable future --

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Gregory Goodman, Goodman Group - CEO [58]

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Yes.

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Nick Vrondas, Goodman Group - CFO [59]

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-- and I think well that's still the case and we're still comfortable with that.

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Philip Cheetham, Citigroup - Analyst [60]

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Right, right. Just to one comment you made Nick in terms of visibility and earnings. I mean how far out is visibility now on the development pipeline and how much visibility do you have out beyond '14?

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Nick Vrondas, Goodman Group - CFO [61]

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Beyond '14 the nature of our development business is it's a virtue and it's a -- I suppose it's difficult to predict further out is because of the short lead times on construction. I mean that most of our work is in and out within a year. So it's good from a capital management point of view but it doesn't -- and it's also good from a risk point of view, it means you've got a lot of little projects and not big multi-year high risk developments but we do have some good projects underway in Japan for example and the profitability of the projects that are underway in the Americas at the moment we have good visibility for '15 into those. But look there's still going to be a fair portion of our '15 book that we still need to earn as we go out.

Do we have it locked in today? No, but the quality of the franchise, knowing what our customers are doing, knowing how much capital we've got available to crystallise that and fund it means that all the preconditions are in place so we do feel confident that we can do that. I think the flip side is and when Greg's talking about our capital position is that if for whatever reason the development starts aren't there, that may be throwing up opportunities in other areas of the business to drive our EPS growth to our shareholders, our security holders. Having the liquidity in the balance sheet capacity to be able to be flexible and to deploy capital in the opportunistic way gives us the ability then to supplement development income with other forms of income.

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Philip Cheetham, Citigroup - Analyst [62]

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Great. Thank you very much for that. Thanks for your time guys.

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Nick Vrondas, Goodman Group - CFO [63]

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No worries thank you.

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Operator [64]

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Your next question comes from the line of Simon Garing from Merrill Lynch. Please go ahead.

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Simon Garing, Merrill Lynch - Analyst [65]

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Good morning gentlemen. Just on page 29 under the leasing update I just want to check that NPI growth rate at 2.6% is based on a positive reversion of that 3.7% on new leasing deals?

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Nick Vrondas, Goodman Group - CFO [66]

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Yes that's correct Simon.

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Simon Garing, Merrill Lynch - Analyst [67]

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Excellent. No that's great. In terms of the Asian management fees they lifted quite materially from AUD19 million to AUD55 million. Can you give a bit of an outline as to what were the key drivers behind that increase?

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Nick Vrondas, Goodman Group - CFO [68]

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Sorry, can you repeat the question I (inaudible).

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Simon Garing, Merrill Lynch - Analyst [69]

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Yes Asian management fees in the segmentals lifted from AUD19 million to AUD55 million.

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Nick Vrondas, Goodman Group - CFO [70]

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Yes there's a few things driving that. Obviously we've now consolidated the Japan business Simon so previously you would have seen all the revenues coming through Japan on an equity counted basis but now it's coming through on a consolidated basis on the different line items. Then obviously we've had a number of transactional activities throughout Asia. You know we've reset the fund, we've bought ATL and property leasing has been strong so China is growing. So there's a whole bunch of items driving that.

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Simon Garing, Merrill Lynch - Analyst [71]

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Okay thank you. I guess a broader question on fees -- what were the recognition of performance fees for the period across all the funds?

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Nick Vrondas, Goodman Group - CFO [72]

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I think they were a part of it. We don't -- we haven't commented specifically on any item there but I think you can see that the growth overall in the business has been I think predominantly driven by a lot of the transactional activities which does include those development fees. So that will give you an estimate of kind of what's driving that.

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Simon Garing, Merrill Lynch - Analyst [73]

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I meant sort of outside of Asia more on a global basis performance fees versus say last year -- was it an increase in contribution or decrease in contribution?

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Nick Vrondas, Goodman Group - CFO [74]

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No it's about the same.

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Simon Garing, Merrill Lynch - Analyst [75]

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About the same as last year. Great and the average effective cost of debt for FY14 in your guidance number please?

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Nick Vrondas, Goodman Group - CFO [76]

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For the fund sorry did you say or?

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Simon Garing, Merrill Lynch - Analyst [77]

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No the effective cost of debt across the whole P&L in your forecast of 6% EPS growth?

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Nick Vrondas, Goodman Group - CFO [78]

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Yes look it will be effectively just under 5% I think is where we'll be.

