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MarketScreener Homepage  >  Equities  >  Australian Stock Exchange  >  Goodman Group    GMG   AU000000GMG2

GOODMAN GROUP

(GMG)
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Goodman : Appendix 4E Full Year Accounts

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08/12/2020 | 08:23pm EDT

APPENDIX 4E

GOODMAN GROUP

(comprising Goodman Limited, Goodman Industrial Trust and Goodman Logistics (HK) Limited)

RESULTS FOR ANNOUNCEMENT TO THE MARKET

For the year ended 30 June 2020

The Appendix 4E should be read in conjunction with the Directors' report and Consolidated financial statements of Goodman Limited for the year ended 30 June 2020. The information included in the Appendix 4E and the Consolidated financial report for the year ended 30 June 2020 comprises all the information required by ASX Listing Rule 4.3A. The Appendix 4E is based on the Consolidated financial statements which have been audited by KPMG.

Highlights of results

30 Jun 2020

30 Jun 2019

Change

Operating profit (before specific non-cash and other significant items) attributable to

Securityholders ($M)

1,060.2

942.3

up

12.5%

Revenue and other income ($M)

2,633.4

3,025.8

down

(13.0%)

Profit (statutory) attributable to Securityholders ($M)

1,504.1

1,627.9

down

(7.6%)

Diluted operating profit per security (cents)

57.5

51.6

up

11.4%

Dividends and distributions

Interim distribution per GMG security (cents)

15.00

15.00

-

-

Final dividend and distribution proposed per GMG security (cents)

15.00

15.00

-

-

30.00

30.00

-

-

Interim distribution paid ($M)

274.3

272.1

up

0.8%

Final dividend and distribution proposed ($M)

274.2

272.1

up

0.8%

548.5

544.2

up

0.8%

Franked amount per security/share (cents)

-

-

-

-

Conduit foreign income

-

-

-

-

Record date for determining entitlements to the final dividend and distribution

30 Jun 2020

30 Jun 2019

Date interim distribution was paid

25 Feb 2020

26 Feb 2019

Date final dividend and distribution are payable

28 Aug 2020

9 Sep 2019

Distribution reinvestment plan

Goodman Group's Distribution Reinvestment Plan (DRP) remains suspended.

Total assets under management ($B)

51.6

46.2

up

11.7%

External assets under management ($B)

48.0

42.9

up

11.9%

Total assets ($M)

16,138.2

14,912.8

up

8.2%

Total liabilities ($M)

4,617.6

4,390.3

up

5.2%

Net assets ($M)

11,520.6

10,522.5

up

9.5%

Net tangible assets per security/share (cents)

583.8

533.8

up

9.4%

Gearing (%)

7.5

9.7

down

(22.7%)

Contributed equity ($M)

8,031.7

8,031.7

-

-

Security price ($)

14.85

15.03

down

(1.2%)

Number of securities on issue (M)

1,828.4

1,813.9

up

0.8%

Market capitalisation ($M)

27,151.9

27,262.6

down

(0.4%)

Number of Securityholders

36,484

26,648

up

36.9%

Controlled entities acquired or disposed

During the year, Goodman Group disposed of its entire interest in Goodman Logistics 7 Unit Trust.

Associates and joint venture entities

Goodman's Group's associates are set out in note 6 to the financial statements.

Goodman Group's joint ventures and its percentage holding in these joint ventures are set out below: BGMG1 Oakdale West Trust (50%)

BGMG2 Rochedale North Trust (50%)

BL Goodman Limited Partnership (50%)

Euston Road Subtrust No.2 Trust (50%) FSX Czech s.r.o (50%)

GEP Ilias Logistics (Spain) (50%)

Goodman Australia Development Partnership (20%) Goodman Blacktorn Logistics (Poland) (50%) Goodman Bondi Logistics Netherlands (50%) Goodman Blue Logistics (Hungary) Kft (50%) Goodman Brazil Logistics Partnership (15%) Goodman China Logistics Partnership (20%) Goodman Delta Logistics (Poland) (50%) Goodman Doris Logistics Netherlands (50%) Goodman Helena Logistics (Spain) (50%) Goodman Japan Development Partnership (50%) Goodman Lazulite Logistics (Lux) Sàrl (50%) Goodman Mona Logistics (Netherlands) B.V (50%) Goodman North America Partnership (55%) Goodman Odysse Logistics (Lux) Sàrl (50%) Goodman Persiphone Logistics Poland (50%) Goodman Princeton Partnership (Jersey) Ltd (20%) Goodman Purple Logistics (Poland) (50%) Goodman Tangerine Logistics (Lux) Sàrl (50%) Goodman UK Partnership L.P (33.3%)

Loreto Investments, S.L. (50%) Metropol Development s.r.o. (50%) KWASA Goodman Germany (20.5%)

KWASA Goodman Industrial Partnership (40%)

Pochin Goodman (Northern Gateway) Ltd (50%) South East Asia Joint Venture (50%)

Goodman Group

Goodman Limited and its controlled entities

Consolidated financial report for the year ended 30 June 2020

CONTENTS

Directors' report

2

Lead auditor's independence declaration

58

Consolidated statements of financial position

59

Consolidated income statements

60

Consolidated statements of comprehensive income

61

Consolidated statements of changes in equity

62

Consolidated cash flow statements

64

Notes to the consolidated financial statements

Basis of preparation

1

Basis of preparation

65

Results for the year

2

Profit before income tax

70

3

Profit per security

73

4

Segment reporting

74

5

Taxation

78

Operating assets and liabilities

6

Property assets

81

7

Receivables

94

8

Contract balances

95

9

Assets held for sale

96

10

Payables

97

11

Provisions

97

12

Property, plant and equipment

98

13

Leases

98

14

Goodwill and intangible assets

99

Capital management

15

Net finance (expense)/income

104

16

Interest bearing liabilities

105

17

Other financial assets and liabilities

107

18

Financial risk management

108

19

Dividends and distributions

118

20

Issued capital

119

Other items

21

Notes to the cash flow statements

121

22

Equity attributable to Goodman Limited and non-controlling interests

125

23

Controlled entities

127

24

Related parties

129

25

Commitments

131

26

Auditors' remuneration

132

27

Parent entity disclosures

132

28

Events subsequent to balance date

133

Directors' declaration

134

Independent auditor's report

135

Appendix A - Goodman Logistics (HK) Limited financial report for the year ended 30 June 2020

A1

Goodman Group

Directors' report

The directors (Directors) of Goodman Limited (ABN 69 000 123 071) and Goodman Funds Management Limited (GFML), the responsible entity for Goodman Industrial Trust (ARSN 091 213 839), present their Directors' report together with the consolidated financial statements of Goodman Limited and the entities it controlled (Goodman or Group) and the consolidated financial statements of Goodman Industrial Trust and the entities it controlled (GIT) at the end of, or during, the financial year ended 30 June 2020 (FY20) and the audit report thereon.

Shares in Goodman Limited (Company or GL), units in Goodman Industrial Trust (Trust) and CHESS Depositary Interests (CDIs) over shares in Goodman Logistics (HK) Limited (GLHK) are stapled to one another and are quoted as a single security on the Australian Securities Exchange (ASX). In respect of stapling arrangements, Australian Accounting Standards require an acquirer to be identified and an in-substance acquisition to be recognised and accordingly Goodman Limited is identified as having acquired control over the assets of GIT and GLHK. The consolidated financial statements of Goodman Limited therefore include the results of GIT and GLHK.

As permitted by the relief provided in Australian Securities & Investments Commission (ASIC) Instrument 18-0353, the accompanying consolidated financial statements present both the financial statements and accompanying notes of Goodman and GIT. GLHK, which is incorporated and domiciled in Hong Kong, prepares its financial statements under Hong Kong Financial Reporting Standards and the applicable requirements of the Hong Kong Companies Ordinance and accordingly the financial statements of GLHK have not been included as adjacent columns in the consolidated financial statements. The financial statements of GLHK have been included as an appendix to this financial report.

GFML, as responsible entity for the Trust, is solely responsible for the preparation of the accompanying consolidated financial report of GIT, in accordance with the Trust's Constitution and the Corporations Act 2001.

OPERATING AND FINANCIAL REVIEW

Principal activities

Goodman is a global integrated property group and one of the world's leading listed industrial property groups. Goodman is focused on its proven business model of owning, developing and managing industrial property and business space in key markets around the world.

The principal activities of Goodman during the course of the current financial year were investment in directly and indirectly held industrial property, investment management, property services and property development. Goodman's key operating regions during the financial year were Australia and New Zealand, Asia, Continental Europe, the United Kingdom and the Americas.

2

Goodman Group

Goodman strategy

Goodman's purpose is to make space for its stakeholders' ambitions. This purpose is executed through Goodman's integrated business capabilities model - "own+develop+manage", where its customers' need for sustainable solutions and service excellence in high-quality locations, is at the centre.

The business capabilities are supported by five strategic "pillars":

  1. Quality partnerships - develop and maintain strong relationships with key stakeholders including customers, investment partners, suppliers and employees.
  2. Quality product and service - deliver high quality product and customer service in key logistics markets globally by actively leveraging Goodman's industrial sector expertise, development and management experience and global operating platform.
  3. Culture and brand - promote Goodman's unique and recognisable brand and embed Goodman's core values across each operating division to foster a strong and consistent culture. The core values are:
    • Customer + Focus: "Be closer to the customer's world and their changing needs"
    • Innovative + Dynamic: "Be more creative in our thinking and more creative in our actions"
    • Open + Fair: "Be adaptable and considerate in our dealings inside and outside our business"
    • Performance + Drive: "Do what we say we'll do and make things happen"
    • Team + Respect: "Recognise the worth in each other and collaborate for better results".
  4. Operational efficiency - optimise business resources to maximise effectiveness and drive efficiencies.
  5. Capital efficiency - maintain active capital management to facilitate appropriate returns and sustainability of the business.

3

Goodman Group

Directors' report

Operating and financial review (continued)

Financial highlights

2020

2019

Change %

Revenue and other income before fair value adjustments on investment

2,132.4

(7.0%)

properties ($M)

1,982.1

Fair value adjustments on investment properties including share of adjustments

for Partnerships ($M)

651.3

893.4

(27.1%)

Revenue and other income ($M)

2,633.4

3,025.8

(13.0%)

Profit attributable to Securityholders ($M)

1,504.1

1,627.9

(7.6%)

Operating profit ($M)

1,060.2

942.3

12.5%

Statutory profit per security - basic (¢)

82.4

89.9

(8.3%)

Operating profit per security (operating EPS) (¢)1

57.5

51.6

11.4%

Dividends/distributions in relation to the year ($M)

548.5

544.2

0.8%

Dividends/distributions per security in relation to the year (¢)

30.0

30.0

0.0%

Weighted average number of securities on issue (M)

1,826.0

1,811.7

0.8%

Total equity attributable to Securityholders ($M)

11,520.6

10,522.5

9.5%

Number of securities on issue (M)

1,828.4

1,813.9

0.8%

Net tangible assets per security ($)

5.84

5.34

9.4%

Net assets per security ($)

6.30

5.80

8.6%

External assets under management ($B)

48.0

42.9

11.9%

Total assets under management ($B)

51.6

46.2

11.7%

Development work in progress ($B)2

6.5

4.1

58.5%

Gearing (%)3

7.5

9.7

Interest cover4 (times)

15.3

19.6

Liquidity ($B)

2.8

2.7

Weighted average debt maturity (years)

5.8

6.6

  1. Operating profit per security (operating EPS) is the operating profit divided by the weighted average number of securities on issue during FY20, including securities relating to performance rights that have not yet vested but where the performance hurdles have been achieved. Operating profit comprises profit attributable to Securityholders adjusted for net property valuations gains, non-property impairment losses, net gains/losses from the fair value movements on derivative financial instruments and unrealised fair value and foreign exchange movements on interest bearing liabilities and other non-cash adjustments or non-recurring items e.g. the share based payments expense associated with Goodman's LTIP.
    The Directors consider that Goodman's operating profit is a key measure by which to examine the underlying performance of the business, notwithstanding that operating profit is not an income measure under International Financial Reporting Standards.
  2. Development work in progress is the end value of ongoing developments across Goodman and its investments in associates and joint ventures (referred to as Partnerships).
  3. Gearing is calculated as total interest bearing liabilities over total assets, both net of cash and the fair values of certain derivative financial instruments included in other financial assets of $292.5 million (2019: $222.4 million). Total interest bearing liabilities are grossed up for the fair values of certain derivative financial instruments included in other financial liabilities of $194.0 million (2019: $123.6 million).
  4. Interest cover is operating profit before net finance expense (operating) and income tax (operating) divided by adjusted net finance expense (operating). Adjusted net finance expense excludes capitalised borrowing costs.

4

Goodman Group

Overview

The Board acknowledges the unprecedented times the world is experiencing and the terrible impact COVID-19 is having on people's lives and livelihoods. Goodman's markets have been affected at various times and to varying degrees, but the Group has adapted to this new operating environment with limited disruption and has continued to grow the business sustainably for the long term. Goodman plays an important role in providing both essential infrastructure and making a tangible difference for customers in the cities in which the Group operates.

Over the past decade, the Group has established significant human capital, financial resources and a well located real estate portfolio, to sustain the business through market cycles. This is reflected in the results for the financial year with Goodman reporting operating profit of $1,060.2 million, compared to $942.3 million for the prior year, an increase of 12.5%. This equates to an operating EPS of 57.5 cents, up 11.4% on FY19.

Goodman's statutory profit attributable to Securityholders for FY20 was $1,504.1 million, a decrease of $123.8 million compared with FY19. This included the Group's share of property valuation gains, net of deferred tax, of $621.3 million and the accounting expense of the Goodman LTIP of $164.0 million. There was also a $6.8 million fair value gain on derivatives which is included in the statutory profit but excluded from the calculation of operating profit. The decrease in statutory profit compared to FY19 was principally due to the lower property valuation gains in FY20.

Goodman has achieved this result while maintaining the prudent metrics in accordance with its financial risk management policy. At 30 June 2020, gearing remained low at 7.5% and the funds available to the Group for future investment were $2.8 billion. On 14 July 2020, a notice of early redemption was issued in relation to the total of the US$174.5 million (A$253.3 million) outstanding principal amount of the bonds due for payment in 15 April 2021. This transaction is due to settle in August 2020, which would have a commensurate pro-forma impact on liquidity. Over $2.0 billion of the Group's total of $2.6 billion of remaining bonds have maturities of more than five years from 30 June 2020.

Dividends and distributions relating to FY20 were maintained at 30 cents per security, equivalent to 52% of operating profit. The cash retained in the business is consistent with the financial risk management targets and is considered appropriate given the significant development activity and the commensurate growth in investments that is expected in the near term.

Key operational highlights:

Property investment:

  • Investment earnings of $425.2 million (2019: $372.1 million)
  • $51.6 billion of total assets under management (AUM), of which the Group owns a whole or a part share
  • 3.0% like for like growth in net property income (NPI) in Partnerships
  • 97.5% occupancy across the Group and Partnerships

Management:

  • Management earnings of $511.2 million (2019: $469.7 million)
  • $48.0 billion of external AUM in Partnerships
  • 16.6% total return across Partnerships

Development:

  • Development earnings of $575.7 million (2019: $509.2 million)
  • $6.5 billion of development work in progress (WIP)
  • $4.5 billion of development commencements

"own+develop+manage"

The Group's focus on urban locations to efficiently service consumers has provided resilient cashflows across the global portfolio. This is particularly important in uncertain times, with Goodman's assets providing critical infrastructure for delivery of essential goods and services.

The Group has experienced increased demand for both temporary and permanent space from customers in the food, consumer goods and logistics sectors, particularly related to e-commerce operators and those transitioning to online. The portfolio occupancy has remained stable at 97.5%, with like for like NPI growth during FY20 at 3% and, in general, there was relatively limited closure or disruption of Goodman's warehouse facilities over the past few months.

Where Goodman's most vulnerable customers have been significantly impacted by the lockdowns and the economic impacts of the pandemic, then Goodman has worked with them to provide rental assistance. This includes complying with any local legislation, with support in the form of rent abatement, rent deferral or lease restructure. However, the impacts in FY20 have not been material in the context of the Group's reported operating profit and net assets.

5

Goodman Group

Directors' report

Operating and financial review (continued)

Furthermore, many of Goodman's customers have continued to progress discussions regarding demand for new space in line with ongoing supply chain consolidation, online expansion and growth in the digital economy. This has given the Group confidence to grow its WIP to $6.5 billion at 30 June 2020. The Group continues to mitigate its development risk through global diversification and sharing the opportunities with its investment partners, undertaking 79% of developments within the Partnerships at 30 June 2020. WIP is 76% pre-committed at 30 June 2020, with uncommitted space representing only 2% of total global portfolio area.

This continued customer demand for industrial space has seen a strong property valuation result for the financial year. The uplift in 2H was $257.6 million, despite the economic impacts arising from the pandemic. During FY20, the weighted average capitalisation rate of the stabilised assets in the Goodman portfolios contracted from 5.1% to 4.9%.

Goodman's external AUM during FY20 increased by 12% to $48.0 billion at 30 June 2020 from $42.9 billion, which resulted in higher base management fee revenue in FY20. The increase in AUM was primarily a result of continued development activity and the property valuation uplifts on both stabilised assets and development completions. The Group's Partnerships again reported strong total returns and as a consequence, management earnings for FY20 included portfolio performance fee revenue of $207.2 million.

While the Group's portfolios are largely concentrated in key urban centres, Goodman has continued to rotate assets where longer-term returns are projected to be lower than the Group's and the Partnership's targets.

Analysis of performance

Goodman's key operating regions are Australia and New Zealand (reported on a combined basis), Asia (Greater China and Japan), Continental Europe (with the vast majority of assets located in Germany and France), the United Kingdom and the Americas (North America and Brazil). The operational performance can be analysed into property investment earnings, management earnings and development earnings, and the Directors consider this presentation of the consolidated results facilitates a better understanding of the underlying performance of Goodman given the differing nature of and risks associated with each earnings stream.

Property investment earnings consist of gross property income (excluding straight lining of rental income), less property expenses, plus Goodman's share of the operating results of Partnerships that is allocable to property investment activities which excludes the Group's share of property revaluations and derivative mark to market movements. The key drivers for maintaining or growing Goodman's property investment earnings are increasing the level of AUM (subject also to Goodman's direct and indirect interest), maintaining or increasing occupancy and rental levels within the portfolio, and operating and financing costs within Partnerships.

Management earnings relate to the revenue from managing both the property portfolios and the capital invested in Partnerships (management income). This includes performance related revenues but excludes earnings from managing development activities in Partnerships, which are included in development earnings. The key drivers for maintaining or growing management earnings are activity levels, asset performance, and increasing the level of AUM, which can be impacted by property valuations and asset disposals and is also dependent on liquidity including the continued availability of third party capital to fund both development activity and acquisitions across Goodman's Partnerships.

Development earnings consist of development income, plus Goodman's share of the operating results of Partnerships that is allocable to development activities, plus net gains or losses from disposals of investment properties and equity investments that are allocable to development activities, less development expenses. Development income includes development management fees and also performance related revenues associated with managing development activity in Partnerships. The key drivers for Goodman's development earnings are the level of development activity, land and construction prices, property valuations and the continued availability of third party capital to fund development activity.

6

Goodman Group

The analysis of Goodman's performance and the reconciliation of the operating profit to profit attributable to Securityholders for FY20 are set out in the table below:

2020

2019

Note

$M

$M

Change %

Analysis of operating profit

Property investment earnings

425.2

372.1

14.3%

Management earnings

511.2

469.7

8.8%

Development earnings1

575.7

509.2

13.1%

1,512.1

1,351.0

Operating expenses

(292.3)

(267.7)

9.2%

Net finance expense (operating)2

1,219.8

1,083.3

(70.8)

(45.9)

54.2%

Income tax expense (operating)3

(88.8)

(95.1)

(6.6%)

Operating profit

1,060.2

942.3

12.5%

Adjustments for:

Property valuation related movements

- Net gain from fair value adjustments on investment properties

6(e)

45.2

146.8

- Share of fair value adjustments attributable to investment properties

in Partnerships after tax1

6(f)

591.7

746.6

- Deferred tax on fair value adjustments on investment properties

(15.6)

(21.7)

621.3

871.7

Fair value adjustments and unrealised foreign currency exchange

movements related to liability management

- Fair value adjustments on derivative financial instruments

15

(9.4)

6.7

- Share of fair value adjustments on derivative financial instruments

in Partnerships

6(f)

16.2

20.4

- Unrealised foreign exchange losses

15

-

(10.1)

6.8

17.0

Other non-cash adjustments or non-recurring items

- Share based payments expense

2

(164.0)

(196.6)

- Straight lining of rental income and tax deferred adjustments

(20.2)

(6.5)

(184.2)

(203.1)

Profit for the year attributable to Securityholders

1,504.1

1,627.9

  1. In FY19, one of the Partnerships exchanged contracts to sell a development property to a third party. In the period between exchange and settlement, the Group recognised its $14.4 million share of fair value gain in respect of the property. Settlement occurred in 1H20 and this gain has been categorised as development earnings in the FY20 analysis of the Group's performance. The share of fair value adjustments attributable to investment properties in Partnerships has been reduced by $14.4 million.
  2. Net finance expense (operating) excludes derivative mark to market and unrealised foreign exchange movements.
  3. Income tax expense (operating) excludes the deferred tax movements relating to investment property valuations and other non-operating items.

7

Goodman Group

Directors' report

Operating and financial review (continued)

Analysis of performance (continued)

Property investment

Property investment earnings in FY20 of $425.2 million increased by 14.3% on the prior year and comprised 28% of the total earnings (2019: 27%).

2020

2019

$M

$M

Analysis of property investment earnings:

Direct

78.5

74.0

Partnerships

346.7

298.1

425.2

372.1

2020

2019

Key metrics:

Weighted average capitalisation rate (WACR) (%)

4.9

5.1

Weighted average lease expiry (WALE) (yrs)

4.5

4.7

Occupancy (%)

97.5

97.6

The Group's property portfolios are concentrated in large, urban centres around the world where demand from customers has put pressure on land use and availability. Customers, including e-commerce, are continuing to invest in order to improve the efficiency of their supply chains and data centre users are looking to expand their operations. During 2H, as the COVID-19 pandemic accelerated the shift in consumer purchasing habits to online shopping, Goodman has seen increased demand for both temporary and permanent space from customers in the food, consumer goods and logistics sectors, particularly related to e-commerce operators and those transitioning to online.

Despite the lockdowns and other restrictions that all major economies have experienced in the past few months, there has been relatively limited closure or disruption of Goodman's warehouse facilities and the financial impact on the Group has not been significant in the context of its consolidated results and financial position.

Where the Group's most vulnerable customers have been impacted by the pandemic, then Goodman has worked with them to provide rental assistance, which includes compliance with local legislation. In the majority of cases, assistance has been in the form of rent deferral or lease restructure. To date, the rate of rental delinquency has not had a material impact on the Group.

The directly held properties are primarily in Australia and have potential for significant long-term growth, from the redevelopment to more intense or higher and better uses. The increase in earnings from the directly held properties was mainly driven by the completion of developments with some underlying rental growth.

The more significant component of the Group's investment earnings is from its cornerstone interests in the managed Partnerships, where earnings from the stabilised assets increased by $48.6 million to $346.7 million compared to the prior year. In addition to the favourable impact of foreign currency translation on the overseas earnings, there were two main operational factors for this increase. The first was the stabilisation of developments during both FY19 and FY20. Goodman has continued to be a net investor in the Partnerships to fund developments and new acquisitions. The second was the rental income growth from existing stabilised properties. Net property income from the Partnership portfolios was up 3% on a like for like basis in FY20 compared to FY19. Occupancy remained stable and was 97.5% at 30 June 2020 (2019: 97.6%).

The returns from the Partnerships are also impacted by the level of debt in each Partnership. Gearing has been maintained at the lower end of target ranges, which continues to be appropriate given the ongoing development activity and the aim of Goodman and its investment partners to position the Partnerships for sustainable long-term growth. However, during FY20 certain of the Partnerships did raise new debt, including the first debt issuance by Goodman North America Partnership (GNAP). The operating return on Goodman's investment in the stabilised portfolios held by the Partnerships was 4.9% compared to 4.9% in FY19, as growth in net property income and the capital management initiatives in the Partnerships offset the impacts of the valuation growth that increased the investment base.

8

Goodman Group

During FY20, the Group's share of property valuations from the stabilised portfolios (pre deferred tax) was $551.1 million, including valuation uplifts on new developments that reached completion. Valuation gains occurred across all the Group's regions, a combination of both capitalisation rate compression and the growth in rental income. At 30 June 2020, the WACR for the Group's portfolios was 4.9%, compared to 5.1% at the start of FY20.

Management

Management earnings in FY20 of $511.2 million increased by 8.8% compared to the prior year and comprised 34% of total operating earnings (2019: 35%). The translation of the overseas earnings had a favourable impact compared to the prior year, however, the main driver of management earnings was the increase in external AUM.

During FY20, external AUM increased by 12% to $48.0 billion from $42.9 billion as set out below:

External assets under management

2020

$B

At the beginning of the year

42.9

Acquisitions

2.0

Disposals

(1.3)

Capital expenditure (developments)

1.3

Valuations

2.9

Foreign currency translation

0.2

At the end of the year

48.0

Base management fee income, earned from the overall management of the Group's Partnerships, increased in line with the external AUM. This was supplemented by both property services income, which increased in line with the gross property income in Partnerships, and other income such as leasing fees and transactional fees.

