GOODMAN GROUP ANNUAL REPORT —96 P GOODMAN GOODMAN INDUSTRIAL TRUST INDUSTRIAL Consolidated Financial Report

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GOODMAN GROUP ANNUAL REPORT —96 P GOODMAN GOODMAN INDUSTRIAL TRUST INDUSTRIAL Consolidated Financial Report GOODMAN GROUP ANNUAL REPORT GOODMAN GOODMAN GOODMAN LOGISTICS LIMITED INDUSTRIAL TRUST (HK) LIMITED Consolidated financial report. Consolidated financial report. Consolidated financial report. p —17 p —96 p —144 INDUSTRIALGOODMAN GROUP ANNUAL REPORT 2016 EVOLUTION This page has been left blank intentionally CONTENTS Chairman’s letter 2 Group Chief Executive Officer’s report 4 Group operations 7 Corporate responsibility and sustainability 10 Corporate governance 16 Consolidated Financial Report for Goodman Limited 17 Consolidated Financial Report for Goodman Industrial Trust 96 Consolidated Financial Report for Goodman Logistics (HK) Limited 144 Securities information 178 Glossary 179 Corporate directory 180 GOODMAN GROUP ANNUAL REPORT 2016 1 CHAIRMAN’S LETTER Leading transformation The right mix The 2016 financial year (FY2016) was another successful With an expanding business operating in a high growth sector, year for Goodman. Not only did we grow our operating profit successful execution of our strategy has required an optimal to $715 million, a 9% increase on the 2015 financial year mix of prudent, uncompromising financial management (FY2015), but we did it while executing a long-term plan coupled with entrepreneurial drive. which will underpin the Group’s future. Low borrowings, a robust balance sheet and strong customer relationships, Last year at Goodman, I believe we came up with the right mix. supported by our gateway city strategy, were all features The numbers support our approach. of the last year. These results were the product of the execution of a long-term Financial highlights for FY2016 include: strategy that a short-term plan would not be able to achieve. Over the past five years at Goodman, the discipline and + Operating profit of $715 million, a 9% increase on FY2015; commitment of the executive team and staff have seen the + Statutory profit of $1,275 million, contributing to Group conceive, develop and execute a plan which will fortify 19% growth in net tangible assets per security; Goodman’s future. + Operating earnings per security (EPS) of 40.1 cents, up 7.8% on FY2015; As part of this plan, we continued acting on our earlier decision + Distribution per security of 24.0 cents, up 8% on FY2015; to invest and develop in quality locations in major urban + A strong financial position maintained, with balance sheet centres, in order to capitalise on the urbanisation of major gearing of 11.8%; and cities, the boom in global consumption and the continued + Group liquidity at $2.6 billion to meet all near term evolution of e-commerce and logistics. obligations and opportunities. To get there, we’ve combined the financial strength which we see as part of ‘business as usual’ at Goodman, with an appetite for expansion and change that has helped us stay ahead of the market. To stay at the forefront of our sector, we envisaged a plan that would go the distance. We’re now well positioned to capitalise on the side effect of a boom in e-commerce and a redefinition of the role of the warehouse. Today, our customers want more value from their property solutions than ever before. They are willing to consolidate, rationalise or automate to achieve greater cost efficiencies. We also know they are turning their attention to the locations where Goodman’s gateway city strategy remains focused: proven logistics locations in major cities around the world, close to major urban centres. The results of this strategy of developing quality properties in sought-after locations can not only be seen in the strong bottom line we presented for FY2016, but it’s also shown through the high quality of our properties. These are being built to lead, not just meet, market demands in the warehousing sector. Across the globe last year, the foresight Goodman has shown in its urban renewal and gateway city strategies provided our customers with a competitive edge and the Group with a sustainable business. Nowhere was this better demonstrated than in Sydney, Australia. When one of our commercial properties at Waterloo Road in Macquarie Park was rezoned as residential and subsequently contracted for sale, we worked closely with the building’s customer, Fuji Xerox to find them suitable alternative commercial space. Soon, Fuji Xerox will relocate to a brand new Goodman development in nearby Khartoum Road, Macquarie Park. This new property gives Fuji Xerox a chance to consolidate its operations, with its Fuji Film business also moving into the new commercial space. As a result, we have been able to provide Fuji Xerox with higher quality premises, through a cost- effective, minimally disruptive move. For Goodman’s part, there were significant benefits to this approach. We’ve not only conditionally exchanged on the sale of the Waterloo Road site, but importantly, we’ve also provided Fuji Xerox with a better property solution and retained them in our Australian portfolio. 