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Simon Garing, Merrill Lynch - Analyst [79]

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Okay thank you. Greg we've talked about this a couple of times now the Arlington Business Park losses seem to be increasing. Is this a -- I know you've recently extended the management rights but is this something that you want to continue with?

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Gregory Goodman, Goodman Group - CEO [80]

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I think I made a comment before I think the IPD swung into the positive. Look I think we see it as a great opportunity moving forward to be quite honest Simon. We've worn the pain in the UK. It's been the most difficult market that we've been in globally but there's now signs of improvement. So I think over the next five or six years we want to earn it back and we'll be working very hard to do so. Product is good. We're -- when we are selling product now it's going out at premiums, developments are coming through there you've got a good development land bank as well. Developments are selling in the [AUD5 millions] so no look we think moving forward it can be a really profitable contributor certainly over the next five years.

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Simon Garing, Merrill Lynch - Analyst [81]

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Congrats on providing a fully franked divvy. We haven't seen that in a while out of the company. Is that something that can be sustained do you think Nick?

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Nick Vrondas, Goodman Group - CFO [82]

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No I think it's a bit of a one off actually Simon. We had those franking credits on account for quite a while. Given the triple-stapled accretion, the triple-stapled on the re-capitalisation of Goodman Limited -- it was part of that whole transaction and profitability of Goodman Limited over the last year that's given us the impetus to and the ability to declare and pay on the 26th of August that fully franked dividend. But look I think it's going to take us a while to accumulate those sort of franking credits again. So unfortunately it is a bit of a one off but a good one nonetheless.

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Simon Garing, Merrill Lynch - Analyst [83]

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A good one nonetheless. Yes got you. In the Asian development WIP is Osaka still roughly AUD320 million of that WIP?

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Gregory Goodman, Goodman Group - CEO [84]

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No, no it's smaller than that.

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Simon Garing, Merrill Lynch - Analyst [85]

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Smaller than that okay. Thanks gentlemen.

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Nick Vrondas, Goodman Group - CFO [86]

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Thanks.

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Gregory Goodman, Goodman Group - CEO [87]

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Thanks Simon.

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Operator [88]

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Your next question comes from the line of Simon Wheatley from Goldman Sachs. Please go ahead.

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Simon Wheatley, Goldman Sachs - Analyst [89]

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Hi guys. Just a quick question on developments and third party development sales. I just wanted to find out how much of the development product was sold to third parties in '13 and what you're thinking of broadly for '14 and '15?

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Gregory Goodman, Goodman Group - CEO [90]

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Look it would be under 10% Simon and I think that will probably be about the number moving forward. There'll be some we sell to the open market. That might be build to suits and locations where we go yes we'd much rather pass it on to someone else at a good price. So look not a big number though in regard to the total development book.

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Nick Vrondas, Goodman Group - CFO [91]

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Yes I think it would be about the same Greg. We just yesterday signed a deal in the UK for a turnkey. So you see a bit of that Simon I think.

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Gregory Goodman, Goodman Group - CEO [92]

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Yes.

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Nick Vrondas, Goodman Group - CFO [93]

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Which is good -- it helps us rotate some land but it's not the main game.

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Simon Wheatley, Goldman Sachs - Analyst [94]

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Yes no I was just trying to think about your development completions and how much of that converts into [AUM] as opposed to sort of leakage.

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Gregory Goodman, Goodman Group - CEO [95]

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Yes 90% of it Simon is pretty much the run rate I think.

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Nick Vrondas, Goodman Group - CFO [96]

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Yes.

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Simon Wheatley, Goldman Sachs - Analyst [97]

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Okay and just on capitalised interest just confirm the capitalised interest rate for '13 and whether that will be similar in '14?

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Nick Vrondas, Goodman Group - CFO [98]

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Yes that's right the policy hasn't changed Simon in the way we do it. People can track through where it comes from and where it's going to.

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Gregory Goodman, Goodman Group - CEO [99]

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Yes the big trigger is obviously turning land over in the UK. We're doing it at a higher velocity but then on the other flipside the development workbook is actually building as well.

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Simon Wheatley, Goldman Sachs - Analyst [100]

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Okay great. Thanks guys.

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Nick Vrondas, Goodman Group - CFO [101]

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Thanks.

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Gregory Goodman, Goodman Group - CEO [102]

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Thanks. Right I think that's the end of the questions. I'd like to thank everyone very much and bring the presentation to a close.