In addition, the consistently high Partnership returns over the past few years again resulted in a strong contribution from performance fee revenue, which was relatively stable at $207.2 million (FY19: $204.3 million).These performance fees arose primarily in Australia/New Zealand, Asia and Continental Europe.

For FY20, the Partnerships reported average total returns of 16.6% (2019: 15.9%).

9

Goodman Group

Directors' report

Operating and financial review (continued)

Analysis of performance (continued)

Development

In FY20, development earnings were $575.7 million (excluding revaluation gains), an increase of 13.1% on the prior year and comprised 38% of total operating earnings (2019: 38%). The increase in the Group's earnings was primarily volume driven with the overall project returns relatively consistent with the prior year. Foreign currency translation of overseas earnings also had a favourable impact on earnings compared to the prior year.

The scale of the Group's development projects has continued to grow due to the high value nature of the sites and the complexity associated with development of infill locations. In the final quarter of the year, a number of high value projects commenced such that by 30 June 2020, WIP was $6.5 billion across 46 projects. During FY20, total project commencements were $4.5 billion, with completions of $2.4 billion.

The majority of inventory disposals and fixed price contract income arose in Europe, as Partnerships in Continental Europe generally acquire completed developments from Goodman. In the Group's other operating segments, development earnings are a mix of development management income, including performance related income, and transactional activity, including the Group's share of development profits reported by Partnerships themselves. Consistent with the prior year, the majority of development activity in FY20 was undertaken by Partnerships (79% of WIP at 30 June 2019).

Consistent with the Group's strategy, development activity has been focused on key urban centres, where customer demand is high and the supply of available land is restricted. In locations, such as Japan and North America, this has allowed the Group to commence certain projects prior to pre-lease commitments. Nevertheless, 76% of WIP was pre- committed at 30 June 2020.

10

Goodman Group

Operating expenses

For FY20, operating expenses increased to $292.3 million from $267.7 million. The majority of the operating expenses related to remuneration costs which increased to $203.7 million from $191.9 million as a result of modest inflation pressure, and the impact of a weaker Australian dollar on the translation of the overseas costs. Headcount was maintained in most divisions, with increases in Continental Europe and the Americas to support the growth in those regions. The Group's aim is to keep base remuneration costs relatively steady, and instead use variable costs to incentivise staff.

Administrative expenses also increased in FY20. In addition to the impact of the weaker Australian dollar on the translation of the overseas costs, the main increases related to compliance costs, insurance premiums and charitable donations. During 2H20, Goodman made additional donations to certain of its charitable partners to help support them during the COVID-19 pandemic and a significant donation to the New South Wales Rural Fire Service to purchase and equip a new helicopter to assist in fighting future bushfires.

Net finance expense (operating)

Net finance expense (operating), which excluded derivative mark to market and unrealised foreign exchange movements, increased to $70.8 million from $45.9 million. This was due to lower interest received on the Group's cash and higher borrowing expenses on the Group's foreign denominated loans and derivatives due mainly to the impact of the lower Australian dollar.

Income tax expense (operating)

Income tax expense (operating) for FY20 at $88.8 million (2019: $95.1 million) decreased compared to the prior year. A significant proportion of Goodman's earnings related to GIT and its controlled entities, which, as trusts, are "flow through" entities under Australian tax legislation, meaning Securityholders (and not GIT) are taxed on their respective share of income. However, the decrease in the tax expense was primarily due to the nature and location of the Group's development revenues.

Capital management

Interest bearing liabilities

At 30 June 2020, the Group's available debt facilities and fixed rate long-term bonds, which totalled $4.0 billion (of which $2.9 billion had been drawn), had a weighted average maturity of 5.8 years. The Group's cash and undrawn bank facilities were $2.8 billion. Subsequent to 30 June 2020, the Group has initiated the process to redeem bonds of $253.3 million that were due to expire in 15 April 2021. This is expected to conclude in 14 August 2020.

At 30 June 2020, gearing was 7.5% (2019: 9.7%), which continued to be at the lower end of the Group's policy range of 0%

to 25%. Interest cover was 15.3 times (2019: 19.6 times) and the Group continued to have significant headroom relative to its financing covenants. Goodman's credit ratings were unchanged over the period.

During FY20, the Group and its Partnerships refinanced over $3.1 billion of bank debt and secured third party equity commitments of $2.5 billion to provide liquidity for ongoing acquisition and development opportunities.

Dividends and distributions

The Group's distribution for FY20 was maintained at 30 cents per security, a pay-out ratio of 52%, with 15 cents paid on 25 February 2020 and 15 cents to be paid on 28 August 2020. This pay-out ratio has assisted the Group in retaining sufficient funds for its ongoing development activity and in keeping gearing at an appropriate level, within the desired range. The distribution reinvestment plan was not in operation during the year.

In respect of the separate components that comprise the 30 cents per security:

  • Goodman Limited did not declare any dividends during the financial year (2019: $nil).
  • Goodman Industrial Trust declared and accrued distributions of 26.0 cents per security (2019: 25.0 cents per security),
    amounting to $475.4 million (2019: $453.5 million).
  • GLHK declared and accrued a dividend of 4.0 cents per security (2019: 5.0 cents per security), amounting to $73.1
    million (2019: $90.7 million).

11

Goodman Group

Directors' report

Operating and financial review (continued)

Summary of items that reconcile operating profit to statutory profit

Property valuation related movements

The net gain from fair value adjustments on investment properties of $45.2 million (2019: $146.8 million) related to those assets directly held by Goodman, principally in Sydney, Australia. The uplift in value was due to both rental growth and a contraction in capitalisation rates.

Goodman's share of net gains from fair value adjustments after tax attributable to investment properties in Partnerships was $591.7 million. While this has decreased from $746.6 million in FY19, this represents a strong result in the current environment, a reflection of the quality of the property portfolios and the continued customer and investor demand for industrial assets. The valuation uplift in FY20 included $182 million (2019: $171 million) from the Group's share of completed and ongoing development activity in the Partnerships.

The majority of the uplift on the stabilised portfolios in FY20 was recorded in the first half of the year. However, despite the economic uncertainty created by the COVID-19 pandemic, the valuations of the Group's portfolios have been in line or slightly increased from pre-COVID levels. In most regions, there has been transactional evidence to support the valuation results at 30 June 2020.

At 30 June 2020, the WACR for Goodman's stabilised property portfolios (both directly held and Partnerships) decreased from 5.1% to 4.9%.

There were no impairment losses associated with the Group's inventories during FY20.

Fair value adjustments and unrealised foreign currency exchange movements related to liability management

The amount reported in the income statement associated with the Group's derivative financial instruments was a net gain of $6.8 million. Despite the volatility in foreign currency exchange rates during the second half of FY20, this relatively small net impact was due to the fact that the rates at the end the year were similar to those at the start of FY20 for most denominations.

Under the Group's policy, it continues to hedge between 65% and 90% of the net investment in its overseas businesses. Where Goodman invests in foreign assets, it will borrow in that currency or enter into derivative financial instruments to create a similar liability. In so doing, Goodman reduces its net asset and income exposures to those currencies. The unrealised fair value movement of the derivative financial instruments (up or down) is recorded in the income statement; however, the foreign currency translation of the net investment that is being hedged is recorded directly in reserves. In FY20, the movement in reserves attributable to foreign currency movements was a loss of $26.7 million, a relatively small net impact in the context of the Group's overall foreign net assets.

Other non-cash adjustments or non-recurring items

The principal other non-cash adjustments or non-recurring items for FY20 related to the share based payments expense of $164.0 million for Goodman's LTIP, down from $196.6 million in FY19. This decrease primarily relates to the introduction of fixed longer-term earnings per share hurdles associated with the awards made during FY20 and the fact that the Goodman Group security price decreased from $15.03 to $14.85 during FY20 compared to an increase from $9.62 to $15.03 in FY19. The introduction of the fixed operating EPS hurdle has decreased the likelihood of it being achieved and at 30 June 2020 the Group has assessed this probability to be 50%.

12

Goodman Group

Statement of financial position

2020

2019

$M

$M

Stabilised investment properties

1,797.9

1,756.4

Cornerstone investments in Partnerships

7,807.3

6,920.4

Development holdings

3,140.1

2,991.8

Intangible assets

845.8

840.0

Cash and cash equivalents

1,781.9

1,607.1

Other assets

765.2

797.1

Total assets

16,138.2

14,912.8

Interest bearing liabilities

2,938.5

2,975.0

Other liabilities

1,679.1

1,415.3

Total liabilities

4,617.6

4,390.3

Net assets

11,520.6

10,522.5

The carrying value of wholly-owned, stabilised investment properties increased by $41.5 million to $1,797.9 million at 30 June 2020. This was primarily due to valuation uplifts of $45.2 million during the year, offset by some minor disposals.

The value of Goodman's cornerstone investments in Partnerships, which excludes the Group's share of development assets in the Partnerships, increased by $886.9 million to $7,807.3 million, due to the valuation uplifts across the portfolios, stabilisation of developments (primarily in GNAP) and funding for new acquisitions, net of new bank debt facilities or bond issuances by the Partnerships.

Goodman's development holdings, which include the Group's share of development assets in the Partnerships as well as the directly held properties, increased during the year by $148.3 million to $3,140.1 million. This was a result of both the increased activity levels that occurred in most regions and valuation uplifts associated with investment properties under development in the Partnerships (primarily in Asia and North America). A number of large projects commenced in the latter part of the year, which resulted in development WIP increasing to $6.5 billion at 30 June 2020.

At 30 June 2019, the principal goodwill and intangible asset balances were in Continental Europe and the United Kingdom. The movement during FY20 related to changes in foreign currency exchange rates and there have been no impairments or reversals of impairments.

The Group's cash and interest bearing liabilities should be considered together. On a net basis, the liability was $1,156.6 million at 30 June 2020 compared to $1,367.9 million at 30 June 2019. This reduction in the net liability reflects strong operating cash inflows, which funded both the Group's net investment in Partnerships and the dividends/distributions to Securityholders. The net cash inflow for FY20 was $189.6 million.

Other assets included receivables and the fair values of derivative financial instruments that are in an asset position. The derivatives financial instruments, both those in an asset and those in a liability position, are in place to hedge the Group's interest rate and foreign exchange rate risks.

Other liabilities included trade and other payables, the provision for dividends/distributions to Securityholders, fair values of derivative financial instruments that are in a liability position and tax liabilities (including deferred tax). The movement during the year was primarily due to increases in the liability fair values of certain of the derivatives and increased income tax liabilities.

13

Goodman Group

Directors' report

Operating and financial review (continued)

Cash flow

2020

2019

$M

$M

Operating cash flows

1,156.9

827.5

Investing cash flows

(306.4)

(818.2)

Financing cash flows (excluding dividends and distributions)

(114.6)

(320.5)

Dividends and distributions paid

(546.3)

(528.7)

Net increase/(decrease) in cash and cash equivalents held

189.6

(839.9)

Cash and cash equivalents at the beginning of the year

1,607.1

2,406.8

Effect of exchange rate fluctuations on cash held

(3.9)

40.2

Cash and cash equivalents at the end of the year

1,792.8

1,607.1

Operating cash flow

Operating cash flows of $1,156.9 million increased relative to the prior year and was also higher than the Group's operating profit of $1,060.2 million.

This was primarily attributable to higher receipts from management activities during FY20.

The net development cash flows were at a similar level to the prior year, although both the gross receipts from development activities and the gross payments for development activities were lower. This arose due to the nature and structure of the development activities - with less development costs being incurred directly by the Group. Instead Goodman undertook more developments in joint ventures or in Partnerships with the Group's share of the funding reported in investing activities.

The distributions received from Partnerships in FY20 were $462.2 million, increased from $365.4 million in the prior year. This the main reason for the higher distributions relating to development activities in the Partnerships.

Investing cash flow

Investing cash flows in FY20 primarily related to the net investments in Goodman's Partnerships of $806.6 million (2019: $920.6 million). This investment occurred principally in Asia and North America to fund the ongoing development activity in those Partnerships. There were also capital returns from partnerships in Australia and North America of $428.4 million during FY20 as the Partnerships raised new debt.

The investment property acquisitions of $234.3 million were in Australia and the United Kingdom, although the United Kingdom property was sold to Goodman UK Partnership (disposal of controlled entities) later in the year. The investment property disposals also related to Australia.

Financing cash flow

Financing cash flows include the drawdowns and repayments associated with Goodman's interest bearing liabilities. The principal financing cash outflows were the distributions paid to Securityholders.

14

Goodman Group

Outlook

The ongoing COVID-19 pandemic has not had a material financial impact on Goodman. For FY21, the business conditions for industrial assets are expected to remain favourable. The Group is strategically well placed given its financial and operational strength.

The Board sets targets annually and reviews them regularly. Overall, the Group expects to achieve operating profit for FY21 of $1,165 million, which equates to operating EPS of 62.7 cents, up 9% on FY20. Forecasts are subject to there being no material adverse change in market conditions or the occurrence of other unforeseen events.

Development demand continues to increase which has given the Group confidence to accelerate growth in WIP. The development WIP of $6.5 billion at 30 June 2020 has an average expected duration of about 17 months so the revenue from these projects will emerge during FY21 and FY22. Furthermore, with current customer demand levels and the Group's capacity to meet this demand, the Group believes that there is scope for it to increase its level of development activity materially during FY21, which would see WIP exceed $7 billion by 31 December 2020. Other prospective projects currently being contemplated would result in this level of WIP being sustained for a prolonged period. This increase in development is projected to contribute to higher total AUM, resulting in growth in both property investment earnings and management earnings over time.

In order for the Group to fund the anticipated increase in the capital allocated to development activities, including funding its share of investment in Partnerships, and to keep the Group's financial leverage at the appropriately lower end of the policy range, the Directors intend to hold the distribution at 30 cents per security for FY21 subject to achieving the anticipated profits.

Further information as to other likely developments in the operations of Goodman and the expected results of those operations in future financial years has not been included in this Directors' report because disclosure of the information would be likely to result in unreasonable prejudice to Goodman.

15

Goodman Group

Directors' report

(continued)

Risks

Goodman identifies strategic and operational risks for each of its regions as part of its strategy process. The key risks, an assessment of their likelihood of occurrence and consequences and controls that are in place to mitigate the risks are reported to the Board annually.

Goodman has established formal systems and processes to manage the risks at each stage of its decision making process. This is facilitated by a Group Investment Committee comprising senior executives, chaired by the Group Chief Executive Officer, which considers all major operational decisions and transactions. The Group Investment Committee meets on a weekly basis.

The Board has separate committees to review and assess key risks. The Risk and Compliance Committee reviews and monitors a range of material risks in Goodman's risk management systems including, among other risks, market risks, operational risks, sustainability, regulation and compliance and information technology. The Audit Committee reviews and monitors financial risk management and tax policies.

The key risks faced by Goodman and the controls that have been established to manage those risks are set out below:

Risk area

Mitigation

Capital

Ensuring long-term availability of funding

management

from both investors and financial institutions

to support the sustainability of the business

and the delivery of Goodman's strategy.

  • Board approved Financial Risk Management policy
  • Prudent capital management with cash flow requirements, gearing and available liquidity reviewed monthly and reported to the Board
  • Diversification of debt funding sources and maturities
  • Diversification of investment partners
  • Change in distribution pay-out ratio consistent with contribution to increasing development workbook

Economic and

The COVID-19 pandemic is currently

+ Global diversification of Goodman's property portfolios

geopolitical

forecast to cause the worst global recession

+ Focus on core property portfolios in key urban market

environment

since World War II and be more than twice

locations

as deep as the recession associated with

+ Focus on cost management

the 2007-09 global financial crisis. How

+ Prudent capital management with low gearing and

prolonged this recession will be is uncertain.

significant available liquidity to allow for potential

Geopolitical and geo-economic tensions are

market shocks

still heightened and continue to rise among

+ Co-investment with local capital partners

the world's major powers.

The global economic climate and future

movements in interest rates present risks

and opportunities in property and financing

markets and the businesses of the Group's

customers which can impact both the

delivery of the Group's strategy and financial

performance.

#NAME?

Governance,

Non-compliance and changes to the

+ Independent governance structures

regulation and

regulatory environments (including tax)

+ Core values and attitudes, with an embedded

compliance

impact Goodman's business, including its

compliance culture focused on best practice

reputation.

+ Dedicated Chief Risk Officer and Compliance Officer

+ Review of transactions by the Group Investment

Committee

People and

Retaining the executive management team,

culture

who support the sustainability of the

business.

Maintaining an organisational culture, in a

changing workplace environment,

commensurate with Goodman's values.

  • Succession planning for senior executives
  • Competitive remuneration structures
  • Performance management and review
  • Goodman values programme

16

Goodman Group

Risk area

Mitigation

Development Development risks may arise from location, site complexity, planning and permitting, infrastructure, size, duration along with general contractor capability.

  • Review of development projects by the Group Investment Committee
  • Goodman defined design specifications, which cover environmental, technological, and safety requirements, protecting against short-term obsolescence
  • Internal audit reviews with reporting to the Risk and Compliance Committee
  • Insurance program, both Goodman and general contractor, including project specific insurance
  • Ongoing monitoring and reporting of WIP and levels
    of speculative development, with Board oversight including limits with respect to speculative development

Disruption,

Through advancement in technology and

changes in

rapid growth in e-commerce (as seen

demand and

through automation/robotics, driverless

obsolescence

vehicles and an increase in demand for data

centre use), there is a longer-term risk that

warehouses become obsolete and not fit for

purpose through their specialisation and/or

location.

  • Key urban market strategy - urban, infill locations support re-usability of property
  • Adaptable and re-usable building design - ease to reconfigure for another customer
  • Geographic diversification
  • Capital partnering transfers risks into Partnerships
  • Insurance program (both Goodman's and key contractors), including project specific insurance covering design and defects
  • Long lease terms with prime customers

Environmental

Failure to properly identify and mitigate both

and climate

physical and transition risks from climate

change

change, leading to a negative impact on

Goodman's reputation, ability to raise capital

and a disruption to operations and stranded

assets.

  • Corporate Responsibility and Sustainability policy
  • 2030 Sustainability Strategy including the assessment of individual assets to improve resilience and implementation of sustainability initiatives
  • Sustainability guidelines for development projects
  • Review and approval of acquisitions and development projects by the Group Investment Committee and relevant Partnership Investment Committee, including consideration of climate in due diligence and specification

Asset and

Inability to execute asset planning and

portfolio

management strategies, including leasing

risk exposures, can reduce returns from

Goodman's portfolios.

  • Key urban market strategy - urban, infill locations where customer demand is strongest
  • Diversification of customer base and lease expiries
  • Review of significant leasing transactions and development projects by the Group Investment Committee
  • Capital expenditure programmes keeping pace with property lifecycle

Concentration

Over-exposure to specific areas, such as

+ Diversification of customer base and lease expiries

to

capital partners, supply chain, customers

+ Diversification of capital partners and Partnership expiries

counterparties

and markets, may limit growth and

and markets

sustainability opportunities.

Information

Maintaining security of IT environment and

+ Reporting of risks and management activity

and data

data, ensuring continuity of IT applications to

+ Proactive monitoring, review and testing of infrastructure

security

support sustainability and growth and

+ Disaster recovery and business continuity planning and

prevent operational, regulatory, financial and

testing

reputational impacts.

17

Goodman Group

Directors' report

(continued)

QUALIFICATIONS, EXPERIENCE AND SPECIAL RESPONSIBILITIES OF DIRECTORS AND COMPANY SECRETARY

Board of Directors

Ian Ferrier, AM - Independent Chairman

Member of the Audit Committee and Remuneration and Nomination Committee

Appointed 1 September 2003; Tenure 16 years, 10 months

Appointed to the board of GFML on 23 February 2005; Tenure 15 years, 4 months

Ian is the Independent Chairman of Goodman Limited and Goodman Funds Management Limited (appointed on 28 July 2009 having been Acting Chairman from 28 November 2008) and also Goodman Logistics (HK) Limited (since 22 February 2012). Ian is a Fellow of Chartered Accountants Australia and New Zealand and has in excess of 40 years of experience in company corporate recovery and turnaround practice. He is also a director of EnergyOne Limited (since January 2007) and was formerly the Chairman of Reckon Limited (from August 2004 to July 2018), InvoCare Limited and Australian Vintage Ltd. Ian is also a director of a number of private and public companies.

His experience is essentially concerned with understanding the financial and other issues confronting company management, analysing those issues and implementing policies and strategies which lead to success. Ian has significant experience in property and development, tourism, manufacturing, retail, hospitality and hotels, infrastructure and aviation and service industries.

Gregory Goodman - Group Chief Executive Officer

Appointed to the board of Goodman Limited on 7 August 1998; Tenure 21 years, 11 months

Appointed to the board of GFML on 17 January 1995; Tenure 25 years, 5 months

Gregory is the Managing Director of Goodman Limited and Goodman Funds Management Limited and Group Chief Executive Office of Goodman. He is also an alternate director of Goodman Logistics (HK) Limited. He is responsible for Goodman's overall operations and the implementation of its strategic plan.

He has over 30 years of experience in the property industry with significant expertise in the industrial property arena. Gregory is the founder of Goodman, playing an integral role in establishing its specialist global position in the property market through various corporate transactions, including takeovers, mergers and acquisitions.

He is a director of Goodman (NZ) Limited (the manager of the New Zealand Exchange listed Goodman Property Trust), and director and/or representative on other subsidiaries and management companies of the Group and partnerships.

Christopher Green - Independent Director

Member of the Audit Committee

Appointed to the board of Goodman Limited and GFML on 28 April 2019; Tenure 1 year, 2 months

Chris is an Independent Director of Goodman Limited and Goodman Funds Management Limited. Chris is also the Founder and Chief Executive Officer of GreenPoint Partners, a New York headquartered firm investing in real estate innovation, technology and private equity.

Chris spent 16 years at Macquarie Group and was the Global Head of Macquarie Capital's real estate business leading its global expansion through to 2018.

He has a Bachelor of Laws (Honours) degree and a Bachelor of Commerce (Computer Science and Accounting) degree from The University of Sydney.

18

Goodman Group

Stephen Johns - Independent Director

Chairman of the Audit Committee and Member of the Risk and Compliance Committee

Appointed to the board of Goodman Limited and GFML on 1 January 2017; Tenure 3 years, 6 months

Stephen is an Independent Director of Goodman Limited and Goodman Funds Management Limited. He was appointed Chairman Elect in February 2020 and will assume the role of Chairman upon the retirement of Ian Ferrier at the 2020 Annual General Meeting in November.

Stephen retired as Chairman of Brambles Limited in June 2020 after a period of 16 years on that Board and was previously Chairman of Leighton Holdings Limited and Spark Infrastructure Group. Stephen is also a director of the Garvan Institute of Medical Research.

Stephen is a former executive of Westfield Group where he had a long executive career during which he held a number of senior positions including that of Finance Director from 1985 to 2002. He was a non-executive director of Westfield Group from 2003 to 2013.

He has a Bachelor of Economics degree from The University of Sydney and is a Fellow of Chartered Accountants Australia and New Zealand and a Fellow of the Australian Institute of Company Directors.

Mark Johnson - Independent Director

Member of the Audit Committee

Appointed 1 June 2020; Tenure 1 month

Mark is an Independent Director of Goodman Limited and Goodman Funds Management Limited. Mark is a trained accountant and spent 30 years at PricewaterhouseCoopers (PwC) where he was CEO from 2008 to 2012 as well as holding positions as Asian Deputy-Chairman and as a member of PwC's global strategy council.

Mark is currently Chairman of G8 Education Limited, Hospitals Contribution Fund of Australia and Aurecon Group Pty Ltd. Mark is also a director at Coca-Cola Amatil Limited (since December 2016), Corrs Chambers Westgarth and the Smith Family, and a Councillor at UNSW Sydney. Mark was formerly a director of Westfield Corporation Limited (May 2013 - June 2018).

Mark holds a Bachelor of Commerce (UNSW) degree and is a Fellow of Chartered Accountants Australia and New Zealand, Certified Practicing Accountant Australia and Fellow of the Australian Institute of Company Directors.

Rebecca McGrath - Independent Director

Chairman of the Risk and Compliance Committee and Member of the Remuneration and Nomination Committee Appointed to the board of Goodman Limited and GFML on 3 April 2012; Tenure 8 years, 3 months

Rebecca is an Independent Director of Goodman Limited and Goodman Funds Management Limited. Rebecca is also currently Chairman of OZ Minerals Limited (director since November 2010) and a director of Incitec Pivot Limited (since September 2011). Rebecca is also a director of Investa Wholesale Funds Management Limited, and the Independent Chairman of Scania Australia Pty Limited. Rebecca was formerly a director of CSR Limited.

During her executive career at BP plc, she held numerous senior roles in finance, operations, corporate planning, project management and marketing in Australasia, the UK, and Europe. Her most recent executive experience was as Chief Financial Officer of BP Australasia.

Rebecca holds a Bachelors Degree of Town Planning and a Masters of Applied Science (Project Management) and is a graduate of the Cambridge University Business and Environment Program. She is Victorian Council President of the Australian Institute of Company Directors.

Danny Peeters - Executive Director, Corporate

Appointed to the board of Goodman Limited and GFML on 1 January 2013; Tenure 7 years, 6 months

Danny is an Executive Director of Goodman Limited, Goodman Funds Management Limited and Goodman Logistics (HK) Limited. He has oversight of Goodman's European and Brazilian operations and strategy. Danny has been with Goodman since 2006 and has 19 years of experience in the property and logistics sectors. Danny is a director and/or representative of Goodman's investment management entities, subsidiaries and partnerships in Europe and Brazil.