2 GOODMAN GROUP ANNUAL REPORT 2016 The right plan A bright future I’m pleased to say that in FY2016, the discipline and What we’ve seen in FY2016 is the outcome of the past five commitment of our executives and staff have ensured the years of dedication and discipline by the team in executing a desired outcome we’ve been working towards in our five well-designed strategy. The results ensure Goodman has built year plan is all but here. a sustainable business which is now well positioned for the future—one which may entail further expansion of our core While our results are impressive on their own, there are two business or expansion from opportunistic circumstances. factors which make them even more so. First, they’ve been achieved without resorting to the use of financial leverage, Whichever we choose, our cautious financial management over and second, they take into account the costs of expansion the last year ensures that we are in a solid position in terms of into new markets such as the United States and Brazil. under reliance on cash. Additionally, as our investment partners have $8 billion of undrawn equity capital committed, we will not Overall, we are confident with our forecast 6% p.a. operating have to resort to undue leverage to fulfil our expansion plans. earnings per security growth for FY2017. Of course, no matter how solid the plan, there will be bumps in the road. We also can anticipate continuing challenges in new and developing economies such as China, where we have long-term partners and caps on our exposure. In more mature economies, we will continue with our rational expansion plans, taking advantage of our unique industry segment and its current growth phase, in particular our growth in the United States. When we do hit challenges, I rest assured, knowing that our people are our core strength, and the success we have seen is testament to that. The executive team are highly experienced and have been together to execute this strategy over the past five years. We enjoy high staff retention across the whole Group. All are positive factors, which are reflected in a performance-based remuneration plan designed to ensure retention of key and high performing staff, another strategy with which we are very satisfied. I am very proud of the excellent results that the Group has achieved in FY2016, through its conviction on delivering to a robust and sustainable strategy and of the focus, commitment and drive shown by everyone at Goodman. I look forward to the coming year and would like to thank our staff for their dedication and our Securityholders, customers and investment partners for your continued support. Ian Ferrier, AM Independent Chairman GOODMAN GROUP ANNUAL REPORT 2016 3 GROUP CHIEF EXECUTIVE OFFICER’S REPORT Evolving our business The quality and location of our properties have always been Goodman has completed another successful year in which we key factors in Goodman’s investment decisions and they define continued to grow our business and ensure we are in robust the composition of our overall portfolio of 412 properties. In the shape financially and operationally to benefit from a number of context of the themes transforming our sector, we continue to transformational macro themes that are shaping the future and see ongoing growth in the quality and strength of our properties driving the evolution of the industrial property sector. This is an in and around major gateway cities and this forms the basis of exciting time for the Group and I’m pleased to report on our our overall business strategy. activities and achievements in the 2016 financial year and how During the year, this was reflected in our focus on improving these are positioning Goodman for a strong future. the quality of our properties and the income we earn from Our performance during the year delivered 7.8% growth in them. We did this by taking advantage of the high demand for operating earnings per security, demonstrating our conviction modern, well located logistics space and selectively selling that the business strategy we are executing is the right one for assets, with the proceeds reinvested into our development the prevailing market conditions and will create long-term value business. The continued strong demand for industrial for all of Goodman’s stakeholders. Our ability to achieve this assets resulted in $2.2 billion of properties (excluding urban comes from Goodman’s industrial property expertise, size and renewal sites) being sold across the Group and our managed scale, and the extensive infrastructure we have in place around Partnerships in markets including Australia, New Zealand, the world. Our operations span 16 countries and we have built China, the United Kingdom and Continental Europe. This sales a truly global business, with a virtually unrivalled operating activity has helped to fund our growing development work platform and skilled team of people.
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