During his career, Danny has built up extensive experience in the design, implementation and outsourcing of pan- European supply chain and real estate strategies for various multinationals. Danny was Chief Executive Officer of Eurinpro, a developer of tailor made logistic property solutions in Europe acquired by Goodman in May 2006.

19

Goodman Group

Directors' report

Qualifications, experience and special responsibilities of Directors and Company Secretary (continued)

Phillip Pryke - Independent Director

Chairman of the Remuneration and Nomination Committee and Member of the Audit Committee Appointed to the board of Goodman Limited and GFML on 13 October 2010; Tenure 9 years, 9 months

Phillip is an Independent Director of Goodman Limited and Goodman Funds Management Limited. He is also a director of Goodman (NZ) Limited, the manager of the New Zealand Exchange listed Goodman Property Trust. Phillip is currently also a director of Carbine Aginvest Corporation Limited.

He was formerly the Deputy Chairman and Lead Independent Director of New Zealand Exchange listed Contact Energy Limited, a director of Tru-Test Corporation Limited and North Ridge Partners Pty Limited, Vice President of EDS, Chief Executive of Nextgen Networks, Chief Executive Officer of Lucent Technologies Australia Pty Limited and New Zealand Health Funding Authority and a Member of the Treaty of Waitangi Fisheries Commission.

Anthony Rozic - Deputy Group Chief Executive Officer and Chief Executive Officer, North America Appointed to the board of Goodman Limited and GFML on 1 January 2013; Tenure 7 years, 6 months

Anthony is an Executive Director and Deputy Chief Executive Officer (since August 2010). He was appointed Chief Executive Officer, North America in September 2016, and in that role is responsible for setting and managing the strategy, business performance and corporate transactions for the Group's North American business.

Anthony joined Goodman in 2004 as Group Chief Financial Officer and was appointed Group Chief Operating Officer in February 2009 before taking on his current positions.

Anthony is a qualified Chartered Accountant and has over 20 years' experience in the property industry having previously held a number of senior roles in the property funds management industry and chartered accountancy profession.

Penny Winn - Independent Director

Member of the Remuneration and Nomination Committee and Risk and Compliance Committee Appointed to the board of Goodman Limited and GFML on 1 February 2018; Tenure 2 years, 5 months

Penny is an Independent Director of Goodman Limited and Goodman Funds Management Limited. Penny is also currently a director of CSR Limited (since November 2015), director of Ampol Limited (since November 2015) and director of Coca- Cola Amatil Limited (since December 2019). Penny was formerly the Chair of Port Waratah Coal Services Limited (June 2015 - December 2019).

Penny has over 30 years of experience in retail, supply chain and digital strategy in senior management roles in Australia and overseas, including as Director Group Retail Services with Woolworths Limited (2011 - 2015) where she was responsible for leading the Logistics and Information Technology divisions, Online Retailing and the Customer Engagement teams across the organisation. She has previously served as a director of a Woolworths business, Greengrocer.com, a Myer business, sass & bide, and Quantium Group.

Penny is a graduate of the Australian Institute of Company Directors and holds a Bachelor of Commerce from the Australian National University and a Master of Business Administration from the University of Technology, Sydney.

Company Secretary

Carl Bicego - Group Head of Legal and Company Secretary

Appointed as Company Secretary of Goodman Limited and GFML on 24 October 2006

Carl is the Group Head of Legal and the Company Secretary of the Company. He was admitted as a solicitor in 1996 and joined Goodman from law firm Allens in 2006. Carl holds a Master of Laws degree and Bachelor of Economics/Bachelor of Laws (Hons) degrees.

20

Goodman Group

Directors' meetings (GL and GFML)

The number of Directors' meetings held (including meetings of committees of Directors) and the number of meetings attended by each of the Directors during the financial year were:

Remuneration and

Audit Committee

Nomination Committee

Risk and Compliance

Board meetings

meetings

meetings

Committee meetings

Directors

Held2

Attended

Held2

Attended

Held2

Attended

Held2

Attended

Ian Ferrier

9

9

4

4

5

5

-

-

Gregory Goodman

9

9

-

-

-

-

-

-

Christopher Green

9

9

4

4

-

-

-

-

Stephen Johns

9

9

4

4

-

-

4

4

Mark Johnson1

2

2

1

1

-

-

-

-

Rebecca McGrath

9

9

-

-

5

5

4

4

Danny Peeters

9

9

-

-

-

-

-

-

Phillip Pryke

9

9

4

4

5

5

-

-

Anthony Rozic

9

9

-

-

-

-

-

-

Penny Winn

9

9

-

-

5

5

4

4

  1. Mark Johnson was appointed as a director on 1 June 2020.
  2. Reflects the number of meetings individuals were entitled to attend.

21

Goodman Group

Directors' report

(continued)

REMUNERATION REPORT - AUDITED

Dear Securityholders,

On behalf of the Board, we are pleased to present the 2020 remuneration report, outlining Goodman's remuneration strategy and principles.

Goodman's remuneration framework is essential to attracting and retaining high quality professionals with local expertise, who develop businesses and relationships globally and drive Goodman's long-term success. It is integral to the exceptional results delivered for Securityholders.

The past financial year has been marked by enormous challenges for the business and communities. Extreme weather conditions resulting in droughts and bushfires in Australia, followed by the global COVID-19 pandemic in the final months of this financial year caused unprecedented health, social and economic consequences.

Our business plays an important role in providing both essential infrastructure and making a tangible difference to the communities in which we operate, and Goodman has reacted to the crises through increasing support to affected groups.

Social impact grants from the Goodman Foundation and donations from Goodman staff have increased to $13.7million. This included contributions to the NSW Rural Fire Service and communities affected by the NSW bushfires, as well as Goodman's charitable partners, and Goodman staff also provided 8,600 hours of volunteer assistance. Additionally, the Group has not taken any government relief in Australia (JobKeeper).

Managing the welfare of employees has been a critical consideration in achieving the Group's financial and operational targets. This situation has required practically all employees to work remotely for extended periods of time. Our focus and commitment to keeping our teams motivated and demonstrating genuine support and concern for employees (and their families) have been considerable. Managers within the Group, in particular the senior executives have demonstrated significant levels of leadership, compassion and commitment in their efforts to achieve the Group's commercial objectives.

Goodman is a leading internationally diversified real estate fund manager in the logistics real estate sector. The retention of talent is essential for the long term success of the business and is increasingly challenging as opportunistic competitors seek to recruit Goodman's high-performing teams, in each of our markets. The Group's remuneration policy plays a critical role in helping to ensure that Goodman has the right human resources to deliver our strategy, create the right culture and drive performance for all stakeholders.

Sustained performance

Over more than a decade, the Group has established strong and resilient leadership teams, financial resources and a strategic real estate portfolio, to maximise sustainability of earnings through difficult market cycles. This has allowed us to adapt to the new operating environment with limited disruption and continue to grow for the long term. As a result, the Board is proud that Goodman has performed strongly through this period despite world market dislocation and volatility. Our long-term vision, which includes a strong focus on cash flow, liquidity, and risk management, has been executed consistently and diligently.

Total Securityholder return (TSR) for the Group versus comparable indices is detailed below, indicating sustained material outperformance over many years:

1 year

3 years

5 years

10 years

Total securityholder returns

%

%

%

%

Goodman1

-0.4

103.4

169.6

566.3

S&P/ASX 20

-9.6

15.9

21.4

103.8

S&P/ASX 100

-9.5

17.1

31.5

119.0

S&P/ASX 200 A-REIT

-8.1

17.1

32.2

142.0

MSCI World REITs2

-8.1

8.0

25.5

129.8

Source: Bloomberg/Nasdaq

  1. Goodman TSR does not assume reinvestment of distributions.
  2. MSCI World REITs index returns measured in USD Goodman.

22

Goodman Group

FY20 results delivered significant outperformance both operationally and for Securityholders while positioning the business for future growth. Despite the market uncertainty, our measured approach over many years has allowed Goodman to retain, and also exceed, previous operating EPS guidance for FY20 and commit to firm operating EPS guidance for FY21. This is in an environment where most of the ASX listed entities have withdrawn FY20 guidance and are not expected to provide guidance for the year ahead. The Board's belief in pay for performance culture is reflected in the challenging hurdles set for FY21 remuneration awards, which if achieved, will have provided Securityholders with top quartile performance and 30% growth in operating profit over the past three years (significantly ahead of consensus expectations for the S&P/ASX 100).

Key performance highlights include:

  • Significant outperformance of the major local and global indices in 2020 and over the medium and longer term (past three and five years
  • Goodman operating EPS growth materially exceeded targets compared with the S&P/ASX 100, which is expected to show an average -14.4% decline for FY20
  • Statutory profit of $1.5 billion for Goodman and $4.8 billion across the combined Group and Partnerships
  • Operating profit of $1.1 billion (+12.5%) in FY20 for Goodman
  • Significant growth in development work in progress (WIP) up 59% during FY20 to $6.5 billion at 30 June 2020, positioning the business well into FY21
  • Total assets under management (AUM) increased 12% to $51.6 billion
  • Substantial revaluation growth of $2.9 billion across the Group and Partnerships.

Continued improvement and alignment of the Long Term Incentive Plan

As you are aware, in 2019, the Board announced several changes to the remuneration framework which have now been implemented. Specifically, the operating EPS hurdle under the Long Term Incentive Plan (LTIP) is measured over three years from the date of each grant, as opposed to setting annual targets. We have also significantly enhanced our disclosures in support of variable remuneration, rationale for the performance metrics and the comparator sets used in assessing remuneration levels.

We believe that our fundamental principle of aligning all our people and Securityholders meaningfully through equity, is unique in the Australian market and has been a significant factor in building the resilience of our business. This should continue to deliver the Group's and Securityholders' desired outcomes despite the uncertain outlook for global markets.

In line with commentary in prior years, the Remuneration and Nomination Committee has made some additional distinctions in the remuneration approach applied to executive key management personnel (KMP) to further align them with long-term performance. Several years ago, the Group Chief Executive Officer (CEO) agreed with the Board to not receive short-term incentive (STI) but to receive all performance based remuneration in the form of long-term incentive (LTI), to focus on significant long-term alignment of pay with Securityholders' returns. It was also consistent with a responsibility for developing and implementing a long-term strategy and providing leadership in this form of remuneration.

The other executive KMP can be differentiated in their roles and responsibilities where some hold regional responsibilities including specific financial targets and others perform wider global strategic roles. The Board and Remuneration and Nomination Committee have determined that where executive KMP have a greater focus on Group strategy and implementation, they should have a relatively larger proportion of equity based remuneration (as a proportion of total remuneration) and less emphasis on STI. The Board believes that these individuals have more influence on setting and maintaining the Group's strategy and should be increasingly aligned with the long-term outcomes of the Group and returns to Securityholders. This structure also minimises the risk of inappropriate reward or penalisation as a result of market volatility and unexpected market movements over the short term.

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Goodman Group

Directors' report

Remuneration report - audited (continued)

We continue to engage in an open and meaningful dialogue with Securityholders and other stakeholders to enhance understanding of our policy and its contribution to Goodman's performance as well as our understanding of Securityholder concerns and local and global market practices. We hope we can rely on your support at our 2020 Annual General Meeting in November.

Yours sincerely,

Ian Ferrier, AM

Chairman

Phillip Pryke

Chairman, Remuneration and Nomination Committee

24

Goodman Group

1. REMUNERATION PHILOSOPHY AND LINK TO BUSINESS STRATEGY

Goodman is a globally diversified real estate fund manager and one of the largest listed industrial property managers and developers in the world. Goodman's people are largely based outside Australia, and consequently, Goodman's remuneration structure has some key differences from the Australian market. This reflects the requirements of the labour markets we are competing in globally, not just in Australia, and the objective of aligning multiple regional businesses and operational segments with Group performance outcomes.

The retention of talent is critical for the long term and is increasingly challenging as opportunistic competitors seek to recruit Goodman's high-performing teams, in each of our markets. The Group's remuneration policy plays a critical role in helping to ensure that Goodman has the right human resources to deliver its strategy, create the right culture and drive performance for all stakeholders.

As a result, the key component of remuneration is equity based reward. The Board believes aligning ALL people at Goodman with Securityholders through the Group's remuneration policy has added significant value to the Group. It has been a fundamental differentiator in generating and rewarding long-term performance and retaining Goodman's people in a highly competitive global environment. It is particularly important in light of the challenges COVID-19 has created, as it binds all employees together as owners of the business and is a powerful incentive and driver of operational resilience.

Our remuneration framework takes a long-standing partnership approach where Goodman's people participate in the long-term success of the Group alongside Securityholders .

1.1 The role of the Board and Remuneration and Nomination Committee

The Board believes the success of Goodman is primarily due to the depth of talent globally executing a strategy that requires strong collaboration and the culture of inclusion created by the LTIP.

As a result, the Board:

  • Encourages management to take a long-term strategic rather than opportunistic approach to property investment
  • Has overlaid the operational, financial and human strategy in order to create long-term sustainable returns
  • Focuses on the consistency of cash profit as the most tangible means of measuring long-term value creation for Securityholders.

The Board annually considers remuneration with a three to five year view. It considers how the performance of the Group has been influenced by the decisions over the last three to five years and how it expects the business to perform over the next three to five years. It is not solely an exercise in reviewing a single year.

The Remuneration and Nomination Committee has considered the specifics of individual performance, in the context of the COVID-19 environment and collectively in the context of the Group's continued strong performance. Given the nature of the Group's global operations, the Remuneration and Nomination Committee has paid particular attention to the global marketplace and the competitors in that sector. Industrial and logistics real estate, and Goodman's success, has made its people a target for new entrants to the sector and existing competitors looking to emulate the Group's performance. The Remuneration and Nomination Committee believes this requires a wide global remit in order to set competitive remuneration allowing for the strong component of remuneration that is at risk.

25

Goodman Group

Directors' report

Remuneration report - audited (continued)

1.2 Key remuneration principles

Given the cyclical nature of real estate, incentive structures within real estate businesses are highly outcome driven (particularly by private equity real estate managers where most institutional assets reside).

This changing international landscape will result in Goodman's capital and resource allocations shifting over time, with the aim of delivering the best risk adjusted returns overall albeit this may be to the detriment of one part of the global business and to the benefit of another. The Group's remuneration framework is therefore focused on influencing long- term decision making and collaboration across business units and international operations to derive sustainable outcomes.

While considered unique in the Australian market, the LTIP reflects several key principles of remuneration at Goodman:

  • Focus on LTI as the predominant source of pay for performance. All employees are eligible to receive LTI grants as a material component of remuneration and are tested using challenging hurdles (see section 2.4.2), enhancing alignment of rewards across the Group with Securityholders
  • Aligning the deliverable outcomes of all employees globally with Goodman's aspirations of long-term cash flow growth, resilience and sustainability. This is practically achieved through the focus on operating profit (which reflects cash profits) as the primary testing measure for LTI awards (see section 2.4.1)
  • Collaboration to achieve Group-wide targets across regions and business units
  • A culture of ownership, inclusion and alignment.

This philosophy has enabled Goodman to deliberately position its business over the past decade to maximise sustainability of earnings in varying market cycles that has resulted in consistent long-term security price outperformance.

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Goodman Group

1.3 Objectives of remuneration strategy

Attract

Reward

Long-term alignment of Goodman's people and

Securityholders

Remuneration structure

Performance conditions

Alignment with strategy and long-term performance

Fixed remuneration

Scope and complexity of the role,

Real estate investment management and development are cyclical, so

Low fixed costs

individual absolute and relative

fixed employee costs are kept low. Most KMP fixed remuneration has

comparison in the relevant market

not grown in several years.

and comparator group.

STI at-risk remuneration Group CEO: 0% of remuneration

Other executive KMP: 0%- 18% of total remuneration For executive KMP: 50% of STI paid in cash after release of full year results and 50% deferred for 12 months

STI is an at-risk award for outperformance over the past 12 months.

Failure to meet STI gates (i.e. Code of Conduct and operating EPS) will result in zero award.

Gate 1: meeting Goodman behavioural expectation per the Code of Conduct

Gate 2: achieving operating EPS target

Financial measures

The Group's financial objectives vary with strategic priorities but include level of operating EPS growth which is a collective function of:

  • property investment performance
  • development performance
  • Partnership performance
  • sustainable capital management in line with the

risk management objectives

Non-financial measures A balance of measures that underpin the sustainability of the business including performance to environmental targets, customer satisfaction, Partnership performance, risk management, safety and diversity.

Assessment of conduct is continual in the organisation and is a gate to any STI. The Board believes this non-financial objective, in particular adhering to the Code of Conduct, is an absolute and hence applying a specific percentage weighting to each measure is not effective.

STI is an at-risk component, rewarding financial and non-financial performance against objectives of the individual and the Group. Awards have varied from 0% to 100% of the maximum over time and have averaged 57% of maximum allowable over the past five years.

The performance of individuals is assessed through a detailed bottom up performance appraisal process based on contribution to defined objectives that reflect behavioural expectations, annual contribution to results as well as strategic and other contributions where these results or benefits may be reflected in future years. Base salaries for the executive KMP roles are set low versus peers and this is carried through in lower STI outcomes for relevant KMP. The focus on STI as a form of reward has reduced in favour of LTI, in line with a culture and ethos of sustainable outcomes.

Operating profit growth and capital management are of the highest importance in financial assessment. These factors together encourage not only the operating EPS targets being met but also that the method in which they are met matches appropriate risk and quality settings.

This structure is simple and transparent and aligns management with the operating EPS growth expectations of Securityholders.

.

At-risk remuneration

LTI at-risk remuneration Rewards long-termsustained performance. New grants will be awarded in FY21 as a result of FY20 performance achievements and assessment of potential future contributions.

Issued as performance rights tested over three years and vesting over three to five years.

Encourages a more collaborative approach and broader distribution of performance across the entire workforce when the Group is performing, not just for executive KMP.

  • operating EPS hurdle range (75%)
  • relative TSR against the S&P/ASX 100 (25%) - this aligns with investors' benchmarks relevant to their holdings and provides closest alignment with their performance.

The weighting to LTI is believed to be the most effective way of rewarding sustained performance and retaining talent.

Despite the impact of COVID-19 the security price has remained stable and underlying performance has exceeded targets. The expected number of performance rights to be awarded in FY21 will be broadly consistent with FY20, and fewer than that vesting in September 2020. Operating EPS is a critical measure of long-term performance (see section 2.4.1).

Hurdles are set to be competitive and challenging (see section 2.4.2) relative to external and internal reference points.

The relative TSR and operating EPS hurdles interact as TSR impacts the value of all performance rights. Given the significant skew in remuneration to performance rights, the impact of the TSR hurdle is greater than its 25% weighting in that TSR provides an effective check against increasing risk practices within the Group. The price to earnings multiple attributable to securities will reflect the perceived risk in achieving operating EPS targets, which impacts the likelihood of vesting and the ultimate value upon vesting.

operating EPS.

The total number of equity settled performance rights outstanding under the LTIP equates to 3.4% of the Group's issued securities. The proposed number of FY21 awards (both equity and cash settled) is 0.9% of the total securities on issue.

The maximum number of performance rights under the LTIP is limited to 5% of the Group's issued securities.

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Goodman Group

Directors' report

Remuneration report - audited (continued)

2. EXECUTIVE REMUNERATION FRAMEWORK

2.1 Peer group and quantum assessment

As in previous years, the Board and Remuneration and Nomination Committee have considered the entire enterprise of the Group and its Partnerships globally, when assessing the executives roles.

In this context, Goodman:

  • Is an international real estate fund manager
  • Manages and creates value in respect of $51.6 billion of assets globally
  • Manages capital allocation and funding across various activity types, which is sourced from multiple sophisticated markets and jurisdictions
  • Is one of the largest developer of logistics real estate in the world, with a current WIP of $6.5 billion of new product
  • Generated a combined statutory profit across the Group and Partnerships of $4.8 billion in FY20
  • Is the 13th largest entity listed on the ASX and is a member of the S&P/ASX 20 index
  • Generates 72% of earnings from management and development activities which require more intensive day to day activity than a passive investment portfolio
  • Provides its customers and partners with investment management, asset management, development, financial, transaction and capital management services in the listed and private equity capital markets globally
  • Derives 72% of earnings from international markets with 70% of employees situated offshore.

The Group has limited direct comparable real estate market peers in Australia, having operating businesses in five continents and 17 countries, each with market driven remuneration outcomes. The Group's 958 staff (at 30 June 2020) are mostly offshore, and consequently Goodman competes for labour in an international market, which the Board considers when assessing the quantum of remuneration awards.

2.1.1 Peer group comparators and considerations for the Group CEO

The comparisons of various peer groups, chief executive officers' and the Goodman CEO remuneration, have been considered by the Board in the context of the underlying remuneration structure, determining the components and the hurdles which apply.

Annual CEO remuneration1

Peer group

Reason for comparison

Range

Average

Median

% LTI

1 year

3 years 5 years

comparator

TSR3

TSR3

TSR3

Goodman

Goodman CEO

n/a

$15.5m

$15.5m

91%

0%

103%

165%

S&P/ASX 20

Goodman is number 13 in

$6m-

the S&P/ASX 20 index.

$22m

$11m

$9m

51%

-11%

21%

49%

Selected ASX

72% of GMG earnings are

listed entities

outside Australia. The

with global

comparator group provides

operations

a reference for local

companies operating

offshore in a number of

$5m-

industries.

$22m

$11m

$10m

43%

-4%

37%

83%

Global REITs

Goodman is the largest

including

constituent of the

Australia2

Australian S&P/ASX REIT

index (by market

capitalisation) and is three

times the size of the

second largest. Goodman

is one of the largest listed

developers of logistics

space globally and one of

the largest global industrial

$5m-

property entities.

$44m

$15m

$10m

72%4

-2%

37%

83%

  1. Reflects fixed base pay and the face value of the intended award of performance rights, using the closing Goodman security price of $14.85 at 30 June 2020. Peer group comparator information is calculated using ISS pay benchmarking data and methodology.
  2. TSR reflects the MSCI World REITs index measured in USD.
  3. Median TSR for the relevant peer group comparator.
  4. Excluding Prologis, the LTI as a percentage of total remuneration is c50%.

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Goodman Group

Private equity managers were also considered for comparison, particularly with respect to the nature of pay for performance remuneration structures in those types of enterprises but were not cited as direct comparisons for quantum setting purposes.

For many entities, returns in FY20 are likely to have been significantly dislocated given the impact of COVID-19 which should be taken into account when assessing the comparator group.

When assessing the Group CEO's remuneration for FY20 the components considered by the Board are:

  • Current fixed base pay
  • Performance rights to be awarded in FY21 (subject to securityholder approval) to be tested over FY21 - FY23 and vesting in FY24 - FY26.

The assessment of the value of the performance rights referred to in this section uses face value metrics, as opposed to the economic value. This is common market practice. That is, no discount has been applied to the attributed value of performance rights for vesting risk or time value of money. The Board has considered the total remuneration noting in its determination that the comparability of other remuneration schemes is limited, particularly as it relates to:

  • Proportion at risk - fixed pay is significantly lower in absolute terms and represents only 9% of total potential remuneration for FY20. As in previous years the Group CEO will not participate in the STI award or any other form of variable cash remuneration (comparatively, the market average fixed pay and STI is approximately 50% of total remuneration)
  • 91% of his remuneration for FY20 performance will be taken in the form of performance rights, the ultimate value of which is at risk. By way of comparison, the average proportion of remuneration in LTI for the S&P/ASX 20 and S&P/ASX 100 is 51% and 48% respectively.

This means that the Group CEO would not receive any LTI in respect of his performance for FY20 if the Group did not meet its performance hurdles under the LTIP over the next three years. Furthermore, the ultimate value of the award will be subject to Goodman's security price performance over the next five years. Full remuneration for performance in FY20 will only be realised if these conditions are satisfied, and Goodman's performance is at least sustained until FY26.

This results in a more significant portion of the Group CEO's remuneration that is at risk compared to most other ASX listed entities.

The Board considers Goodman's remuneration awards have been set on the basis that the hurdles set for the FY21 performance rights awards are significantly more challenging than relative to the FY20 awards. This is due to the more uncertain and volatile operating ESG expected in the future (see section 2.4.2 on proposed FY21 LTIP EPS grant targets).

2.2 Remuneration components for executive KMP - continued enhancements

The Remuneration and Nomination Committee has continued to make improvements to the structure of remuneration. In FY20, the Board made some additional distinctions in the remuneration approach applied to individual KMP to further align them with long-term performance. Several years ago, the Group CEO agreed with the Board that he would not participate in the STI scheme and any performance based remuneration would be in the form of LTI, to increase long- term alignment of pay with Securityholders' returns. It was also consistent with the Group CEO's responsibility for developing and implementing a long-term strategy.

The Board believes the other executive KMP can be differentiated in their roles and responsibilities where some hold specific regional responsibilities and others perform wider global strategic roles.

The Board has determined that:

  • Nick Kurtis (Group Head of Equities), Michael O'Sullivan (Group Chief Risk Officer) and Nick Vrondas (Group Chief Financial Officer) who have a greater focus on Group strategy and implementation should have a relatively larger proportion of equity based remuneration (as a proportion of total remuneration) and less emphasis on STI. The change reflects that these individuals have more influence on the setting and maintaining the Group's strategy and should be increasingly aligned with the long-term outcomes of the Group and returns to Securityholders
  • Anthony Rozic (Chief Executive Officer, North America) and Danny Peeters (Executive Director, Corporate) with regional operational responsibilities continue to have a more balanced weighting to STI in line with the current approach. Their STI remuneration is also expected to be more variable reflecting annual achievements.

29

Goodman Group

Directors' report

Remuneration report - audited (continued)

On that basis, STI awards for executive KMP (excluding the Group CEO) have declined by 27% compared with FY19, while LTI awards have increased 12% from the FY19 levels. Overall remuneration awarded for these executive KMP has been set with reference to the individual achievement, market comparatives, and the proportion of remuneration at risk for each executive KMP.

There are no changes to fixed remuneration levels for executive KMP in FY21.

The chart below illustrates the components of KMP remuneration using:

  • Current fixed base pay
  • The STI outcome
  • An LTI award value using 100% of intended grant to be made in FY21 at $14.85 per right, which was the security price at 30 June 2020.

This chart reflects the significant level of overall remuneration that is at risk. This analysis is different to both the statutory presentation of remuneration and the vested remuneration, which are detailed later in the remuneration report.

2.2.1 When is remuneration earned and received?

Performance goals must be achieved over a period of three years to qualify for performance based pay. Vesting then occurs in equal tranches from years three to five. However, there is no certainty of vesting and the outcome is dependent on the movement in the security price over the next five years.

The chart below illustrates the timing of receipt of the remuneration components. It demonstrates the requirement for sustained operational performance over five years from the end of FY20 for the performance based remuneration to vest. This is further emphasised by a significant proportion of the executive KMP remuneration that is in the form of LTI.

30

Goodman Group

2.3 STI

STI is a component of remuneration that is at risk. It is specific to achievement of financial and non-financial objectives. This structure is very transparent and aligns management with the operating EPS growth expectations of Securityholders.

Questions

Who is eligible to participate in the STI?

What is the form ofthe STI award?

All full-time and part-time permanent employees.

The Group CEO agreed with the Board not to participate in the STI awards, to emphasise reward for long-term decision making across the organisation.

Nick Kurtis (Group Head of Equities), Michael O'Sullivan (Group Chief Risk Officer) and Nick Vrondas (Group Chief Financial Officer) have agreed with the Board to forgo varying portions of their STI awards in exchange for LTI, to emphasise reward for long-term decision making across the organisation.

Cash. For executive KMP, 50% of the STI award is paid on finalisation of Goodman's full year result.

50% of the STI award is deferred and paid in cash after a period of 12 months and the deferred STI amount is subject to forfeiture under malus provisions (see below).

What is the

STI awards are capped at 150% of fixed remuneration for executive KMP. Target STI for individuals is also

maximum award

compared to market based remuneration data and their manager's own assessment of what an appropriate level of

participants

incentive compensation may be relative to the long-term value that person brings to the Group.

may earn?

How is the

The Board sets budget targets for the business annually. These targets are set relative to the market conditions,

STI earned?

earnings visibility, financial structure and strategy and are believed to be challenging but challenging and

appropriate. Targets will vary over time, through cycle and strategy, to ensure they remain contemporary.

STI for all staff is subject to: (1) meeting behavioural expectations under the Group Code of Conduct; and (2)

achieving operating EPS (based on the annual forecast for the relevant year). Securityholder returns are prioritised.

How is the

STI rewards annual performance against objectives of the individual and the Group.

individual STI

award determined?

The Group objectives include multiple factors as set from time to time, dependent on the market and strategy of the

Group. These primarily fall into five groups:

-

property investment

-

development

- management

-

capital management and

-

corporate and social responsibility.

Adherence to the Group's core values is a minimum hurdle for the STI to vest and the Remuneration and

Nomination Committee looks at conduct and specific judgements are made in relation to this.

The performance of individuals is assessed through a detailed and formal performance appraisal process based on

contribution to defined objectives, behavioural expectations, annual contribution to results as well as strategic and

other contributions where these results or benefits may be reflected in future years.

Is there

The executive KMP STI awards are subject to 50% deferral for 12 months from the date of publication of

malus/clawback?

Goodman's financial statements. This deferral period provides protection from malus. The Board has discretion to

forfeit deferred amounts for material misstatement, fraud or adverse changes that would have affected the award

where there is executive responsibility.

Is STI deferred into

No. A much greater portion of remuneration for KMP is in the form of LTI (equity) than any other S&P/ASX 100

equity?

entity and hence they are already significantly more aligned with securityholders' outcomes than executives at

other listed entities. As a result, in the Board's view, there is little further benefit in deferring STI into equity.

What happens to

For all KMP, the deferred portion of STI award is subject to immediate forfeiture in circumstances where

STI upon

employees are dismissed for cause without notice (e.g. fraud or serious misconduct). The Board has discretion to

termination?

pay deferred STI in certain circumstances, where employees leave the Group with good leaver status due to

personal circumstances or due to permanent disablement or death.

31

Goodman Group

Directors' report

Remuneration report - audited (continued)

2.3.1 Code of Conduct

The way employees conduct themselves is crucial to the success of the Group. Goodman has consistent and transparent practices in place for managing non-compliance with policies and the approach to risk guides the way all employees are expected to conduct themselves and hence all remuneration is subject to meeting these requirements.

Within the Code of Conduct, there is a set of eight guiding principles that encourage employees to uphold Goodman's reputation and behave appropriately in dealing with the Group's customers and other team members. Employees are assessed continually against these principles. The guiding principles are:

  • Act in a professional manner
  • Work as a team and respect others
  • Treat stakeholders fairly
  • Value honesty and integrity
  • Follow the law and the Group's policies
  • Respect confidentiality and do not misuse information
  • Manage conflicts of interest
  • Strive to be a great team member

The Board also believes that ownership through the LTIP embeds a culture of inclusion and sense of place in Goodman and that this has been strongly reflected in the Group's performance over many years and particularly through COVID-

19. While assessment is continual, the Code of Conduct is a gate to an individual's eligibility to receive a STI and LTI at the time of assessment. The Board believes that this is an absolute requirement and hence applying a fixed percentage reduction to the measure is less effective.

The proportional impact of this measure on STI can be anything from 0% to 100%, as any breach of the Code can have levels of severity ranging from cessation of employment to minor performance issues which can be managed and rectified and may require varying levels of financial impact, training and/or personal development.

2.4 LTI parameters

The LTIP is an equity plan whose rewards are at risk. It is open to all permanent employees to create alignment with the interests of Securityholders over the long term.

  • No value is derived from LTI unless minimum cumulative performance hurdles of operating EPS and relative TSR are met or exceeded, and performance rights have no entitlement to income or assets until they vest.
  • If performance achieves or exceeds long-term targets and performance rights vest, LTI represents the majority of remuneration for executive KMP and becomes a material component of remuneration for all participating employees.

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Goodman Group

Questions (in relation to all grants including FY21)

Who is eligible

All full-time and part-time permanent employees are eligible to participate in the LTIP.

to participate?

What is the form of

The LTIP awards performance rights linked to the underlying ASX listed securities. The performance rights do

the award?

not receive distributions or have any right to income or assets until vesting.

What is the maximum

When considering the overall size of LTI awards, the Board also considers the number of securities that could

LTI participants may

vest and the associated impact on the operating EPS growth. Performance rights issued under the LTIP are

earn?

capped at 5% of issued capital with vesting of approximately 1% per annum, assuming all hurdles are met and

all employees remain employed. The Board considers the performance of the Group in comparison with the

comparator group, the amount of overall operating profit, the competitive nature of the global labour markets

where we operate and the value of the team in the local and global marketplace, as appropriate.

How is the number of

The number of rights is determined by dividing the LTI award amount by the face value of the Goodman

rights determined?

security price (as at the most recent 30 June) rounded to the nearest (lower) 10,000.

What are the

Behaviour in accordance with core values is an absolute requirement for the granting of performance rights

performance measures?

and a minimum hurdle for LTI awards to vest as continued employment is a pre-condition.

The Board believes that the commercial decisions Goodman makes in fulfilment of its overall financial

objectives are best reflected in two key indicators: operating EPS and TSR (relative to the S&P/ASX 100).

Operating EPS is a critical measure of long-term global performance of the operations (see section 2.4.1).

The hurdles are set to be competitive and challenging relative to external and internal historical and

prospective reference points (see section 2.4.2).

TSR provides an effective check against increasing risk practices within the Group i.e. the security price to

earnings multiple will reflect the perceived risk in the Group in achieving operating EPS targets.

Focus on LTI is an efficient way of rewarding sustained performance and retaining talent.

What is the weighting?

75% operating EPS hurdle

25% relative TSR hurdle

What is the performance

Both operating EPS and relative TSR performance are tested over three financial years starting from 1 July in

period?

the year the grant was made. Operating EPS growth is assessed in the third year relative to the year preceding

the year of the grant.

How do the LTIP awards

Subject to meeting performance hurdles, vesting occurs in equal tranches shortly after the end of years three,

vest?

four and five, provided participants remain employed by the Group.

Is there

Subject to immediate forfeiture in circumstances where employees are dismissed for cause without notice (e.g.

malus/clawback?

fraud or serious misconduct). LTI will also be forfeited where employees cease to be employed, unless special

circumstances exist.

What happens to LTIP

Performance rights lapse upon the employee leaving Goodman, except in special circumstances (e.g. where

awards upon

employees leave the Group with good leaver status due to redundancy or personal circumstances or due to

termination?

permanent disablement or death).

What rights are attached

Performance rights have no Securityholder rights prior to vesting (e.g. distributions, voting, rights issue

to the performance

participation).

rights?

KMP equity holding

There is no specific requirement for executive KMP to hold a minimum value of Goodman equity. Goodman's

remuneration structure includes significant emphasis on performance based remuneration in equity. The result

is that over time, there is significantly more alignment and exposure to Goodman's performance through equity

than at other ASX listed entities.

Questions specific to the intended FY21 grant

What are the vesting

Operating EPS tested (75% of grant)

Relative TSR tested (25% of grant)

conditions for FY21

The Board has set an operating EPS

TSR awards are subject to achievement of cumulative

grants?

performance hurdle of growing operating EPS

TSR relative to the S&P/ASX 100 over a three year

from the FY20 result of 57.5 cents to between

period:

68.5 cents (Threshold level) and 74.5 cents

- 50% of awards vest for performance at the 51st

(Upper level) in FY23. Vesting of 25% of the

operating EPS portion occurs upon satisfying

percentile

testing conditions at the Threshold level with a

- Awards vest on a sliding scale between 50% and

sliding scale up to 100% at the Upper level. The

100% for performance between the 51st and the 76th

range is equivalent to between 6% and 9%

percentile

Compound Annual Growth Rate (CAGR) in

- 100% of awards vest for performance at the 76th

operating EPS or approximately 19% to 30%

percentile or above.

cumulatively over the three year testing period.

Can the hurdles be

No

No

adjusted?

33

Goodman Group

Directors' report

Remuneration report - audited (continued)

Questions specific to the FY20 grant

What are the vesting

Operating EPS tested (75% of grant)

Relative TSR tested (25% of grant)

conditions for FY20

The Board set an operating EPS performance

TSR awards are subject to achievement of cumulative

grants?

hurdle of growing operating EPS from the FY19

TSR relative to the S&P/ASX 100 over a three year

result of 51.6 cents to between 61.4 cents

period:

(Threshold level) and 66.8 cents (Upper level) in

- 50% of awards vest for performance at the 51st

FY22. Vesting of 25% of the operating EPS

portion occurs upon satisfying testing conditions

percentile

at the Threshold level with a sliding scale up to

- Awards vest on a sliding scale between 50% and

100% at the Upper level. The range is equivalent

100% for performance between the 51st and the 76th

to between 6% and 9% CAGR in operating EPS

percentile

or approximately 19% to 30% cumulatively over

- 100% of awards vest for performance at the 76th

the three year testing period.

percentile or above.

Can the hurdles be

No

No

adjusted?

Questions specific to outstanding historic grants made between FY16 and FY19

What are the vesting conditions for prior grants (FY16 - FY19) currently outstanding?

Operating EPS tested (75% of grant)

Operating EPS awards are subject to achievement of a cumulative operating EPS hurdle, which is the combination of three years' individual operating EPS hurdles. This ensures that the appropriate balance between short and long-term challenges is incorporated. With the vast majority of remuneration through LTI, the focus remains on sustainable performance.

Targets are disclosed to the market each year and are equal to the forecast operating EPS. For FY21, this is 62.7 cents as it relates to the FY19 award. Performance conditions for the FY16, FY17 and FY18 awards which have outstanding tranches, have already been tested. See Section

3.5.2 for details of testing results for FY18 awards.

Relative TSR tested (25% of grant)

TSR awards are subject to achievement of cumulative TSR relative to the S&P/ASX 100 over a three year period:

  • 50% of awards vest for performance at the 51st percentile
  • Awards vest on a sliding scale between 50% and 100% for performance between the 51st and the 76th percentile
  • 100% of awards vest for performance at the 76th percentile or above.

2.4.1 Operating EPS - long-term cash flow alignment with vesting outcomes

The Group provides statutory profit disclosure in accordance with Australian Accounting Standards, including all required specific disclosures. The Board believes that managing the business, on what is primarily a cash profit basis, is fundamental to long-term resilience and is the strongest determinant of value creation over time. That is the intent of the operating profit definition. The measure has been consistently applied since being adopted in 2005.

  • Operating profit intentionally excludes non-cash measures. In addition, in the past, the Group has excluded significant realised gains (such as the urban renewal realisation gains) where these were believed to be cyclical in nature and not reflective of long-term earnings
  • The share based payments (SBP) expense reflects the amortisation of the aggregated fair value applicable to outstanding performance rights. It is disclosed and expensed in the Group's statutory accounts per the accounting standards. The SBP expense is excluded from the Group's operating profit, like other non-cash items (such as revaluations). It is also excluded from regional budgets, as the expense is volatile and has no linkage to operational outcomes
  • Outcomes for employees through the LTIP and equity performance are directly aligned with the long-term cash profit growth of the business defined as operating EPS, which is believed to be the real driver of performance
  • Operating EPS is a transparent driver of employee behaviour providing a key link between the generation of operational outcomes at an individual level and the overall outcomes directly reflected in operating EPS, which drives Securityholder value.

34

Goodman Group

Importantly for Securityholders, the Board believes that SBP:

  • Have no impact on Securityholder value until they vest when they dilute net tangible assets (NTA) and future earnings
  • Do not reflect the cost of the plan to Securityholders or the true value to employees
  • Increase volatility and decrease earnings transparency on a short-term basis depending on movements in security price, subjective assessments and other valuation parameters. (The Group's SBP expense decreased 17% in FY20 compared to FY19).

Furthermore, any dilution to Securityholders through the potential issuance of securities under the LTIP is allowed for in the operating EPS assessment, as the weighted average number of securities includes the securities on issue plus those performance rights that at the start of each financial year had met the three year operating EPS and TSR hurdles but had not yet vested. The Board considers this to be conservative as prior to vesting, performance rights have no entitlement to income or net assets, and therefore there is no dilution to Securityholders.

  • The financial impact of the performance rights occurs only when securities are issued, through the future operating EPS dilution
  • Not all performance rights necessarily vest. This can only occur if testing criteria are met and by extension, the Group's performance has achieved or exceeded performance criteria
  • Following successful testing at year three, only one third of the tested performance rights vest at that time. The remainder have no rights until they vest, following the end of years four and five.

2.4.2 Operating EPS hurdles for proposed FY21 awards

The operating EPS target range used here is for the purpose of remuneration only, specifically the testing criteria for vesting of performance rights. The range does not constitute earnings guidance for the Group.

The Board has set an operating EPS performance hurdle for FY21 of growing operating EPS from the FY20 result of

57.5 cents to between 68.7 cents (Threshold level) and 74.5 cents (Upper level) in FY23. At the Threshold level, 25% satisfy the hurdle with a sliding scale up to 100% satisfying the hurdle at the Upper level. This range is equivalent to between 6% and 9% CAGR in operating EPS or approximately 19% to 30% cumulative over the three year testing period.

Despite market uncertainty, Goodman has committed to firm operating EPS guidance for FY21. This is in an environment where most of the ASX listed entities have withdrawn or reduced guidance and are not expected to give guidance for the year ahead.

The effective CAGR hurdle is the same as for FY20 awards, but the Board believes the FY21 hurdle is significantly more challenging given the current economic environment. The hurdle is set for the entire period of the grant and hence performance must be achieved regardless of changes to business conditions globally. Management and other employees carry the risk associated with external factors negatively impacting operating earnings and in the Board's view this risk has increased due to the unknown impacts of the current pandemic.

The range has been set with particular reference to:

  • Analyst current consensus expectations of CAGR in operating EPS of c5% for Goodman over three years compared with the Threshold at 6% for 25% vesting and Upper level at 9% for 100% vesting
  • The range of potential real estate opportunities for the Group globally, given Goodman's risk parameters and concentrated locations
  • The long-run historical performance of the Group
  • The global economic environment, noting the uncertainty around COVID-19 induced economic malaise, that the current rate of inflation in Australia and the major markets in which Goodman operates globally is around 1% per annum and the current 10 year rate of interest on government securities in Australia and most major markets is below 1% per annum.

35

Goodman Group

Directors' report

Remuneration report - audited (continued)

The Board also notes that:

  • The Group's FY20 operating EPS growth (which sets the base year for hurdles) was 11.4% (ahead of original target at 9%)
    • The S&P/ASX 100 consensus forecast average of a -14.4% EPS decline for FY20
    • This significant reduction in FY20 EPS for the S&P/ASX 100 will likely give the appearance of higher future growth rates (off the lower base). Despite Goodman's resultant relatively higher starting point, the Group must still deliver significantly higher growth than the S&P/ASX 100 consensus forecast average to achieve the operating EPS Threshold hurdle (where only 25% of securities vest).

The hurdles are always set with the desire to achieve a sustainable long-term growth rate that is competitive with the market on a risk adjusted basis, reflecting the low financial leverage of Goodman and other risk settings particularly in the current global pandemic and economic environment. In the Board's view, increasing hurdles to unsustainable levels would encourage riskier behaviour, inconsistent with an acceptable risk tolerance and framework and expectations of Securityholders. This could potentially lead to lower quality earnings and adversely affect the intent of the LTIP and ultimately Securityholder returns.

LTI hurdle period (estimated)

EPS

CAGR in EPS

Cumulative

Cumulative

(cents)

growth in EPS

growth in EPS

FY21 - FY231

FY20 - FY232

S&P/ASX 100

4.8%

15%

-1%

S&P/ASX 200 A-REIT

0.3%

1%

-3%

(excluding Goodman)

Goodman consensus forecast

5.6%

17.8%

31%

Proposed Threshold level

68.5

6%

19%

n/a

Proposed Upper level

74.5

9%

30%

n/a

Economic indicators

Australia

United States

Europe

(% per annum)

(% per annum)

(% per annum)

10 year bond rate

0.9

0.6

-0.5

Inflation rate

2.2

0.6

1.3

Sources: Nasdaq, FactSet

  1. Three years to FY23 (FY20 base year)
  2. Four years to FY23 (FY19 base year), which incorporates FY20 operating EPS to highlight the impact of COVID-19 on performance. In order to meet the proposed operating EPS Threshold and Upper levels in respect of the intended FY21 awards, Goodman would need to achieve cumulative operating EPS growth over the four year period of 33% and 45%, respectively.

36

Goodman Group

3. REMUNERATION OUTCOMES AND THE LINK BETWEEN PERFORMANCE AND REWARD

Despite the significant headwinds caused by the global pandemic, the Group has recorded another year of material outperformance, both of its external relative targets and its internal operational targets. FY20 ended amid significant market volatility due to COVID-19 however, while Goodman's security price has not been immune to the volatility in equity markets, its relative performance in FY20 continued to be significantly ahead of its peer groups, following 10 years of outperformance.

Importantly, all employees at Goodman are eligible to receive a proportion of their remuneration in performance rights which are deferred for five years and require challenging operational targets to be met in order to be received. This results in all employees having an ongoing significant exposure to Goodman equity performance which has ensured the strong alignment of employees with Securityholders. This is a long-standing feature of Goodman's remuneration approach and the Board believes it is an important factor in operating through market cycles.

3.1 Group FY20 highlights

Financial

Statutory profit of $1,504.1 million for Goodman and $4.8 billion for the combined Group and Partnerships

Operating profit of $1,060.2 million (up 12.5% on FY19)

Operating EPS of 57.5 cents (up 11.4% on FY19)

Maintained distribution of 30.0 cents per security

Net tangible assets (NTA) per security increased 9.4% to $5.84 per security

Operational property investment, management and development

High occupancy maintained at 97.5% and like for like net property income growth of 3%

Total AUM of $51.6 billion (up 12% on FY19)

Significant outperformance by the 15 Partnerships achieving average returns of 16.6%

Development WIP increased 59% to $6.5 billion and expected to grow in FY21, with higher pre- commitment levels and 15 year weighted average lease term

People and culture

All permanent employees are equity owners through the LTIP

Significant community impact made by the Goodman Foundation, with contributions from the Foundation and Goodman staff more than doubling to $13.7 million and Goodman people around the world volunteering 8,600 hours of their time

Implemented additional strategies to improve labour standards, improved fair work practices, improve ethical standards in the business community and eradicate potential instances of modern-day slavery in the Group's supply chains

LEAD safety performance metrics highlight further reduced safety non-conformances in Goodman's projects and asset management operations

99% of employees assessed as demonstrating Goodman values

Environmental

Implementation of Goodman's 2030 sustainability strategy that focuses on the Group's material environmental, social and governance priorities and twelve pivotal sustainability targets

Goodman targeting net zero operational carbon emissions and 400MW of solar installations globally by 2025

Global climate risk assessment completed in accordance with Taskforce on Climate-Related Financial

Disclosures (TCFD)

Goodman awarded the Global Sector Leader in the 2019 Global Real Estate Sustainability Benchmark (Developer - Industrial category)

Capital management

Maintained significant Group available liquidity at $2.8 billion, including $1.8 billion in cash

Significant business growth while maintaining low gearing at 7.5%

Group and Partnerships completed debt refinancing transactions totalling $3.1 billion

37

Goodman Group

Directors' report

Remuneration report - audited (continued)

Over the past decade, the Group has established significant human capital, financial resources and a strategic real estate portfolio. It has deliberately positioned its business to maximise cash flow resilience in varying market cycles, primarily through;

  • Concentration of the portfolio on logistics real estate in urban infill markets, where supply is limited and demand is driven by consumers
  • Deleveraging the Group's balance sheet and retaining significant liquidity
  • Partnering with long-term capital to share risk and return over a significant globally diversified platform

This has included specific actions over successive years, including:

  • Significant reduction in financial leverage (gearing) over the last decade from 47.9% to 7.5%
  • Increased quality of the property portfolio through over $23 billion of asset sales since 2013 concentrating the portfolio in predominantly urban infill markets and providing funding for the development of new buildings
  • Diversification of the Group's sources of debt and tenor
  • Reduced operational risk through undertaking more development activity in Partnerships, which has reduced volatility of earnings but increasing return on assets for the Group. The impact of increased development within the Partnerships has increased their returns and the prospects for performance fees in the medium to longer term
  • Significant sales of assets that were reconfigured for higher and better residential use. On these transactions, the substantial profit was not included in operating profit despite being cash realised gains as they were believed to be over and above the usual course of business
  • Maintained a conservative distribution pay-out ratio to retain funding for growing development demand.

The resilience of the Group through this period, is in large part due to this strategic long-term thinking and incentivising employees through equity linked to sustained operational performance over a long period.

3.2 Financial measures

Performance measures

FY15

FY16

FY17

FY18

FY19

FY20

Operating profit ($M)

653.5

714.5

776.0

845.9

942.3

1,060.2

Operating EPS (cents)

37.2

40.1

43.1

46.7

51.6

57.5

Operating EPS growth (%)

6.9

7.8

7.5

8.3

10.5

11.4

Security price as at 30 June ($)

6.27

7.11

7.87

9.62

15.03

14.85

Distributions per security (cents)

22.2

24.0

25.9

28.0

30.0

30.0

TSR (%)

30.0

17.0

14.2

59.4

26.0

-0.4

3 year TSR growth ($B)1

3.8

5.1

4.4

6.1

14.6

13.5

NTA per security ($)

3.46

4.10

4.21

5.34

4.64

5.84

Growth in NTA ($B)

1.1

1.2

0.2

0.9

1.3

1.0

Gearing (%)

17.3

11.8

5.9

9.7

5.1

7.5

AUM ($B)

30.3

34.1

34.6

38.3

46.2

51.6

Market capitalisation premium to NTA ($B)

4.9

5.4

6.6

17.6

9.0

16.5

1. TSR is the increase in market capitalisation plus dividend and distribution, attributable to the respective financial year.

38

Goodman Group

The key financial metrics which are aligned with the Group's strategy, long-term performance and STI and LTI programs for all employees are operating EPS and relative TSR. CAGR in operating EPS over the past five years has been 9.1%, which has exceeded the forecasts and therefore the hurdles. This has been achieved while at the same time reducing gearing.

3.3 Total returns comparison

Goodman was the largest global real estate fund management entity listed on the ASX at 30 June 2020 and one of the world's largest developers of logistics Real Estate.

The chart below show the Group has significantly outperformed the S&P/ASX 20, S&P/ASX 100 and S&P/ASX 200 AREIT indices over the past one, three and five years.

39

Goodman Group

Directors' report

Remuneration report - audited (continued)

3.4 Remuneration mix alignment across the Group

The Board believes that the alignment between pay and long-term performance is evidenced by the significant portion of remuneration at risk for the Group CEO, the other executive KMP and the whole organisation, that is in the form of LTI.

The portion of remuneration at-risk (FY20 STI and performance rights that vested in FY20) as a proportion of total remuneration for the Group CEO, the other executive KMP and the remainder of employees, is illustrated in the charts below. They show strong alignment between Securityholders and all employees as the remuneration received as depicted below requires five years of continued performance. Future remuneration outcomes will depend on the Group achieving its hurdles over the long term and the security price.

Vested remuneration is often considered by stakeholders as it represents the value that is actually received by the KMP during the year. It includes fixed base pay, STI and the value of performance rights that actually vested during the year as a result of grants made in prior periods, using the closing Goodman security price on the day of vesting.

3.5 Group performance and remuneration outcomes 3.5.1 STI outcomes

The Board has again agreed with the Group CEO that he will not participate in the STI award. In line with continued focus on sustained long-term performance, all performance based remuneration relating to the Group CEO's FY20 performance will be awarded in the form of LTI.

Given the global nature of the Group's operations the recommendations for each executive KMP are based on the Remuneration and Nomination Committee's review of several sources of market information relating to the individual's role, region and global comparisons and specific incentive schemes that apply in competitor organisations.

In FY20, the Board made some additional distinctions in the remuneration approach applied to individual KMP to further align them with long-term performance. The executive KMP STI outcomes (excluding the Group CEO), on average, are down 27% in FY20, compared with FY19, (averaging 63% of the maximum potential versus 89% in FY19). This reflects the Board's decision to focus reward in the form of LTI for the KMP whose roles have greater focus on overall Group strategy. The table below indicates the maximum possible STI and the actual STI awarded.

It should be noted that based on the Group and individual performances in FY20, KMP were eligible for the maximum STI.

Test

Metrics

Result

Gate 1: Behaviour

Code of Conduct: Pass/Fail

Pass

Gate 2: Operating EPS -

11.4% operating EPS growth

FY20 operating EPS

Operating EPS growth: Target 9% (56.3 cents)

(57.5 cents)

versus target

40

Goodman Group

Actual STI

Cash

Deferred

Actual STI %

Executive

Year

STI maximum

awarded

component

component

of maximum

$M

$M

$M

$M

Gregory Goodman

FY20

2.10

-

-

-

-

FY19

2.10

-

-

-

-

Nick Kurtis

FY20

1.05

-

-

-

-

FY19

1.05

1.00

0.50

0.50

95

Michael O'Sullivan

FY20

0.75

0.40

0.20

0.20

53

FY19

0.75

0.65

0.325

0.325

87

Nick Vrondas

FY20

1.05

0.60

0.30

0.30

57

FY19

1.05

0.95

0.475

0.475

90

€M

€M

€M

€M

Danny Peeters

FY20

0.88

0.70

0.35

0.35

80

FY19

0.88

0.70

0.35

0.35

80

US$M

US$M

US$M

US$M

Anthony Rozic

FY20

1.05

1.05

0.525

0.525

100

FY19

1.05

1.00

0.50

0.50

95

3.5.2 LTI outcomes

Performance rights are granted on an annual basis, are tested over three years and vest in three equal tranches shortly after the third, fourth and fifth anniversary of the grant. Testing as at 30 June 2020 was completed for the grants of performance rights made to executive KMP in respect of executive KMP performance in FY17 (called FY18 awards). The FY18 awards had two hurdles: operating EPS and a relative TSR, both measured over the three years ended 30 June 2020.

The mechanics of the testing are detailed in section 2.4. The first tranche of the FY18 awards will vest in September 2020, the second tranche will vest in September 2021 and the third tranche in September 2022.

Operating EPS hurdle (75% weighting)

The operating EPS is calculated by dividing operating profit by the weighted average number of securities on issue adjusted to include all performance rights which have passed the testing criteria, even though they are not yet vested (issued) to account for potential EPS dilution. Operating EPS growth for the three year period to 30 June 2020 was 33.4%, compared to a cumulative three year target of 23.9%. For each year, the operating EPS was based on the weighted average number of securities on issue plus those performance rights that at the start of the year had met the three year EPS and TSR hurdles but had not yet vested.

Target

Actual

Outperformance

Outcome

FY18

45.7 cents

46.7 cents

1.0 cent

Pass

FY19

50.0 cents

51.6 cents

1.6 cents

Pass

FY20

56.3 cents

57.5 cents

1.2 cents

Pass

Cumulative

3.8 cents

100%

As a result of achieving the operating EPS hurdle, a total of 11,775,723 equity settled performance rights will vest in September 2020, September 2021 and September 2022. In addition, 2,273,813 cash settled performance rights will also vest. The Group may elect to issue the equivalent number of new securities to raise funds to satisfy those obligations in the future.

Relative TSR (25% weighting)

TSR provides an effective check against increasing risk practices within the Group, as the price to earnings multiple will reflect the perceived risk in the Group.

Relative TSR is measured against the S&P/ASX 100 peer group. Vesting applies a sliding scale:

  • 0% vests up to and including the 50th percentile
  • Vesting of 50% starts at the 51st percentile on a sliding scale with 100% vesting at the 75th percentile.

Goodman posted a three year TSR of 103.4% to 30 June 2020, compared with the S&P/ASX 100 index performance of 17.1%. This ranked Goodman in the 93rd percentile and consequently 100% of these performance rights vested.

41

Goodman Group

Directors' report

Remuneration report - audited (continued)

GMG TSR1

S&P/ASX 100

Percentile

Outcome

TSR1

FY17 LTIP grant -

103.4%

17.1%

93rd

100%

TSR hurdle1

1. Testing period for grant: 1 July 2017 to 30 June 2020

As a result of achieving the relative TSR hurdle, a total of 3,925,241 equity settled performance rights will vest in September 2020, September 2021 and September 2022. In addition, 757,938 cash settled performance rights will also vest. The Group may elect to issue the equivalent number of new securities to raise funds to satisfy those obligations in the future.

3.5.3 Group CEO

In FY20, the Board considered the following highlights when assessing the Group CEO, Gregory Goodman:

  • Developed and drove a consistent global business strategy across all markets to sustain the performance of the Group despite significant challenges presented by COVID-19. The Group has adapted to these challenges and continues to outperform its own targets and the broader market performance, retaining employees and increasing community support and charitable programs.
  • Exceeded earnings guidance through the COVID-19 affected period, while most companies on the ASX withdrew guidance for FY20
  • Outperformed benchmark indices and comparator companies in FY20 and delivered strong and sustained TSR of 103.4% over three years and 170% over five years
  • Delivered:
    • Statutory profit of $1,504 million, driven by growth in property values as a result of asset selection over the past few years and operational activities such as development
    • Operating profit of $1,060 million, up 12.5% on FY19
    • Operating EPS of 57.5 cents, up 11.4% on FY19
    • NTA increased 9% to $5.84 per security
  • Decreased financial leverage to 7.5% and maintained strong Group balance sheet with $2.8 billion of liquidity
  • Instrumental in significantly increasing sustainability initiatives and programs for the Group. This has included establishing a zero carbon emissions target for the Group by 2025, increasing the 2025 target for solar PV capacity installed on the rooftops of Goodman's global portfolios from 100MW to 400MW and implementing compliance with
    TCFD
  • Fostered a culture that focused on delivering quality across all aspects of the business: people, properties and service
  • Lead global internal programs to promote a strong culture of inclusion, collaboration and conduct across the organisation, underpinned by the long held principles in the Group's Code of Conduct, treating all stakeholders with integrity, and accountability
  • Reinforced Goodman's purpose aimed at understanding the drivers of change and the needs of the Group's customers and all stakeholders to support their future success
  • Integrated strong risk management approaches globally
  • Lead the shift for all employees to increase alignment with Securityholders through the LTIP as the preferred form of remuneration by taking 100% of performance based remuneration in performance rights
  • Increased Goodman Foundation commitments to enable it to meet its $50 million 2030 social impact target. The Group CEO drove:
    • Contributions of $13.7 million in FY20, including $6.6 million for Australian communities affected by the recent bushfires and $7.1 million contributed by the Foundation and the Goodman team across a number of Foundation programs.
    • Directed the Goodman team globally to contribute 8,600 hours of service through the year. The Goodman Foundation focuses on children and youth, community and its health, and food rescue and the environment. Meal program and food rescue charities that have been supported by Goodman since their inception have provided over 130 million meals globally.

42

Goodman Group

The charts below demonstrate the performance of the Group and various key metrics relative to the Group CEO's vested remuneration outcomes in FY20 and prior years. They illustrate significant alignment of Group CEO remuneration outcomes and the key metrics for testing and vesting of performance rights. Significant operating profit growth, security price growth and consequently returns for Securityholders over the testing periods, correlate with increased Group CEO remuneration over time. Given the strong increase in the market price of securities between the time of the grant and the time of vesting, the Group CEO (and all beneficiaries of the LTIP) have participated in the performance alongside all investors in the Group.

Importantly, the Group CEO's vested remuneration as a proportion of TSR (in $ billion) has trended lower over the past five years, indicating that the Securityholders have experienced a more than proportionate benefit from the Group's performance relative to the Group CEO.

The table below includes awarded remuneration at the grant date and the vested remuneration over the past five years for the Group CEO. The numbers in this table differ from the statutory disclosure in section 6 primarily due to the differences in the measurement and timing of recognition in respect of performance rights granted under the LTIP and not the final vesting outcome. The below figures show the base salary received by the Group CEO in the respective year plus the value of performance rights which vested during that year at the closing price on the day the performance rights vested.

The table highlights:

  • No change in fixed remuneration over the period
  • The proportion of remuneration from fixed (cash) salary has continued to decline
  • Significant growth in the value of LTI from grant date to the vesting date due to the increase in security price (on average an increase of 119% for grants vesting in FY20).

FY15

FY16

FY17

FY18

FY19

FY20

$M

$M

$M

$M

$M

$M

Base salary

1.4

1.4

1.4

1.4

1.4

1.4

STI

2.2

-

-

-

-

-

Value of LTI on grant date1

2.6

3.1

3.8

4.7

7.3

11.6

Value of LTI on vesting date

4.6

5.2

7.0

8.8

13.5

25.4

Total remuneration based on

6.2

4.5

5.2

6.1

8.7

13.0

LTI value at grant date1

Total vested remuneration based on LTI

8.2

6.6

8.4

10.2

14.9

26.8

value at vesting date

Increase in LTI value due to security

2.0

2.1

3.2

4.1

6.3

13.8

price performance of the Group

Percentage growth in value of LTI

74%

66%

84%

88%

86%

119%

during vesting period

1. Value based on the security prices at the grant dates for the performance rights that vested in the financial year. This is so as to allow comparison of the security price outperformance over the period between grant and vesting dates.

43

Goodman Group

Directors' report

Remuneration report - audited (continued)

This remuneration disclosure indicates available remuneration resulting from the performance over the past three to five years. Grant vesting outcomes have increased significantly compared to the initial grant value, due to consistent earnings growth and security price outperformance of the Group.

The chart below illustrates the proportions of vesting outcomes due to grant value and value added since grant date:

3.5.4 Other executive KMP

In FY20, the Board considered the following highlights when assessing Executive Director, Corporate - Danny Peeters

  • Successfully refined business operations in Continental Europe and Brazil, playing a critical role in communicating and reinforcing the Group's strategy in these diverse regions
  • Delivered outperformance against all key performance and financial parameters
  • Produced strong development results with very active and profitable development pipeline, and c$800 million completions in FY20 and continued to secure a strong development pipeline in core locations moving into FY21
  • Drove further integration of the Brazil operation into the global network
  • In Continental Europe, further positioning of the stabilised portfolio towards infill, consumption-focused locations:
    • Current AUM at $8 billion
    • Occupancy of 98% and weighted average lease expiry in excess of 4 years
    • Total Partnership investment return of 12.9%, while maintaining conservative gearing
  • In Brazil, played a key role in overseeing the successful second year of the Goodman Brazil Logistics Partnership (GBLP)with strong leasing activity, resulting in portfolio occupancy of 99%
    • Secured significant infill land banks for GBLP while successfully progressing permit processes allowing start of construction in FY21 on previously acquired sites
    • Provided guidance and leadership in a complex acquisition and development environment effecting on-target performance
  • Further embedded key controls and culture with the team working cohesively and capability increasing.

In FY20, the Board considered the following highlights when assessing Chief Executive Officer, North America and Deputy Group Chief Executive Officer - Anthony Rozic

  • Critical role in communicating and reinforcing the Group's strategy in the region
  • Successfully oversaw strong growth in business operations in North America:
    • AUM grown to $4.3 billion
    • Stabilised occupancy of 95%
    • WALE of 7.2 years
    • Created a significant infill development pipeline in major US gateway cities providing strong positioning for future performance
    • Raised US$2.5 billion of equity and US$0.7 billion of debt capacity to bring total available liquidity in the Partnership to US$4.7 billion
  • Positioned the North American business over FY20 with a number of developments pre-leased and replenishing the land/value-add inventory. Emphasis on developing major infill sites and value-add development skillsets
  • Developed a high-quality portfolio and strongly differentiated brand position.
  • Strong leadership in embedding the Goodman values in the behaviour of the team and encouraging teamwork with respect
  • Building team capabilities and skill sets for complex acquisitions and developments.

44

Goodman Group

In FY20, the Board considered the following highlights when assessing Group Head of Equities - Nick Kurtis

  • Formulated and implemented the Partnership's strategies to successfully deliver significant total returns. Partnership investment portfolio delivered:
    • Annualised total return of 16.6% (based on the respective Partnership reporting periods) for FY20
    • Average annualised total return of 16.4% over the past five years
  • Delivered strong performance metrics including:
    • 10% increase in divisional contribution to the Group's operating earnings to $511 million
    • performance fees of $207 million
    • Growth in external AUM up 12% to $48 billion across 15 Partnerships in 17 countries
    • Strong asset selection focus resulting in superior property level returns
  • Fostered strong investor relationships and successful communication of Partnership strategies and alignment of interests with investors
  • Successfully executed continuation of several Partnerships through the course of FY20
  • Raised $2.5 billion of additional equity to increase total available liquidity in the Partnerships to $16.3 billion
  • Aligned the Group's and Partnerships' long-term investment strategy to optimise financial outcomes.

In FY20, the Board considered the following highlights when assessing Group Chief Risk Officer - Michael O'Sullivan

  • Established and refined risk frameworks with improved outcomes across the Group and Partnerships, adapting to the structural changes driving Goodman's business including nature and scale of development projects globally
  • Effectively navigated through the changing risk and work environment that has arisen from COVID-19 while exceeding targets and strategies set at the beginning of the financial year
  • Performed a critical role in commercial oversight and assessment of globally complex transactions for the Group in FY20. As part of this process, he was an active member of Due Diligence Committee meetings for major transactions, disposals and capital market transactions
  • Coordinated and refined reporting of Group Corporate Services functions, specifically as they relate to the identification and monitoring of non-financial risks with specific reference to internal audit, safety, sustainability, insurance and business continuity planning
  • Led a considerable volume of complex transaction activity in FY20 for Group Risk through the Group Investment Committee process including:
    • $4.5 billion in development commencements and $2.4 billion of completions
    • $2.2 billion of asset sales within the Group and to external parties globally
    • $2.3 billion of global acquisitions
    • 15 business plans and Partnership strategy proposals across $51.6 billion of global assets.

In FY20, the Board considered the following highlights when assessing Group Chief Financial Officer - Nick Vrondas

  • Full oversight of balance sheet and profit and loss outcomes for the Group and Partnerships
  • Successfully developed and played a key role in the execution of the business strategy including the management and allocation of capital that has delivered strong returns to investors over several years, culminating in operating profit of $1.06 billion and strong operating profit growth, representing 11.4% operating EPS growth in FY20
  • Delivered statutory and management financial reporting across 17 countries and continued improvements in financial reporting to facilitate active business management
  • Led operational improvements in relation to business processes, IT and business intelligence applications
  • Strengthened monitoring, coordination and consolidation of financial performance and financial position of regional business units and divisions to achieve budgets and financial plans
  • Refined the financial risk management practices through variable market conditions, consistently reducing risk:
    • Enabled delivery of a strong capital management position and compliance with financial risk management policies of the Group and Partnerships
    • Established debt finance transactions in banking and debt capital markets of $3.1 billion for the Group and its Partnerships, adding term to maturity profile and diversity of funding sources
    • Effective hedging of financial risk. Involved in and oversaw derivative and hedge transactions of over $7.0 billion for the Group and its Partnerships
    • Updated and improved various operational policies to enhance compliance
    • Established a track record in the debt capital markets that has facilitated strong support for Group issuances.

45

Goodman Group

Directors' report

Remuneration report - audited (continued)

3.6 LTI grants in FY21 in relation to FY20 performance

The remuneration awards made by the Board in respect of the executive KMP performance in FY20 comprise fixed remuneration, STI and awards under the LTIP that will be made in FY21. As discussed in section 2.1, the performance rights will be tested at the end of FY23. The vesting of those performance rights that achieve the performance hurdles will occur in equal tranches in September 2023, September 2024 and September 2025. The minimum vesting percentage is 0% if hurdles are not met.

Over the past two years, the number of performance rights proposed to be awarded to the Group CEO have decreased 42%.

In determining its intended award of performance rights, the Board has considered the face value of the FY21 awards for each executive KMP. This assumes 100% vesting and therefore represents the maximum number of potential securities. It does not consider the risk of achieving the performance hurdles and that performance rights have no entitlement to distributions over the vesting period or the time value of money.

Face value of

Performance

GMG price

grant

Executive

Year of grant

rights proposed

$

$M

Gregory Goodman

FY21

950,000

14.85

14.1

FY20

900,000

15.03

13.5

Danny Peeters

FY21

380,000

14.85

5.6

FY20

350,000

15.03

5.3

Anthony Rozic

FY21

400,000

14.85

5.9

FY20

380,000

15.03

5.7

Nick Kurtis

FY21

490,000

14.85

7.3

FY20

380,000

15.03

5.7

Michael O'Sullivan

FY21

340,000

14.85

5.0

FY20

300,000

15.03

4.5

Nick Vrondas

FY21

420,000

14.85

6.2

FY20

380,000

15.03

5.7

The face values of grants have been determined using the Goodman security price at 30 June 2020 of $14.85 (FY20 grant face value-based on the price at 30 June 2019 of $15.03).

46

Goodman Group

4. EXECUTIVE KMP REMUNERATION (STATUTORY ANALYSIS)

Details of the nature and amount of each major element of the remuneration of each executive KMP, as calculated under Australian Accounting Standards, are set out below:

Long-term

Share based

Performance

payments

related

Salary and

Bonus

Superannuation

Bonus

Performance

STI and

LTI as % of

Other3,4

Total

Other3

Total

LTI as %

fees1

(STI)2

benefits

(STI)2

rights (LTI)5

total

of total

Executive KMP

$

$

$

$

$

$

$

$

$

%

%

Gregory Goodman

FY20

1,396,329

-

17,169

1,413,498

21,003

-

24,841

10,534,692

11,994,033

87.8

87.8

FY19

1,385,230

-

17,437

1,402,667

20,532

-

24,773

11,352,787

12,800,759

88.7

88.7

Nick Kurtis

FY20

687,653

-

18,010

705,663

21,003

-

12,414

3,740,638

4,479,717

83.5

83.5

FY19

690,979

-

18,010

708,989

20,532

1,000,000

12,380

3,909,037

5,650,938

86.9

69.2

Michael O'Sullivan

FY20

487,275

-

16,500

503,775

21,003

400,000

(891)

2,493,876

3,417,763

84.7

73.0

FY19

473,295

-

16,500

489,795

20,532

650,000

3,190

2,487,470

3,650,987

85.9

68.1

Nick Vrondas

FY20

635,820

-

16,500

652,320

21,003

600,000

12,421

3,783,979

5,069,723

86.5

74.6

FY19

685,195

-

16,500

701,695

20,532

950,000

12,387

3,964,207

5,648,821

87.0

70.2

Danny Peeters6

FY20

593,400

-

-

593,400

-

700,000

-

2,070,939

3,364,339

82.4

61.6

FY19

584,009

-

-

584,009

-

700,000

-

2,172,415

3,456,424

83.1

62.9

US$

US$

US$

US$

US$

US$

US$

US$

US$

Anthony Rozic7

FY20

680,039

-

170,587

850,626

14,102

1,050,000

14,766

2,548,576

4,478,070

80.4

56.9

FY19

691,821

-

12,880

704,701

14,683

1,000,000

65,786

2,803,908

4,589,078

82.9

61.1

The footnotes for this table are set out on the following page.

47

Goodman Group

Directors' report

Remuneration report - audited (continued)

Executive KMP are engaged under written employment contracts until notice is given by either Goodman or the executive KMP. Notice periods are for six months except for Gregory Goodman and Danny Peeters for whom the period is 12 months. Danny Peeters provides his services through a management company, DPCON Bvba.

Footnotes to the executive KMP remuneration table

  1. Salary and fees represent the amounts due under the terms of executives' service contracts and include movements in annual leave provisions.
  2. Executives' bonus (STI) awards are paid in two instalments: 50% on finalisation of Goodman's financial statements and 50% 12 months later. Under Australian Accounting Standards, this means the entire bonus award is considered as a long-term benefit with regard to the disclosure of individual executive's remuneration. No bonuses were forfeited during the financial year.
  3. Other includes reportable fringe benefits, car parking and changes in long service leave provisions.
  4. During the period, the Board agreed certain tax equalisation arrangements with Anthony Rozic in connection with his employment arrangements in the United States and Australia to ensure that he was no better or worse off. The Board agreed to pay additional tax related amounts of US$150,005 relating to the period prior to 1 January 2019. These amounts were on top of his Australian tax obligations for which he remained exclusively responsible.
    The Board also advanced under an interest free loan, double-tax amounts for which Foreign Income Tax Offsets from the Australian Taxation Office will be used to repay the advances. At 1 July 2019, the advances amounted to $nil and at 30 June 2020 equalled US$503,729, the maximum during the period. The amount of interest that would have been payable if charged on an arms-length basis during the period would have been $8,490. The additional tax related amount and the notional interest amount have been included in Anthony Rozic's statutory remuneration for FY20 (Other remuneration).
    No other executive KMP received a loan from the Group during the current or prior financial years.
  5. Performance rights are an LTI and in accordance with Australian Accounting Standards: the values of the awards are determined using option pricing models and amortised in the income statement over the vesting periods. The determination of the values of the performance rights that are subject to the operating EPS hurdles also reflect an assessment of the probability of the hurdles being met.
  6. The remuneration of Danny Peeters is disclosed in Euros, the currency in which his base remuneration and STI are determined. The value attributed to his performance rights is translated from Australian dollars at the weighted average rate for the relevant financial year.
  7. The remuneration of Anthony Rozic is disclosed in US dollars, the currency in which his base remuneration and STI are determined. The value attributed to his performance rights is translated from Australian dollars at the weighted average rate for the relevant financial year.

5. NON-EXECUTIVE DIRECTOR REMUNERATION

5.1 Key elements of the Non-Executive Director remuneration policy

  • The policy is structured to ensure independence of judgement in the performance of their duties.
  • Non-ExecutiveDirectors receive fixed fees for Board membership and additional fees for membership of committees.
  • The fees consider the size and scope of Goodman's activities and the responsibilities and experience of the Directors. Periodically, these fees are benchmarked against data for comparable entities provided by external advisers.
  • As approved by Securityholders at the 2006 Annual General Meeting, total remuneration (including superannuation) payable by Goodman to all Non-Executive Directors in aggregate must not exceed $2.5 million per annum. For the current financial year, total Non-Executive Directors' remuneration was $2.3 million (2019: $2.1 million).
  • The increase in Non-Executive Director fees compared to the prior financial year was due to the change in composition of the Board. There have been no changes to the Board and committee annual fees since 1 January 2018.
  • Non-ExecutiveDirectors are not entitled to participate in any STI or LTI schemes as they may be perceived to create a bias when overseeing executive decision making.
  • The Board has a policy, set out in the Directors' Securities Acquisition Plan, for Non-Executive Directors to accumulate a significant long-term holding of Goodman securities so that they have an alignment of interests with those of Securityholders. Under the policy, each Non-Executive Director is required to acquire securities such that their holding is equal in value to twice their annual base fees. The value of securities for this purpose equals the higher of purchase cost or market value at the end of each financial year. This holding may be acquired at any time but where not held at the beginning of a financial year, the policy is for 25% of base fees (net of tax) during the financial year to be applied to the on-market purchase of securities.

48

Goodman Group

5.2 Board and committee annual fees

Audit

Risk and

Remuneration and

Compliance

Nomination

Board

Committee

Committee

Committee

$

$

$

$

Chairman

625,000

50,000

40,000

40,000

Member

230,000

25,000

25,000

25,000

5.3 Non-Executive Directors' remuneration (statutory analysis)

Details of the nature and amount of each major element of the remuneration of Non-Executive Directors, as calculated under Australian Accounting Standards, are set out below:

Superannuation

Non-Executive Directors -

Salary and fees

benefits

Total

GL and GFML

$

$

$

Ian Ferrier1

FY20

603,997

21,003

625,000

FY19

604,469

20,531

625,000

Christopher Green2

FY20

255,000

-

255,000

FY19

43,155

3,080

46,235

Stephen Johns

FY20

283,997

21,003

305,000

FY19

284,469

20,531

305,000

Mark Johnson3

FY20

19,500

1,750

21,250

FY19

-

-

-

Rebecca McGrath

FY20

273,997

21,003

295,000

FY19

274,469

20,531

295,000

Phillip Pryke4

FY20

359,354

21,003

380,357

FY19

358,853

20,531

379,384

Jim Sloman5

FY20

-

-

-

FY19

97,301

8,555

105,856

Penny Winn

FY20

258,997

21,003

280,000

FY19

259,469

20,531

280,000

Non-Executive Director -

GLHK

HK$

HK$

HK$

David Collins6

FY20

625,000

-

625,000

FY19

625,000

-

625,000

  1. Ian Ferrier does not receive any additional Board committee fees.
  2. Christopher Green was appointed as a Director on 28 April 2019.
  3. Mark Johnson was appointed as a Director on 1 June 2020.
  4. Salary and fees for Phillip Pryke included an amount of A$85,357 (NZ$90,000) (2019: A$84,384 (NZ$90,000)) due in respect of his role on the board and audit committee of Goodman (NZ) Limited, the manager of Goodman Property Trust.
  5. Jim Sloman retired as a Director on 15 November 2018.
  6. David Collins is a director of GLHK and his director fees are disclosed in Hong Kong dollars.

49

Goodman Group

Directors' report

Remuneration report - audited (continued)

6. OTHER REMUNERATION DISCLOSURES

6.1 Movements in performance rights held by executive KMP

The movements in the number of performance rights during FY20 are summarised as follows:

Held at the

Held at the

start of the

Granted as

end of the

Year

year

compensation

Vested

Forfeited

year

Executive Directors

Gregory Goodman

FY20

7,231,827

900,000

(1,781,827)

-

6,350,000

FY19

6,962,073

1,600,000

(1,280,248)

(49,998)

7,231,827

Danny Peeters

FY20

2,158,413

350,000

(512,163)

-

1,996,250

FY19

2,064,458

550,000

(444,795)

(11,250)

2,158,413

Anthony Rozic

FY20

2,470,996

380,000

(609,330)

-

2,241,666

FY19

2,394,624

600,000

(508,628)

(15,000)

2,470,996

Other executives

Nick Kurtis

FY20

2,568,495

380,000

(658,079)

-

2,290,416

FY19

2,544,623

600,000

(557,378)

(18,750)

2,568,495

Michael O'Sullivan

FY20

1,607,018

300,000

(403,268)

-

1,503,750

FY19

1,568,509

400,000

(352,743)

(8,748)

1,607,018

Nick Vrondas

FY20

2,603,412

380,000

(659,662)

-

2,323,750

FY19

2,547,878

600,000

(525,716)

(18,750)

2,603,412

50

Goodman Group

6.2 Analysis of performance rights held by executive KMP

Details of the awards of performance rights under the LTIP granted by Goodman as compensation to the executive KMP are set out in the following tables:

Fair value

Total value of

Value of

Financial

per

performance

Vested

Vested

performance

Number of

Date

performance

rights

in prior

in the

rights vested

years in

performance

performance

right1

granted1

years

year

Forfeited

in the year3

which

Expiry

rights

rights

grant

granted

granted

Year

$

$

%

%2

%

$

vests

date4

Executive Directors

Gregory Goodman

900,000

20 Nov 2019

FY20

11.48

10,332,000

-

-

-

-

2023-2025

2 Sep 2024

1,600,000

15 Nov 2018

FY19

8.72

13,952,000

-

-

-

-

2022-2024

1 Sep 2023

1,600,000

16 Nov 2017

FY18

6.70

10,720,000

-

-

-

-

2021-2023

1 Sep 2022

2,400,000

30 Sep 2016

FY17

5.64

13,536,000

-

33.3

-

11,408,000

2020-2022

1 Sep 2021

2,000,000

25 Nov 2015

FY16

4.44

8,880,000

32.5

32.5

2.5

9,269,014

2019-2021

1 Sep 2020

995,476

20 Nov 2014

FY15

4.01

3,991,859

66.7

33.3

-

4,731,839

2018-2020

2 Sep 2019

Danny Peeters

350,000

20 Nov 2019

FY20

11.48

4,018,000

-

-

-

-

2023-2025

2 Sep 2024

550,000

15 Nov 2018

FY19

8.72

4,796,000

-

-

-

-

2022-2024

1 Sep 2023

550,000

16 Nov 2017

FY18

6.70

3,685,000

-

-

-

-

2021-2023

1 Sep 2022

600,000

30 Sep 2016

FY17

5.64

3,384,000

-

33.3

-

2,852,000

2020-2022

1 Sep 2021

450,000

25 Nov 2015

FY16

4.44

1,998,000

32.5

32.5

2.5

2,085,525

2019-2021

1 Sep 2020

497,738

20 Nov 2014

FY15

4.01

1,995,929

66.7

33.3

-

2,365,919

2018-2020

2 Sep 2019

Anthony Rozic

380,000

20 Nov 2019

FY20

11.48

4,362,400

-

-

-

-

2023-2025

2 Sep 2024

600,000

15 Nov 2018

FY19

8.72

5,232,000

-

-

-

-

2022-2024

1 Sep 2023

600,000

16 Nov 2017

FY18

6.70

4,020,000

-

-

-

-

2021-2023

1 Sep 2022

700,000

30 Sep 2016

FY17

5.64

3,948,000

-

33.3

-

3,327,343

2020-2022

1 Sep 2021

600,000

25 Nov 2015

FY16

4.44

2,664,000

32.5

32.5

2.5

2,780,700

2019-2021

1 Sep 2020

542,987

20 Nov 2014

FY15

4.01

2,177,378

66.7

33.3

-

2,580,003

2018-2020

2 Sep 2019

Refer to page 53 for explanatory footnotes.

51

Goodman Group

Directors' report

Remuneration report - audited (continued)

6.2 Analysis of performance rights held by executive KMP (continued)

Fair value per

Total value of

Value of

Financial

Number of

performance

Vested

Vested

performance

years in

performance

rights

in prior

in the

rights vested in

which grant

performance

Date

right1

granted1

years

year

Forfeited

the year3

vests

Expiry date4

rights

performance

granted

rights granted

Year

$

$

%

%2

%

$

Other executives

Nick Kurtis

380,000

30 Sep 2019

FY20

11.26

4,278,800

-

-

-

-

2023-2025

2 Sep 2024

600,000

28 Sep 2018

FY19

8.52

5,112,000

-

-

-

-

2022-2024

1 Sep 2023

600,000

30 Sep 2017

FY18

6.41

3,846,000

-

-

-

-

2021-2023

1 Sep 2022

700,000

30 Sep 2016

FY17

5.64

3,948,000

-

33.3

-

3,327,343

2020-2022

1 Sep 2021

750,000

23 Sep 2015

FY16

4.06

3,045,000

32.5

32.5

2.5

3,475,875

2019-2021

1 Sep 2020

542,987

9 Oct 2014

FY15

4.05

2,199,097

66.7

33.3

-

2,580,989

2018-2020

2 Sep 2019

Michael O'Sullivan

300,000

30 Sep 2019

FY20

11.26

3,378,000

-

-

-

-

2023-2025

2 Sep 2024

400,000

28 Sep 2018

FY19

8.52

3,408,000

-

-

-

-

2022-2024

1 Sep 2023

390,000

30 Sep 2017

FY18

6.41

2,499,900

-

-

-

-

2021-2023

1 Sep 2022

450,000

30 Sep 2016

FY17

5.64

2,538,000

-

33.3

-

2,139,000

2020-2022

1 Sep 2021

350,000

23 Sep 2015

FY16

4.06

1,421,000

32.5

32.5

2.5

1,622,089

2019-2021

1 Sep 2020

418,553

9 Oct 2014

FY15

4.05

1,695,140

66.7

33.3

-

1,989,512

2018-2020

2 Sep 2019

Nick Vrondas

380,000

30 Sep 2019

FY20

11.26

4,278,800

-

-

-

-

2023-2025

2 Sep 2024

600,000

28 Sep 2018

FY19

8.52

5,112,000

-

-

-

-

2022-2024

1 Sep 2023

600,000

30 Sep 2017

FY18

6.41

3,846,000

-

-

-

-

2021-2023

1 Sep 2022

750,000

30 Sep 2016

FY17

5.64

4,230,000

-

33.3

-

3,565,000

2020-2022

1 Sep 2021

750,000

23 Sep 2015

FY16

4.06

3,045,000

32.5

32.5

2.5

3,475,875

2019-2021

1 Sep 2020

497,738

9 Oct 2014

FY15

4.05

2,015,839

66.7

33.3

-

2,365,905

2018-2020

2 Sep 2019

52

Goodman Group

Footnotes to the analysis of executive KMP performance rights table

  1. The fair value was determined at grant date and calculated using a combination of the standard Black Scholes model with a continuous dividend/distribution yield and a Monte Carlo model which simulated total returns for each of the ASX 100 entities and discounted the future value of any potential future vesting performance rights to arrive at a present value.
  2. As performance rights had an exercise price of $nil, Goodman securities were automatically issued to employees when the performance rights vested. Accordingly, the percentage of performance rights that vested during the financial year equalled the percentage of securities issued during the financial year.
  3. The value of performance rights vested was calculated using the closing price of a Goodman security on the ASX of $14.26 on 2 September 2019, the day the performance rights vested.
  4. As Goodman securities were automatically issued to employees when the performance rights vested, and lapsed where they failed to do so, the vesting date was also deemed to be the expiry date.

6.3 Securities issued on exercise of performance rights

During FY20, Goodman issued 14,531,241 securities as a result of the vesting of performance rights. The amount paid by the employees on exercise of these securities was $nil.

No performance rights have vested since the end of the financial year.

6.4 Unissued securities under performance rights

At the date of this Directors' report, unissued securities of Goodman under performance rights i.e. those performance rights that have not yet vested, were:

Expiry date

Exercise price $

Number of performance rights1

Sep 2024

-

11,639,792

Sep 2023

-

17,149,688

Sep 2022

-

15,700,964

Sep 2021

-

12,486,798

Sep 2020

-

5,276,111

1. The number of performance rights at the date of this Directors' report is net of any rights forfeited and excludes 11,734,292 performance rights where the intention is to cash settle.

53

Goodman Group

Directors' report

Remuneration report - audited (continued)

6.5 Movement in Goodman securities held

The movements during the financial year in the number of Goodman securities held, directly, indirectly or beneficially, by each KMP, including their related parties, are set out below:

Securities

issued on

Held at the

Held at the

vesting of

start of the

performance

end of the

Year

year1

rights

Acquisitions

Disposals

year

Non-Executive Directors -

GL and GFML

Ian Ferrier

FY20

202,922

-

5,403

-

208,325

FY19

195,974

-

6,948

-

202,922

Christopher Green

FY20

78,996

-

-

-

78,996

(appointed 28 Apr 2019)

FY19

78,996

-

-

-

78,996

Stephen Johns

FY20

25,000

-

-

-

25,000

FY19

15,000

-

10,000

-

25,000

Mark Johnson

FY20

-

-

-

-

-

(appointed 1 Jun 2020)

FY19

-

-

-

-

-

Rebecca McGrath

FY20

39,540

-

2,604

-

42,144

FY19

36,191

-

3,349

-

39,540

Phillip Pryke

FY20

100,880

-

-

(41,000)

59,880

FY19

100,880

-

-

-

100,880

Penny Winn

FY20

24,700

-

-

-

24,700

FY19

24,700

-

-

-

24,700

Non-Executive Directors

David Collins

FY20

5,000

-

-

-

5,000

FY19

-

-

5,000

-

5,000

1. Relates to securities held at the later of the start of the financial year or the date of becoming a KMP.

54

Goodman Group

6.5 Movement in Goodman securities held (continued)

Securities

Held at the

issued on

vesting of

Held at the

start of the

performance

end of the

Year

year1

rights

Acquisitions

Disposals

year

Executive Directors -

GL and GFML

Gregory Goodman

FY20

38,102,720

1,781,827

5,000

(1,785,000)

38,104,547

FY19

38,122,472

1,280,248

-

(1,300,000)

38,102,720

Danny Peeters

FY20

1,591,385

512,163

-

-

2,103,548

FY19

1,796,590

444,795

-

(650,000)

1,591,385

Anthony Rozic

FY20

1,109,460

609,330

-

(242,832)

1,475,958

FY19

1,109,460

508,628

-

(508,628)

1,109,460

Other executives

Nick Kurtis

FY20

407,140

658,079

-

(561,889)

503,330

FY19

660,352

557,378

-

(810,590)

407,140

Michael O'Sullivan

FY20

464,967

403,268

-

(201,634)

666,601

FY19

764,967

352,743

-

(652,743)

464,967

Nick Vrondas

FY20

-

659,662

-

(659,662)

-

FY19

404,417

525,716

-

(930,133)

-

1. Relates to securities held at the later of the start of the financial year or the date of becoming a KMP.

6.6 Movement in Goodman Property Trust securities

During the year, Michael O'Sullivan disposed of his entire holding, amounting to 349,650 units, in Goodman Property Trust (GMT). GMT is listed on the New Zealand Exchange and Goodman owned 21.4% of the issued units at 30 June 2020.

6.7 Transactions with Directors, executives and their related entities

Other than as disclosed elsewhere in the Remuneration report, there were no other transactions with Directors, executives and their related entities.

55

Goodman Group

Directors' report

(continued)

Environmental regulations

Goodman has policies and procedures to identify and appropriately address environmental obligations that might arise in respect of Goodman's operations that are subject to significant environmental laws and regulation. The Directors have determined that Goodman has complied with those obligations during the financial year and that there has not been any material breach.

Declaration by the Group Chief Executive Officer and Group Chief Financial Officer

The Group Chief Executive Officer and Group Chief Financial Officer declared in writing to the Board that, in their opinion, the financial records of Goodman for the year ended 30 June 2020 have been properly maintained and the financial report for the year ended 30 June 2020 complies with accounting standards and presents a true and fair view of Goodman's financial condition and operational results. The Group Chief Executive Officer and Group Chief Financial Officer confirmed that the above declaration was, to the best of their knowledge and belief, founded on a sound system of risk management and internal control and that the system was operating effectively in all material respects in relation to the financial reporting risks.

Disclosure in respect of any indemnification and insurance of officers and auditors

Pursuant to the Constitution of Goodman, current and former directors and officers of Goodman are entitled to be indemnified. Deeds of Indemnity have been executed by Goodman, consistent with the Constitution, in favour of each Director. The Deed indemnifies each Director to the extent permitted by law for liabilities (other than legal costs) incurred in their capacity as a director of Goodman Limited or a controlled entity and, in respect of legal costs, for liabilities incurred in defending or resisting civil or criminal proceedings.

Goodman has insured to the extent permitted by law, current and former directors and officers of Goodman in respect of liability and legal expenses incurred in their capacity as a director or officer. As it is prohibited under the terms of the contract of insurance, the Directors have not included details of the nature of the liabilities covered or the amount of the premiums paid.

The auditors of Goodman are not indemnified by Goodman or covered in any way by this insurance in respect of the audit.

Non-audit services

During the financial year, KPMG, Goodman and GIT's auditor, performed certain other services in addition to the audit and review of the financial statements.

The Board has considered the non-audit services provided during the financial year by the auditor and, in accordance with written advice authorised by a resolution of the Audit Committee, resolved that it is satisfied that the provision of those non-audit services during the financial year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons:

  • All non-audit services were subject to the corporate governance procedures adopted by Goodman and have been reviewed by the Audit Committee to determine they do not impact the integrity and objectivity of the auditor
  • The non-audit services provided do not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, as they did not involve reviewing or auditing the auditor's own work, acting in a management or decision making capacity for Goodman, acting as an advocate for Goodman or jointly sharing risks and rewards.

Details of the amounts paid to the auditor of Goodman and GIT, KPMG and its network firms, for the audit and non-audit services provided during the financial year are set out in note 26 to the consolidated financial statements.

Lead auditor's independence declaration under section 307C of the Corporations Act 2001

The lead auditor's independence declaration is set out on page 58 and forms part of this Directors' report for the financial year.

56

Goodman Group

Rounding

Goodman and GIT are entities of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191. In accordance with that Instrument, amounts in this Directors' report and the consolidated financial statements have been rounded to the nearest hundred thousand dollars, unless otherwise stated.

Events subsequent to balance date

There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the Directors, to affect significantly the operations of Goodman, the results of those operations, or the state of affairs of Goodman, in future financial years.

The Directors' report is made in accordance with a resolution of the Directors.

Ian Ferrier, AM

Independent Chairman

Gregory Goodman

Group Chief Executive Officer

Sydney, 13 August 2020

57

Lead Auditor's Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Goodman Limited and Goodman Funds Management Limited, as Responsible Entity for Goodman Industrial Trust

I declare that, to the best of my knowledge and belief, in relation to the audits of Goodman Limited (as the deemed parent presenting the stapled security arrangement of the Goodman Group) and Goodman Industrial Trust for the financial year ended 30 June 2020 there have been:

  1. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audits; and
  2. no contraventions of any applicable code of professional conduct in relation to the audits.

KPM_INI_01

PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01

KPMG

Eileen Hoggett

Partner

Sydney

13 August 2020

KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.

58

Liability limited by a scheme approved under

Professional Standards Legislation.

Goodman Group

Consolidated statements of financial position

as at 30 June 2020

Goodman

2020

20191

Note

$M

$M

Current assets

Cash and cash equivalents

21(a)

1,781.9

1,607.1

Receivables

7

282.3

249.6

Contract assets

8

25.7

308.1

Inventories

6(b)

544.1

307.9

Other financial assets

17

59.3

1.3

Assets held for sale

9

112.5

-

Total current assets

2,805.8

2,474.0

Non-current assets

Receivables

7

108.3

124.7

Inventories

6(b)

636.1

761.1

Investment properties

6(b)

1,901.2

1,897.1

Investments accounted for using the equity method

6(b)

9,370.8

8,452.4

Deferred tax assets

5

10.5

6.8

Other financial assets

17

408.8

340.4

Property, plant and equipment

12

50.9

16.3

Intangible assets

14

845.8

840.0

Total non-current assets

13,332.4

12,438.8

Total assets

16,138.2

14,912.8

Current liabilities

Payables

10

584.5

459.3

Current tax payables

5

140.8

92.6

Interest bearing liabilities

16

260.1

-

Provisions

11

289.4

285.0

Lease liabilities

13

17.6

-

Other financial liabilities

17

50.4

12.1

Total current liabilities

1,342.8

849.0

Non-current liabilities

Payables

10

85.4

172.5

Interest bearing liabilities

16

2,678.4

2,975.0

Deferred tax liabilities

5

121.8

130.1

Provisions

11

29.0

27.3

Lease liabilities

13

29.2

-

Other financial liabilities

17

331.0

236.4

Total non-current liabilities

3,274.8

3,541.3

Total liabilities

4,617.6

4,390.3

Net assets

11,520.6

10,522.5

Equity attributable to Securityholders

Issued capital

20

8,031.7

8,031.7

Reserves

384.7

397.5

Retained earnings

3,104.2

2,093.3

Total equity attributable to Securityholders

11,520.6

10,522.5

Comprising:

Total equity attributable to GL

22(a)

1,278.0

936.2

Total equity attributable to other entities stapled to GL

22(b)

10,242.6

9,586.3

Total equity attributable to Securityholders

11,520.6

10,522.5

GIT

2020

2019

$M

$M

1,302.6

1,214.4

1,602.1

1,841.8

-

-

-

-

  • 59.3 1.3

  • -
    2,964.0 3,057.5

1,487.4 1,431.3

5.9 6.5

1,202.4 1,158.6

7,148.3

6,401.0

-

-

  • 444.1 399.0

  • -
  • -
    10,288.1 9,396.4
    13,252.1 12,453.9

655.3 707.6

  • -

260.1-

201.1 181.4

  • -

50.4 12.1

1,166.9 901.1

  1. 152.3
    2,679.4 2,864.3
  1. 62.8
  • -
  • -

302.6 229.7

3,295.8 3,309.1

4,462.7 4,210.2

8,789.4 8,243.7

7,623.5 7,477.3

136.7 97.9

1,029.2 668.5

8,789.4 8,243.7

8,789.4 8,243.7

1. Goodman has adopted AASB 16 Leases with a date of initial application of 1 July 2019 using the modified retrospective approach. Under this approach, the comparative information is not restated (refer note 1(d)).

The consolidated statements of financial position are to be read in conjunction with the accompanying notes.

59

Goodman Group

Consolidated income statements

for the year ended 30 June 2020

Goodman

2020

2019

Note

$M

$M

Revenue

Gross property income

2

115.9

114.6

Management income

2

511.2

469.7

Development income

2

882.6

1,134.3

Distributions from investments

1.2

-

1,510.9

1,718.6

Property and development expenses

Property expenses

(36.4)

(40.2)

Development expenses

2

(443.4)

(727.3)

(479.8)

(767.5)

Other income

Net gain from fair value adjustments on investment

properties

6(e)

45.2

146.8

Net gain on disposal of investment properties

54.5

15.3

Share of net results of equity accounted investments

6(f)

1,022.2

1,132.5

Net gain on disposal of equity investments

2

0.6

12.6

1,122.5

1,307.2

Other expenses

Employee expenses

2

(203.7)

(191.9)

Share based payments expense

2

(164.0)

(196.6)

Administrative and other expenses

(88.6)

(75.8)

(456.3)

(464.3)

Profit before interest and tax

1,697.3

1,794.0

Net finance income/(expense)

Finance income

15

13.2

46.2

Finance expense

15

(93.4)

(95.5)

Net finance (expense)/income

(80.2)

(49.3)

Profit before income tax

1,617.1

1,744.7

Income tax expense

5

(113.0)

(116.8)

Profit for the year

1,504.1

1,627.9

Profit attributable to GL

22(a)

315.9

242.8

Profit attributable to other entities stapled to GL

22(b)

1,188.2

1,385.1

Profit for the year attributable to Securityholders

1,504.1

1,627.9

Basic profit per security (¢)

3(a)

82.4

89.9

Diluted profit per security (¢)

3(a)

80.0

87.3

GIT

2020 2019

$M $M

67.9 80.2

  • -

0.3 31.5

9.9 2.9

78.1 114.6

(23.0) (28.4)

(1.0) (31.5)

(24.0) (59.9)

  1. 142.3
  1. 8.0

825.5 816.6

0.1 4.9

  1. 971.8
  • -
  • -

(54.0) (51.7)

(54.0) (51.7)

  1. 974.8

133.1 167.4

(157.2) (114.1)

(24.1) 53.3

847.2 1,028.1

(11.1) (18.4)

836.1 1,009.7

The consolidated income statements are to be read in conjunction with the accompanying notes.

60

Goodman Group

Consolidated statements of comprehensive income

for the year ended 30 June 2020

Goodman

2020

2019

Note

$M

$M

Profit for the year

1,504.1

1,627.9

Other comprehensive income/(loss) for the year

Items that will not be reclassified to profit or loss

Actuarial (losses)/gains on defined benefit

superannuation funds

(8.2)

3.2

Effect of foreign currency translation

0.2

(0.4)

(8.0)

2.8

Items that are or may be reclassified subsequently to profit or loss

Increase/(decrease) due to revaluation of other

financial assets

-

-

Cash flow hedges:

- Change in value of financial instruments

(1.7)

(4.9)

Effect of foreign currency translation

(26.7)

169.6

(28.4)

164.7

Other comprehensive income/(loss) for the year, net

of income tax

(36.4)

167.5

Total comprehensive income for the year

1,467.7

1,795.4

Total comprehensive income attributable to GL

22(a)

281.7

293.7

Total comprehensive income attributable to other

entities stapled to GL

22(b)

1,186.0

1,501.7

Total comprehensive income for the year attributable

to Securityholders

1,467.7

1,795.4

GIT

2020

2019

$M

$M

836.1 1,009.7

  • -
  • -
  • -

(5.6) 1.8

(1.7) (4.9)

32.5 87.5

25.2 84.4

25.2 84.4

861.3 1,094.1

The consolidated statements of comprehensive income are to be read in conjunction with the accompanying notes.

61

Goodman Group

Consolidated statements of changes in equity

for the year ended 30 June 2020

Attributable to Securityholders

Defined

Foreign

benefit funds

Asset

Cash flow

currency

Employee

actuarial

Issued revaluation

hedge

translation compensation

losses

Total

Retained

Goodman

capital

reserve

reserve

reserve

reserve

reserve

reserves

earnings

Total

Note

$M

$M

$M

$M

$M

$M

$M

$M

$M

Balance at 1 July 2018

8,031.7

(6.9)

1.5

45.3

171.2

(26.1)

185.0

957.0

9,173.7

Total comprehensive income/(loss) for the year

Profit for the year

-

-

-

-

-

-

-

1,627.9

1,627.9

Other comprehensive income/(loss)

169.2

Effect of foreign currency translation

-

(0.2)

0.1

169.7

-

(0.4)

169.2

-

Cash flow hedges:

- Change in value of financial instruments

-

-

(4.9)

-

-

-

(4.9)

-

(4.9)

Actuarial gains on defined benefit superannuation funds

-

-

-

-

-

3.2

3.2

-

3.2

Total other comprehensive (loss)/(income) for the year, net of income tax

-

(0.2)

(4.8)

169.7

-

2.8

167.5

-

167.5

Total comprehensive (loss)/income for the year, net of income tax

-

(0.2)

(4.8)

169.7

-

2.8

167.5

1,627.9

1,795.4

Transfers

-

-

-

-

(52.6)

-

(52.6)

52.6

-

Contributions by and distributions to owners

(544.2)

Dividends/distributions on stapled securities

19

-

-

-

-

-

-

-

(544.2)

Equity settled share based payments transactions

-

-

-

-

97.6

-

97.6

-

97.6

Balance at 30 June 2019

8,031.7

(7.1)

(3.3)

215.0

216.2

(23.3)

397.5

2,093.3

10,522.5

Total comprehensive income/(loss) for the year

Profit for the year

-

-

-

-

-

-

-

1,504.1

1,504.1

Other comprehensive income/(loss)

(26.5)

Effect of foreign currency translation

-

(0.1)

(0.2)

(26.4)

-

0.2

(26.5)

-

Cash flow hedges:

- Change in value of financial instruments

-

-

(1.7)

-

-

-

(1.7)

-

(1.7)

Actuarial losses on defined benefit superannuation funds

-

-

-

-

-

(8.2)

(8.2)

-

(8.2)

Total other comprehensive (loss)/income for the year, net of income tax

-

(0.1)

(1.9)

(26.4)

-

(8.0)

(36.4)

-

(36.4)

Total comprehensive (loss)/income for the year, net of income tax

-

(0.1)

(1.9)

(26.4)

-

(8.0)

(36.4)

1,504.1

1,467.7

Transfers

-

-

-

-

(55.3)

-

(55.3)

55.3

-

Contributions by and distributions to owners

(548.5)

Dividends/distributions on stapled securities

19

-

-

-

-

-

-

-

(548.5)

Purchase of securities for the LTIP

-

-

-

-

(19.1)

-

(19.1)

-

(19.1)

Equity settled share based payments transactions

-

-

-

-

98.0

-

98.0

-

98.0

Balance at 30 June 2020

8,031.7

(7.2)

(5.2)

188.6

239.8

(31.3)

384.7

3,104.2

11,520.6

The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes. For an analysis of equity attributable to non-controlling interests, refer to note 22(b).

62

Goodman Group

Attributable to Unitholders

Foreign

Asset

Cash flow

currency

Employee

Issued

revaluation

hedge

translation compensation

Total

Retained

GIT

capital

reserve

reserve

reserve

reserve

reserves

earnings

Total

Note

$M

$M

$M

$M

$M

$M

$M

$M

Balance at 1 July 2018

7,381.3

10.5

1.5

(158.2)

129.3

(16.9)

112.3

7,476.7

Total comprehensive income/(loss) for the year

1,009.7

Profit for the year

-

-

-

-

-

-

1,009.7

Other comprehensive income/(loss)

87.5

Effect of foreign currency translation

-

0.3

0.1

87.1

-

87.5

-

Cash flow hedges:

- Change in value of financial instruments

-

-

(4.9)

-

-

(4.9)

-

(4.9)

Increase due to revaluation of other financial assets

-

1.8

-

-

-

1.8

-

1.8

Total other comprehensive income/(loss) for the year, net of income tax

-

2.1

(4.8)

87.1

-

84.4

-

84.4

Total comprehensive income/(loss) for the year, net of income tax

-

2.1

(4.8)

87.1

-

84.4

1,009.7

1,094.1

Contributions by and distributions to owners

(453.5)

Distributions on ordinary units

19

-

-

-

-

-

-

(453.5)

Issue of ordinary units under the LTIP

20(a)

96.0

-

-

-

-

-

-

96.0

Equity settled share based payments transactions

-

-

-

-

30.4

30.4

-

30.4

Balance at 30 June 2019

7,477.3

12.6

(3.3)

(71.1)

159.7

97.9

668.5

8,243.7

Total comprehensive income/(loss) for the year

836.1

Profit for the year

-

-

-

-

-

-

836.1

Other comprehensive income/(loss)

32.5

Effect of foreign currency translation

-

-

(0.2)

32.7

-

32.5

-

Cash flow hedges:

- Change in value of financial instruments

-

-

(1.7)

-

-

(1.7)

-

(1.7)

Decrease due to revaluation of other financial assets

-

(5.6)

-

-

-

(5.6)

-

(5.6)

Total other comprehensive (loss)/income for the year, net of income tax

-

(5.6)

(1.9)

32.7

-

25.2

-

25.2

Total comprehensive (loss)/income for the year, net of income tax

-

(5.6)

(1.9)

32.7

-

25.2

836.1

861.3

Contributions by and distributions to owners

(475.4)

Distributions on ordinary units

19

-

-

-

-

-

-

(475.4)

Issue of ordinary units for the LTIP

20(a)

146.2

-

-

-

-

-

-

146.2

Equity settled share based payments transactions

-

-

-

-

13.6

13.6

-

13.6

Balance at 30 June 2020

7,623.5

7.0

(5.2)

(38.4)

173.3

136.7

1,029.2

8,789.4

The consolidated statement of changes in equity is to be read in conjunction with the accompanying notes.

63

Goodman Group

Consolidated cash flow statements

for the year ended 30 June 2020

Goodman

2020

2019

Note

$M

$M

Cash flows from operating activities

Property income received

130.2

121.0

Cash receipts from development activities

1,031.4

1,181.3

Other cash receipts from services provided

692.1

351.8

Property expenses paid

(39.0)

(39.8)

Payments for development activities

(619.0)

(723.7)

Other cash payments in the course of operations

(337.3)

(311.5)

Distributions received from equity investments,

including Partnerships

462.2

365.4

Interest received

18.1

46.2

Finance costs paid

(105.5)

(125.8)

Net income taxes paid

(76.3)

(37.4)

Net cash provided by operating activities

21(b)

1,156.9

827.5

Cash flows from investing activities

Net proceeds from disposal of investment properties

212.3

75.2

Proceeds from disposal of controlled entities, net of

cash disposed

95.6

-

Net proceeds from disposal of equity investments

0.7

123.4

Return of capital by Partnerships

428.4

-

Payments for investment properties

(234.3)

(94.5)

Payments for investments in Partnerships

(806.6)

(920.6)

Payments for plant and equipment

(2.5)

(1.7)

Net cash used in investing activities

(306.4)

(818.2)

Cash flows from financing activities

Net cash flows from loans to related parties

(9.8)

(41.2)

Proceeds from borrowings

50.0

12.6

Payments on borrowings and derivative financial

instruments

(118.0)

(291.9)

Dividends and distributions paid

(546.3)

(528.7)

Payments of lease liabilities

(17.7)

-

Purchase of securities for the LTIP

(19.1)

-

Net cash (used in)/provided by financing activities

(660.9)

(849.2)

Net increase/(decrease) in cash held

189.6

(839.9)

Cash and cash equivalents at the beginning of the year

1,607.1

2,406.8

Effect of exchange rate fluctuations on cash held

(3.9)

40.2

Cash and cash equivalents at the end of the year

21(a)

1,792.8

1,607.1

GIT

2020 2019

$M $M

  • 64.3 85.5

  • 34.7
  • -
    (20.8) (28.5)
    (0.5) (7.4)
    (50.0) (51.3)

244.0 228.5

16.4 43.2

(114.9) (121.9)

(3.2) (1.5)

135.3 181.3

2.4 243.2

  • -

0.2 115.6

415.0-

(12.9) (10.7)

(552.0)

(657.2)

-

-

(147.3)

(309.1)

511.7 (126.3)

50.0-

(0.9)

(262.5)

(455.7)

(438.7)

-

-

-

-

105.1 (827.5)

93.1 (955.3)

1,214.4 2,129.7

(4.9) 40.0

1,302.6 1,214.4

The consolidated cash flow statements are to be read in conjunction with the accompanying notes. Non-cash transactions are included in note 21(c).

64

Goodman Group

Notes to the consolidated financial statements

BASIS OF PREPARATION

This section sets out the general basis upon which Goodman and GIT have prepared their financial statements and information that is disclosed to comply with the Australian Accounting Standards, Corporations Act 2001 or Corporations Regulations.

Specific accounting policies can be found in the section to which they relate.

1 Basis of preparation

Goodman Limited and Goodman Industrial Trust are for profit entities domiciled in Australia.

  1. Statement of compliance

These consolidated financial statements are general purpose financial statements which have been prepared in accordance with Australian Accounting Standards adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. International Financial Reporting Standards (IFRS) form the basis of Australian Accounting Standards adopted by the AASB. The consolidated financial statements also comply with IFRS.

The consolidated financial statements are presented in Australian dollars and were authorised for issue by the Directors on 13 August 2020.

  1. Basis of preparation of the consolidated financial reports

Shares in the Company, units in the Trust and CDIs over shares in GLHK are stapled to one another and are quoted as a single security on the ASX. Australian Accounting Standards require an acquirer to be identified and an in-substance acquisition to be recognised. In relation to the stapling of the Company, the Trust and GLHK, the Company is identified as having acquired control over the assets of the Trust and GLHK. In the consolidated statement of financial position of the Group, equity attributable to the Trust and the CDIs over the shares of GLHK are presented as non-controlling interests.

As permitted by the relief provided in ASIC Instrument 18-0353, these financial statements present both the financial statements and accompanying notes of Goodman and GIT. GLHK, which is incorporated and domiciled in Hong Kong, prepares its financial statements under Hong Kong Financial Reporting Standards and the applicable requirements of the Hong Kong Companies Ordinance and accordingly the financial statements of GLHK have not been combined and included as adjacent columns in this report. The financial statements of GLHK have been included as an appendix to this report.

The consolidated financial statements are prepared on the historical cost basis, subject to any impairment of assets, except that the following assets and liabilities are stated at fair value:

  • Investment properties
  • Derivative financial instruments
  • Investments in unlisted securities
  • Liabilities for cash settled share based payment arrangements.

In accordance with ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191, amounts in these consolidated financial statements have been rounded to the nearest hundred thousand dollars, unless otherwise stated.

  1. Foreign currency translation

Functional and presentation currency

Items included in the consolidated financial statements of each of the controlled entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The consolidated financial statements are presented in Australian dollars, which is the Company's and the Trust's functional and presentation currency.

65

Goodman Group

Notes to the consolidated financial statements

Basis of preparation (continued)

1 Basis of preparation (continued)

Transactions

Foreign currency transactions are translated to each entity's functional currency at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Amounts receivable and payable in foreign currencies at the balance date are translated at the rates of exchange ruling on that date. Resulting exchange differences are recognised in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost are translated at rates of exchange applicable at the date of the initial transaction. Non-monetary items which are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Translation of controlled foreign operations

The assets and liabilities of controlled foreign operations are translated into Australian dollars at foreign exchange rates ruling at the balance date.

Revenue and expenses are translated at weighted average rates for the financial year. Exchange differences arising on translation are taken directly to the foreign currency translation reserve. On cessation of operations in a foreign region, the cumulative exchange differences relating to the operations in that region, that have been included in the foreign currency translation reserve, are reclassified to the income statement.

Exchange differences arising on monetary items that form part of the net investment in a foreign operation are recognised in the foreign currency translation reserve on consolidation.

Exchange rates used

The following exchange rates are the main exchange rates used in translating foreign currency transactions, balances and financial statements to Australian dollars:

Weighted average

As at 30 June

Australian dollars (AUD) to

2020

2019

2020

2019

New Zealand dollars (NZD)

1.0544

1.0665

1.0694

1.0449

Hong Kong dollars (HKD)

5.2340

5.6069

5.3402

5.4761

Chinese yuan (CNY)

4.7200

4.8819

4.8688

4.8141

Japanese yen (JPY)

72.6051

79.4634

74.2910

75.6340

Euros (EUR)

0.6071

0.6269

0.6128

0.6173

British pounds sterling (GBP)

0.5329

0.5527

0.5566

0.5523

United States dollars (USD)

0.6714

0.7152

0.6890

0.7011

Brazilian real (BRL)

2.9963

2.7616

3.7602

2.6880

  1. Changes in accounting policies

Goodman and GIT have adopted AASB 16 Leases, with a date of initial application of 1 July 2019.

AASB 16 Leases

AASB 16 replaces AASB 117 Leases and other existing guidance on leases. It introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right of use asset representing its right to use the underlying leased asset and a lease liability representing its obligations to make lease payments.

Goodman applied AASB 16 on 1 July 2019 using the modified retrospective approach. Under this approach, the cumulative effect of initially applying this standard is recognised at the date of initial application. Comparative information has not been restated and continues to be reported under AASB 117.

Certain of GIT's Partnerships have leasehold investment properties that continue to be held at fair value. As a lessee, GIT does not directly hold any material leases and therefore the new standard will not have a material impact.

66

Goodman Group

Further details of the nature and effect of the changes to previous accounting policies and the transition options applied are set out below:

Accounting policy applicable from 1 July 2019

  1. Definition

AASB 16 defines a lease on the basis of whether a customer controls the use of an identified asset for a period of time, which may be determined by a defined amount of use. Control is conveyed where the customer has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

Goodman applied the practical expedient to grandfather the definition of a lease on transition. This means that it will apply AASB 16 to all contracts entered into before 1 July 2019 that had been identified as leases in accordance with the old leases accounting standard (AASB 117).

  1. Lessee accounting

Goodman recognises a right of use asset and a lease liability at the lease commencement date. The right of use asset is initially measured at cost plus any direct costs incurred and an estimate of costs to restore the underlying asset or the site on which it is located, less any lease incentives received.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the lessee's incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change arising from the reassessment of whether Goodman will be reasonably certain to exercise an extension or termination option. The new standard will result in the gross up of assets and liabilities where Goodman leases office buildings, motor vehicles, office equipment and development land classified as inventories.

The right of use assets in respect of office buildings, motor vehicles and office equipment are depreciated using the straight-line method over the period of the lease. Ground leases of development land that are classified as inventories are not depreciated but are assessed at each reporting date for impairments to ensure they are recorded at the lower of cost and net realisable value.

  1. Leasehold investment property

Under AASB 16, Goodman is required to account for all properties on leasehold land as investment properties when these properties are held for the purpose of leasing to produce rental income and/or for capital appreciation. The adoption of AASB 16 does not have a significant impact on the Group's financial statements as the Group has previously applied AASB 140 Investment Property, to account for all of its leasehold investment properties at fair value. These leasehold investment properties will continue to be carried at fair value.

  1. Lessor accounting

The accounting policies applicable to Goodman as a lessor remain substantially unchanged from those under AASB 17.

67

Goodman Group

Notes to the consolidated financial statements

Basis of preparation (continued)

1 Basis of preparation (continued)

  1. Transitional impact

The following table summarises the impact of the adoption of AASB 16 on Goodman's consolidated statement of financial position at 1 July 2019. The comparative information at 30 June 2019 has not been restated.

Goodman

Impact of adopting AASB 16

At 30 Jun 2019

Adjustments

At 1 Jul 2019

$M

$M

$M

Current assets

Inventories

307.9

1.1

309.0

Total current assets

2,474.0

1.1

2,475.1

Non-current assets

Inventories

761.1

14.8

775.9

Property, plant and equipment

16.3

56.0

72.3

Total non-current assets

12,438.8

70.8

12,509.6

Current liabilities

Lease liabilities

-

17.1

17.1

Total current liabilities

849.0

17.1

866.1

Non-current liabilities

Provisions

27.3

(3.4)

23.9

Lease liabilities

-

58.3

58.3

Total non-current liabilities

3,541.3

54.8

3,596.1

Net assets

10,522.5

-

10,522.5

Inventories

The adjustment to inventories arises from leasehold land held for development.

Property, plant and equipment

The right of use assets associated with the leases of office buildings, motor vehicles and office equipment are presented as property, plant and equipment.

Lease liabilities

The present value of future lease payments are presented as lease liabilities.

At 1 Jul 2019

$M

Operating lease commitments disclosed at 30 June 2019

104.5

Discounted using the incremental borrowing rate at 1 July 2019

(26.1)

Recognition exemption for short-term and low value assets

(3.0)

Lease liabilities recognised at 1 July 2019

75.4

Comprising:

Current lease liabilities

17.1

Non-current lease liabilities

58.3

75.4

Provisions

Goodman has applied the practical expedient and adjusted the right of use assets at the date of initial application by the amount provided for onerous leases.

68

Goodman Group

  1. Impact on results for the period

After the initial recognition of right of use assets and lease liabilities at 1 July 2019, Goodman, as a lessee, is required to recognise interest expense on the outstanding balance of the lease liability, and the depreciation of the right of use asset, instead of the previous policy of recognising rental expenses incurred under operating leases on a straight-line basis over the lease term. The impact on the consolidated income statement in the current period as a result of this change in policy is not significant compared to the results if AASB 117 had continued to apply.

In the consolidated cash flow statements, Goodman, as a lessee, has classified the principal portion of lease payments within financing activities and the interest portion within operating activities. Under AASB 117, the entire lease payment was classified within operating activities. However, the change does not have a significant impact on the presentation of cash flows.

  1. Australian Accounting Standards issued but not yet effective

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period. None of the new accounting standards or interpretations is expected to have a significant impact on the future results of the Group.

  1. Critical accounting estimates used in the preparation of the consolidated financial statements

The preparation of consolidated financial statements requires estimates and assumptions concerning the application of accounting policies and the future to be made by Goodman. Estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year can be found in the following notes:

  • Note 6 - Property assets
  • Note 14 - Goodwill and intangible assets
  • Note 18 - Financial risk management.

The accounting impacts of revisions to estimates are recognised in the period in which the estimate is revised and in any future periods affected.

Measurement of fair values

A number of Goodman's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

When measuring the fair value of an asset or a liability, Goodman uses market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy and have been defined as follows:

  • Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
  • Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)
  • Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Further information about the assumptions made in measuring fair values is included in the following notes:

  • Note 6 - Property assets
  • Note 18 - Financial risk management.

69

Goodman Group

Notes to the consolidated financial statements

RESULTS FOR THE YEAR

The notes in this section focus on the significant items in the income statement, and include the profit per security, analysis of the results by operating segment and taxation details.

2 Profit before income tax

Gross property income

Gross property income comprises rental income under operating leases (net of incentives provided) and amounts billed to customers for outgoings (e.g. rates, levies, cleaning, security, etc.). Amounts billed to customers for outgoings are a cost recovery for Goodman and are recognised once the expense has been incurred. The expense is included in property expenses.

Rental income under operating leases is recognised on a straight-line basis over the term of the lease contract. Where operating lease rental income is recognised relating to fixed increases in rentals in future years, an asset is recognised. This asset is a component of the relevant investment property carrying amount. The cost of lease incentives provided to customers is amortised on a straight-line basis over the life of the lease as a reduction of gross property income.

Management and development income

The revenue from management and development activities is measured based on the consideration specified in a contract with a customer. Goodman recognises revenue when it transfers control over a product or service to a customer.

Management income

Fee income derived from investment management and property services is recognised and invoiced progressively as the services are provided. Customers make payments usually either monthly or quarterly in arrears.

Performance related management income generally relates to portfolio performance fee income, which is recognised progressively as the services are provided but only when the income can be reliably measured and is highly probable of not being reversed. These portfolio performance fees are typically dependent on the overall returns of a Partnership relative to an agreed benchmark return, assessed over the life of the Partnership, which can vary from one year to seven years. The returns are impacted by operational factors such as the quality and location of the portfolio, active property management, rental income rates and development activity but can also be significantly affected by changes in global and local economic conditions. Accordingly, portfolio performance fee revenue is only recognised towards the end of the relevant assessment period, as prior to this revenue recognition is not considered to be sufficiently certain.

In determining the amount of revenue that can be reliably measured, management prepares a sensitivity analysis to understand the impact of changes in asset valuations on the potential performance fee at the assessment date. The assessment of revenue will depend on the prevailing market conditions at the reporting date relative to long-term averages and also the length of time until the assessment date e.g. the longer the time period to assessment date, the greater the impact of the sensitivity analysis. The potential portfolio performance fee revenue is then recognised based on the length of time from the start of the assessment period to the reporting date as a proportion of the total assessment period. Where the income is attributable to development activities that have occurred over the performance fee period, then it is reported as development income; otherwise, the income is reported as management income. The Partnerships make payments in respect of portfolio performances fees at the end of the performance periods, once the attainment of the conditions has been verified and the amount of the fee has been agreed by all parties.

70

Goodman Group

Development income - disposal of inventories

The disposal of inventories is recognised at the point in time when control over the property asset is transferred to the customer. This will generally occur on transfer of legal title and payment in full by the customer. The gain or loss on disposal of inventories is calculated as the difference between the carrying amount of the asset at the time of disposal and the proceeds on disposal (less transaction costs) and is included in the income statement in the period of disposal.

Development income - development management services

Fee income from development management services (including master-planning, development management and overall project management) is recognised progressively as the services are provided in proportion to the stage of completion by reference to costs. Payments are received in accordance with the achievement of agreed milestones over the development period. The development period can be up to 24 months for larger, more complex projects.

Performance related development income includes income associated with the returns from individual developments under the Group's management and performance fee income that relates to development activity. Income in respect of individual developments is recognised by Goodman on attainment of the performance related conditions, which is when the income can be reliably measured and is highly probable of not being reversed. These amounts are paid by the Partnership when the amounts have been measured and agreed. Income associated with development activities as part of a portfolio assessment is recognised on the same basis as outlined above in the management income section.

Development income - fixed price development contracts

Certain development activities are assessed as being fixed price development contracts. This occurs when a signed contract exists, either prior to the commencement of or during the development phase, to acquire a development asset from Goodman on completion. Revenue and expenses relating to these development contracts are recognised in the income statement in proportion to the stage of completion of the relevant contracts by reference to costs. The payments may be on completion of the development once legal title has been transferred. The development period can be up to 24 months for larger, more complex projects.

Net gain on disposal of investment properties

The disposal of an investment property is recognised at the point in time when control over the property has been transferred to the purchaser.

Employee expenses

Wages, salaries and annual leave

Wages and salaries, including non-monetary benefits, and annual leave that are expected to be settled within 12 months of the balance date represent present obligations resulting from employees' services provided to the balance date. These are calculated at undiscounted amounts based on rates that are expected to be paid as at balance date including related on-costs, such as insurances and payroll tax.

Bonuses

A liability is recognised in other payables and accruals for bonuses where there is a contractual obligation or where there is a past practice that has created a constructive obligation. Liabilities for bonuses are measured at the amounts expected to be paid, including related on-costs, when they are settled.

Superannuation

Defined contribution funds

Obligations for contributions to defined contribution funds are recognised as an expense as incurred.

Defined benefit funds

The net obligation in respect of defined benefit funds is recognised in the statement of financial position and is calculated separately for each plan by estimating the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting the fair value of any plan assets. The calculation of defined benefit obligations is performed annually by a qualified actuary using the projected unit credit method. Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses and the return on plan assets (excluding interest), are recognised immediately in other comprehensive income. Net interest expense and other expenses related to defined benefit plans are recognised in the income statement.

71

Goodman Group

Notes to the consolidated financial statements

Results for the year (continued)

2 Profit before income tax (continued)

Profit before income tax has been arrived at after crediting/(charging) the following items:

Goodman

2020

2019

$M

$M

Gross property income

Rental income

94.6

93.5

Recovery of property outgoings

21.3

21.1

Gross property income

115.9

114.6

Management activities

Management services

304.0

265.4

Performance related income

207.2

204.3

Management income

511.2

469.7

Development activities

Income from disposal of inventories

461.8

486.2

Income from fixed price development contracts

82.8

419.7

Other development income, including development

management

309.5

223.3

Net gain on disposal of special purpose development

entities

28.5

5.1

Development income

882.6

1,134.3

Inventory cost of sales

(329.8)

(343.0)

Other development expenses

(113.6)

(384.3)

Development expenses

(443.4)

(727.3)

Disposal of equity investments

Net consideration from disposal of associates and JVs

7.7

18.2

Carrying value of associates and JVs disposed

6(f)

(7.1)

(5.6)

Net gain on disposal of equity investments

0.6

12.6

Employee expenses

Wages, salaries and on-costs

(195.2)

(184.0)

Annual and long service leave

(1.9)

(1.9)

Superannuation costs

(6.6)

(6.0)

Employee expenses

(203.7)

(191.9)

Share based payments expense

Equity settled share based payments expense

(98.0)

(97.6)

Cash settled share based payments expense

(41.2)

(64.7)

Other share based payments related costs

(24.8)

(34.3)

Share based payments expense

(164.0)

(196.6)

Amortisation and depreciation

(22.5)

(6.6)

GIT

2020 2019

$M $M

53.6 63.7

14.3 16.5

67.9 80.2

  • -
  • -
  • -

0.3 31.5

  • -
  • -
  • -

0.3 31.5

(1.0)

(31.5)

-

-

(1.0)

(31.5)

0.1 4.9

  • -

0.1 4.9

  • -
  • -
  • -
  • -
  • -
  • -
  • -
  • -
  • -

72

Goodman Group

3 Profit per security

Basic profit per security of the Group is calculated by dividing the profit attributable to the Securityholders by the weighted average number of securities outstanding during the year. Diluted profit per security is determined by adjusting the profit attributable to the Securityholders and weighted average number of securities outstanding for all dilutive potential securities, which comprise performance rights issued under the LTIP.

Goodman

2020

2019

¢

¢

Profit per security

Basic profit per security

82.4

89.9

Diluted profit per security

80.0

87.3

Profit after tax of $1,504.1 million (2019: $1,627.9 million) was used in calculating basic and diluted profit per security.

Weighted average number of securities used in calculating basic and diluted profit per security:

2020

2019

Number of securities

Weighted average number of securities used in calculating basic profit per

1,826,031,065

1,811,689,652

security/share

Effect of performance rights on issue

54,173,117

52,360,737

Weighted average number of securities used in calculating diluted profit per

security/share

1,880,204,182

1,864,050,389

The calculation of profit per security is not required for GIT.

Goodman Limited

Under Australian Accounting Standards, the issued units of the Trust and the CDIs over the shares of GLHK are presented as non-controlling interests. As a consequence, the Directors are required to present a profit per share and a diluted profit per share based on Goodman Limited's consolidated result after tax but excluding the results attributable to the Trust and GLHK.

2020

2019

¢

¢

Profit per Goodman Limited share

Basic profit per Goodman Limited share

17.3

13.4

Diluted profit per Goodman Limited share

16.8

13.0

Profit after tax of $315.9 million (2019: $242.8 million) was used in calculating basic and diluted profit per Goodman Limited share.

73

Goodman Group

Notes to the consolidated financial statements

Results for the year (continued)

4 Segment reporting

An operating segment is a component of Goodman that engages in business activities from which it may earn revenues and incur expenses. Goodman reports the results and financial position of its operating segments based on the internal reports regularly reviewed by the Group Chief Executive Officer in order to assess each segment's performance and to allocate resources to them.

Operating segment information is reported on a geographic basis and Goodman has determined that its operating segments are Australia and New Zealand (reported on a combined basis), Asia (Greater China and Japan), Continental Europe (primarily Germany and France), the United Kingdom and the Americas (North America and Brazil).

The activities and services undertaken by the operating segments include:

  • Property investment, including both direct ownership and cornerstone investments in Partnerships
  • Management activities, both fund and property management
  • Development activities, including development of directly owned assets (predominantly disclosed as inventories) and management of development activities for Partnerships.

The segment results that are reported to the Group Chief Executive Officer are based on profit before net finance expense and income tax expense, and also exclude non-cash items such as fair value adjustments and impairments, corporate expenses and incentive based remuneration. The assets allocated to each operating segment primarily include inventories, investment properties and the operating segment's investments in Partnerships, but exclude inter-entity funding, income tax receivables and corporate assets. The liabilities allocated to each operating segment primarily relate to trade and other payables associated with the operating activities, but exclude interest bearing liabilities, derivative financial instruments, provisions for distributions and corporate liabilities.

The accounting policies used to report segment information are the same as those used to prepare the consolidated financial statements of Goodman and GIT.

For the purpose of operating segment reporting, there are no material intersegment revenues and costs.

Information regarding the operations of each reportable segment is included on the following pages.

74

Goodman Group

Information about reportable segments

Australia and New

Goodman

Zealand

Asia

Continental Europe

United Kingdom

Americas

Total

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

Income statement

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

External revenues

Gross property income

105.6

104.4

0.1

1.7

-

6.7

9.7

1.6

0.5

0.2

115.9

114.6

Management income

159.6

150.4

246.2

184.5

88.0

121.4

2.3

2.1

15.1

11.3

511.2

469.7

Development income

99.6

268.2

193.8

99.0

511.3

628.6

19.0

78.4

58.9

60.1

882.6

1,134.3

Distributions from investments

-

-

-

-

1.2

-

-

-

-

-

1.2

-

Total external revenues

364.8

523.0

440.1

285.2

600.5

756.7

31.0

82.1

74.5

71.6

1,510.9

1,718.6

Analysis of external revenues

Revenue from contracts with customers

Assets and services transferred at a point in time

11.5

150.5

18.6

22.0

494.4

318.0

4.5

70.3

-

0.7

529.0

561.5

Assets and services transferred over time

266.1

286.7

421.5

261.6

104.9

434.5

17.0

10.2

74.0

70.7

883.5

1,063.7

Other revenue

Rental income (excludes outgoings recoveries)

87.2

85.8

-

1.6

-

4.2

9.5

1.6

0.5

0.2

97.2

93.4

Distributions from investments

-

-

-

-

1.2

-

-

-

-

-

1.2

-

Total external revenues

364.8

523.0

440.1

285.2

600.5

756.7

31.0

82.1

74.5

71.6

1,510.9

1,718.6

Reportable segment profit/(loss) before tax

435.8

476.0

477.7

330.9

282.3

324.8

20.9

(26.0)

102.5

89.2

1,319.2

1,194.9

Share of net results of equity accounted investments

384.7

489.2

394.3

370.5

98.3

86.0

14.8

21.7

130.1

165.1

1,022.2

1,132.5

Material non-cash items not included in reportable segment profit

before tax

Net gain from fair value adjustments on investment properties

46.4

146.8

-

-

-

-

(1.2)

-

-

-

45.2

146.8

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

Statement of financial position

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

Reportable segment assets

5,854.1

5,357.1

3,345.3

2,870.8

2,310.2

2,221.5

891.8

763.5

2,122.8

2,277.4

14,524.2

13,490.3

Non-current assets

5,445.6

5,099.5

2,938.3

2,470.1

1,870.6

1,838.7

591.2

675.5

2,017.3

1,950.1

12,863.0

12,033.9

Included in reportable segment assets are:

Investment properties

1,894.0

1,866.2

-

-

-

-

7.2

30.9

-

-

1,901.2

1,897.1

Investments accounted for using the equity method

3,451.5

3,158.5

2,732.8

2,290.8

898.9

861.9

281.0

200.3

2,006.6

1,940.9

9,370.8

8,452.4

Reportable segment liabilities

137.1

164.9

205.9

164.9

101.6

75.5

77.9

86.6

109.5

90.9

632.0

582.8

75

Goodman Group

Notes to the consolidated financial statements

Results for the year (continued) 4 Segment reporting (continued)

Information about reportable segments (continued)

GIT

Australia and New

Asia

Continental Europe

Americas

Total

Zealand

Income statement

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

External revenues

Gross property income

67.9

80.2

-

-

-

-

-

-

67.9

80.2

Development income

0.3

31.5

-

-

-

-

-

-

0.3

31.5

Distributions from investments

-

-

-

-

9.9

2.9

-

-

9.9

2.9

Total external revenues

68.2

111.7

-

-

9.9

2.9

-

-

78.1

114.6

Analysis of external revenues

Revenue from contracts with customers

Assets and services transferred at a point in time

0.3

31.5

-

-

-

-

-

-

0.3

31.5

Assets and services transferred over time

14.3

16.5

-

-

-

-

-

-

14.3

16.5

Other revenue

Rental income (excludes outgoings recoveries)

53.6

63.7

-

-

-

-

-

-

53.6

63.7

Distributions from investments

-

-

-

-

9.9

2.9

-

-

9.9

2.9

Total external revenues

68.2

111.7

-

-

9.9

2.9

-

-

78.1

114.6

Reportable segment profit before tax

180.9

183.7

34.3

32.9

64.9

48.1

70.8

38.3

350.9

303.0

Share of net results of equity accounted investments

332.2

422.7

284.7

174.6

83.2

60.2

125.4

159.1

825.5

816.6

Material non-cash items not included in reportable

segment profit before tax

Net gain from fair value adjustments on investment

properties

36.5

142.3

-

-

-

-

-

-

36.5

142.3

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

Statement of financial position

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

Reportable segment assets

4,405.5

3,899.4

1,510.6

1,103.0

779.1

739.6

1,953.8

2,065.9

8,649.0

7,807.9

Non-current assets

4,153.2

3,877.9

1,510.6

1,103.0

778.1

739.2

1,934.5

1,871.1

8,376.4

7,591.2

Included in reportable segment assets are:

Investment properties

1,202.4

1,158.6

-

-

-

-

-

-

1,202.4

1,158.6

Investments accounted for using the equity method

2,944.8

2,712.8

1,510.6

1,103.0

758.4

714.1

1,934.5

1,871.1

7,148.3

6,401.0

Reportable segment liabilities

91.3

138.8

-

-

-

(0.3)

82.3

63.4

173.6

201.9

76

Goodman Group

Reconciliation of reportable segment revenues, profit or loss, assets and liabilities

Goodman

2020

2019

Note

$M

$M

Revenues

Total revenue for reportable segments

1,510.9

1,718.6

Consolidated revenues

1,510.9

1,718.6

Profit or loss

Total profit before tax for reportable segments1

Property investment earnings

425.2

372.1

Management earnings

511.2

469.7

Development earnings

575.7

509.2

Operating expenses allocated to reportable segments

(192.9)

(156.1)

Reportable segment profit before tax

1,319.2

1,194.9

Corporate expenses not allocated to reportable

segments

(99.4)

(111.6)

1,219.8

1,083.3

Valuation and other items not included in reportable

segment profit before tax:

- Net gain from fair value adjustments on investment

6(e)

45.2

146.8

properties

- Share of fair value adjustments attributable to

investment properties in Partnerships2

6(f)

591.7

746.6

- Share of fair value adjustments on derivative financial

instruments in Partnerships

6(f)

16.2

20.4

- Share based payments expense

(164.0)

(196.6)

- Straight lining of rental income

(11.6)

(6.5)

Profit before interest and tax

1,697.3

1,794.0

Net finance (expense)/income

15

(80.2)

(49.3)

Consolidated profit before income tax

1,617.1

1,744.7

Assets

Assets for reportable segments

14,524.2

13,490.3

Cash

1,042.9

1,013.4

Other unallocated amounts3

571.1

409.1

Consolidated total assets

16,138.2

14,912.8

Liabilities

Liabilities for reportable segments

632.0

582.8

Interest bearing liabilities

2,938.5

2,975.0

Provisions for dividends/distributions to Securityholders

19

274.3

272.1

Other unallocated amounts3

772.8

560.4

Consolidated total liabilities

4,617.6

4,390.3

GIT

2020 2019

$M $M

78.1 114.6

78.1 114.6

350.9 303.0

(53.6) (51.4)

297.3 251.6

36.5 142.3

536.0 559.8

  • 15.0 18.8

  • -
    (13.5) 2.3

871.3 974.8

(24.1) 53.3

847.2 1,028.1

8,649.0 7,807.9

1,039.5 1,013.3

3,563.6 3,632.7

13,252.1 12,453.9

173.6 201.9

2,939.5 2,864.3

201.1 181.4

1,148.5 962.6

4,462.7 4,210.2

  1. The allocation of GIT's segment results to property investment, management and development is not reported to the Group Chief Executive Officer.
  2. Net of $14.4 million (2019: $nil) included in development earnings for Goodman.
  3. Other unallocated amounts in Goodman and GIT included other financial assets and liabilities, deferred tax assets, tax payables and provisions which did not relate to the reportable segments. Additionally, other unallocated assets and liabilities in GIT included loans due from/to controlled entities of Goodman.

77

Goodman Group

Notes to the consolidated financial statements

Results for the year (continued)

5 Taxation

Income tax for the period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in the income statement except to the extent that they relate to items recognised directly in equity, in which case the relevant amounts of tax are recognised directly in equity.

Current tax is the expected tax payable on the taxable income for the financial year and any adjustment to tax payable in respect of previous financial years.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not accounted for:

  • Goodwill
  • The initial recognition of assets or liabilities that affect neither accounting nor taxable profit
  • Differences relating to investments in controlled entities to the extent that they will probably not reverse in the foreseeable future.

The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities. Deferred tax assets or liabilities in respect of investment properties held at fair value are calculated on the presumption that the carrying amount of the investment property will be recovered through sale. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from dividends/distributions are recognised at the same time as the liability to pay the related dividends/distributions.

Goodman

Goodman

2020

2019

$M

$M

Current tax expense recognised in the income statement

Current year

(128.5)

(72.8)

Adjustment for current tax in prior periods

5.5

1.3

Current tax expense

(123.0)

(71.5)

Deferred tax expense recognised in the income statement

Origination and reversal of temporary differences

10.0

(45.3)

Deferred tax expense

10.0

(45.3)

Total income tax expense1

(113.0)

(116.8)

1. Total income tax expense includes deferred taxes of $15.6 million (2019: $21.7 million) on fair value adjustments on investment properties

78

Goodman Group

Reconciliation of income tax expense to profit before income tax

2020

2019

$M

$M

Profit before income tax

1,617.1

1,744.7

Prima facie income tax expense calculated at 30% (2019: 30%) on the profit before

(485.1)

(523.4)

income tax

Decrease/(increase) in income tax due to:

- Profit attributable to GIT Unitholders

252.6

301.7

- Current year losses for which no deferred tax asset was recognised

(3.4)

(14.8)

- Non-deductible impairment losses and fair value movements

(0.7)

(0.4)

- Other non-assessable/(deductible) items, net

101.3

63.0

- Utilisation of previously unrecognised tax losses

39.5

54.4

- Difference in overseas tax rates

5.5

29.5

- Adjustment for current tax in prior periods

5.5

1.3

- Taxes on partnership income

(25.8)

(22.3)

- Other items

(2.4)

(5.8)

Income tax expense

(113.0)

(116.8)

Current tax receivable/payable

2020

2019

$M

$M

Net income tax payable

Net income tax payable at the beginning of the year

(85.0)

(50.1)

Decrease/(increase) in current tax payable due to:

- Net income taxes paid

76.3

37.4

- Current tax expense

(123.0)

(71.5)

- Other

(0.1)

(0.8)

Net income tax payable at the end of the year

(131.8)

(85.0)

Current tax receivables (refer to note 7)

9.0

7.6

Current tax payables

(140.8)

(92.6)

(131.8)

(85.0)

79

Goodman Group

Notes to the consolidated financial statements

Results for the year (continued) 5 Taxation (continued)

Deferred tax assets and liabilities

Deferred tax assets/(liabilities) are attributable to the following:

Deferred tax assets

Deferred tax liabilities

2020

2019

2020

2019

$M

$M

$M

$M

Investment properties

-

-

(119.4)

(112.8)

Receivables

-

-

(3.4)

(46.2)

Tax losses

-

14.5

-

-

Payables

11.3

15.1

-

-

Provisions

10.1

5.9

-

-

Other items

-

0.2

(9.9)

-

Tax assets/(liabilities)

21.4

35.7

(132.7)

(159.0)

Set off of tax

(10.9)

(28.9)

10.9

28.9

Net tax assets/(liabilities)

10.5

6.8

(121.8)

(130.1)

Deferred tax assets of $219.9 million (2019: $248.8 million) in relation to tax losses and payables have not been recognised by Goodman.

GIT

Under current Australian income tax legislation, the Trust is not liable for income tax, including capital gains tax, provided that Securityholders are presently entitled to the distributable income of the Trust as calculated for trust law purposes. The controlled entities of the Trust that operate in certain foreign jurisdictions are liable to pay tax in those jurisdictions.

The income tax expense recorded by GIT relates to withholding taxes on actual distributions and deferred taxes on potential future distributions from Partnerships. At 30 June 2020, deferred tax liabilities of $82.3 million (2019: $62.8 million) have been recognised in relation to potential future distributions from Partnerships.

80

Goodman Group

OPERATING ASSETS AND LIABILITIES

The notes in this section focus on Goodman's property assets, working capital and goodwill and intangible assets.

6 Property assets

(a) Principles and policies

Investment in property assets includes both inventories and investment properties (including those under development), which may be held either directly or through investments in Partnerships (both associates and JVs).

Inventories

Inventories relate to land and property developments that are held for sale or development and sale in the normal course of the Group's business. Inventories are carried at the lower of cost or net realisable value. The calculation of net realisable value requires estimates and assumptions which are regularly evaluated and are based on historical experience and expectations of future events that are believed to be reasonable under the circumstances.

Inventories are classified as non-current assets unless they are contracted to be sold within 12 months of the end of the reporting period, in which case they are classified as current assets.

Investment properties

Investment properties comprise investment interests in land and buildings held for the purpose of leasing to produce rental income and/or for capital appreciation. Investment properties are carried at fair value. The calculation of fair value requires estimates and assumptions which are continually evaluated and are based on historical experience and expectations of future events that are believed to be reasonable under the circumstances. Investment properties are not depreciated as they are subject to continual maintenance and regularly revalued on the basis described below. Changes in the fair value of investment properties are recognised directly in the income statement.

Components of investment properties

Land and buildings (including integral plant and equipment) comprising investment properties are regarded as composite assets and are disclosed as such in the consolidated financial report.

Investment property carrying values include the costs of acquiring the assets and subsequent costs of development, including costs of all labour and materials used in construction, costs of managing the projects, holding costs and borrowing costs incurred during the development periods.

Amounts provided to customers as lease incentives and assets relating to fixed rental income increases in operating lease contracts are included within investment property values. Lease incentives are amortised over the term of the lease on a straight-line basis. Direct expenditure associated with leasing a property is also capitalised within investment property values and amortised over the term of the lease.

Classification of investment properties

Investment properties are classified as either properties under development or stabilised properties. Investment properties under development include land, new investment properties in the course of construction and investment properties that are being redeveloped. Stabilised investment properties are all investment properties not classed as being under development and would be completed properties that are leased or are available for lease to customers.

For investment properties under development, the carrying values are reviewed by management at each reporting date to consider whether they reflect the fair value and at completion external valuations are obtained to determine the fair values.

For stabilised investment properties, independent valuations are obtained at least every three years to determine the fair values. At each reporting date between obtaining independent valuations, the carrying values are reviewed by management to ensure they reflect the fair values.

Deposits for investment properties

Deposits and other costs associated with acquiring investment properties that are incurred prior to obtaining legal title are recorded at cost and disclosed as other assets in the statement of financial position.

81

Goodman Group

Notes to the consolidated financial statements

Operating assets and liabilities (continued) 6 Property assets (continued)

(b) Summary of investment in property assets

Goodman

Note

2020

2019

$M

$M

Inventories

Current

6(d)

544.1

307.9

Non-current

6(d)

636.1

761.1

1,180.2

1,069.0

Investment properties

Stabilised investment properties

1,797.9

1,756.4

Investment properties under development

103.3

140.7

6(e)

1,901.2

1,897.1

Investments accounted for using the equity method

Associates

6(f)(i)

5,617.2

4,856.0

JVs

6(f)(ii)

3,753.6

3,596.4

9,370.8

8,452.4

Total property assets

12,452.2

11,418.5

GIT

2020 2019

$M $M

--

5.9 6.5

5.9 6.5

1,192.4 1,147.7

10.0 10.9

1,202.4 1,158.6

4,761.4 4,120.4

2,386.9 2,280.6

7,148.3 6,401.0

8,356.6 7,566.1

(c) Estimates and assumptions in determining property carrying values

Inventories

For both inventories held directly and inventories held in Partnerships, external valuations are not performed but instead valuations are determined using the feasibility studies supporting the land and property developments. The end values of the developments in the feasibility studies are based on assumptions such as capitalisation rates, letting up periods and incentives that are consistent with those observed in the relevant market. If the feasibility study calculations indicate that the forecast cost of a completed development will exceed the net realisable value, then the inventories are impaired.

Investment properties

Stabilised investment properties

The fair value of stabilised investment properties is based on current prices in an active market for similar properties in the same location and condition and subject to similar lease and other contracts. The current price is the estimated amount for which a property could be exchanged between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion.

82

Goodman Group

Approach to determination of fair value

The approach to determination of fair value of investment properties is applied to both investment properties held directly and investment properties held in Partnerships.

Valuations are determined based on assessments and estimates of uncertain future events, including upturns and downturns in property markets and availability of similar properties, vacancy rates, market rents and capitalisation and discount rates. Recent and relevant sales evidence and other market data are taken into account. Valuations are either based on an external independent valuation or on an internal valuation.

External valuations are undertaken only where market segments were observed to be active. In making the determination of whether a market segment is active, the following characteristics are considered:

  • Function of the asset (distribution/warehouse or suburban office)
  • Location of asset (city, suburb or regional area)
  • Carrying value of the asset (categorised by likely appeal to private (including syndicates), national and institutional investors)
  • Categorisation as primary or secondary based on a combination of location, weighted average lease expiry, quality of tenant covenant (internal assessment based on available market evidence) and age of construction.

Each property asset is assessed and grouped with assets in the same or similar market segments. Information on all relevant recent sales is also analysed using the same criteria to provide a comparative set. Unless three or more sales are observed in an individual market segment (taken together with any comparable market segments as necessary), that market segment is considered inactive.

Where a market segment is observed to be active, then external independent valuations are performed for stabilised investment properties where there has been more than a 25 basis point movement in capitalisation rates and/or there has been a material change in tenancy profile (including changes in the credit rating or financial performance of a significant customer), and/or there has been significant capital expenditure, and/or there has been a change in use (or zoning) of the asset and/or it has been three years since the previous external independent valuation. For all other stabilised investment properties in an active market segment, an internal valuation is performed based on observable capitalisation rates and referenced to independent market data.

Where a market segment is observed to be inactive, then no external independent valuations are performed and internal valuations are undertaken based on discounted cash flow (DCF) calculations. The DCF calculations are prepared over a 10 year period. The key inputs considered for each individual calculation are rental growth rates, discount rates, market rental rates and letting up incentives. Discount rates are computed using the 10 year bond rate or equivalent in each jurisdiction plus increments to reflect country risk, tenant credit risk and industry risk. Where possible, the components of the discount rate are benchmarked to available market data.

83

Goodman Group

Notes to the consolidated financial statements

Operating assets and liabilities (continued) 6 Property assets (continued)

Market assessment

The lockdowns and economic impacts from the COVID-19 pandemic commenced at different times, with Asia affected from December 2019 and rest of the world from February/March 2020. The independent valuers would normally calculate fair values using both observable capitalisation rates and discounted cash flows. At the start of the pandemic the independent valuers were concerned that historic market transactional evidence would not be appropriate to use in their assessments of the valuations of the investment properties and certain of their valuations undertaken at March 2020 for the Partnerships placed a greater reliance on the discounted cash flow methodology and most valuation reports included a reference to the material uncertainty that existed in the market at that time.

However, in the last quarter of the financial year, it became clear that asset values in the industrial, logistics and warehousing sector had been less impacted than those for other real asset classes. This was evidenced by market transactions in the three months ended 30 June 2020 that were completed at values consistent with the reported valuations from the independent valuers. Accordingly, at 30 June 2020, the independent valuers have been able to prepare valuations using both observable capitalisation rates and discounted cash flows and relatively few valuation reports included a reference to the uncertainty in the market that was specific to the subject property.

At 30 June 2020, the Board has been able to assess that all markets in which the Group operated were active and as a consequence, no adjustments have been made to the carrying values of the Group's stabilised investment property portfolios on the basis of internally prepared discounted cash flow valuations.

The overall weighted average capitalisation rates for the divisional portfolios (including Partnerships) are as set out in the table below:

Total portfolio weighted average capitalisation rate

Goodman

Division

2020

2019

%

%

Australia and New Zealand

5.1

5.4

Asia

4.7

4.8

Continental Europe

4.9

5.1

United Kingdom

4.5

4.8

Americas

4.4

4.6

GIT

2020 2019

% %

5.1 5.3

4.2 4.3

5.0 5.2

  • -

4.4 4.6

During the current financial year, the fair values of 59% (2019: 76%) of stabilised investment properties held directly by Goodman were determined based on a valuation by an independent valuer who held a recognised and relevant professional qualification and had recent experience in the location and category of the investment property being valued. The equivalent percentage for GIT was 42% (2019: 97%).

For investments in Partnerships, all properties that were stabilised investment properties throughout FY20 were valued by an independent valuer during the year.

Sensitivity analysis

The fair value measurement approach for directly held investment properties has been categorised as a Level 3 fair value based on the inputs to the valuation method used (see note 1(f)). The stabilised investment property valuations at

30 June 2020 are most sensitive to the following inputs:

  • Capitalisation rates
  • Market rents
  • Level of lost income due to incentives provided to customers and/or the amount of vacant time on expiry of a lease.

The majority of directly held stabilised investment properties are in Australia and the average capitalisation rate and the range of market rents are summarised in the table below:

Valuation technique

Significant unobservable inputs

2020

2019

Income capitalisation

Range of net market rents (per square metre per annum)

$44 to $320

$40 to $320

Capitalisation rate (weighted average)

5.2%

5.4%

84

Goodman Group

The impacts on the Group's financial position that would arise from the changes in capitalisation rates, market rents and incentives/voids are set out in the table below. This illustrates the impacts on Goodman in respect of both the directly held stabilised investment properties and its share of those stabilised investment properties held by Partnerships.

Goodman

Directly held

Partnerships1

properties

$M

$M

Book value at 30 June 2020

1,797.9

10,116.3

Changes in capitalisation rates:

Increase in cap rates +50bps

(158.0)

(964.1)

Increase in cap rates +25bps

(82.6)

(506.4)

Decrease in cap rates -25bps

91.0

563.6

Decrease in cap rates -50bps

191.7

1,194.6

Changes in market rents:

Decrease in rents -10%

(70.5)

(449.7)

Decrease in rents -5%

(35.3)

(224.8)

Increase in rents +5%

35.3

224.8

Increase in rents +10%

70.5

449.7

Changes in voids/incentives2:

(10.7)

(62.1)

Increase in voids/ incentives +6 months

Increase in voids/ incentives +3 months

(5.3)

(31.1)

  1. Goodman's share of stabilised investment properties held by Partnerships.
  2. On assumed lease expiries over the next 12 months.

GIT

Directly held

Partnerships1

properties

$M

$M

1,192.4

7,700.2

(109.7)

(744.5)

(57.5)

(391.3)

63.7

436.1

134.6925.2

(53.5) (333.7)

(26.8) (166.8)

26.8166.8

53.5333.7

(13.2)

(43.6)

(6.6)

(21.8)

Investment properties under development

External valuations are generally not performed for investment properties under development, but instead valuations are determined using the feasibility studies supporting the developments. The end values of the developments in the feasibility studies are based on assumptions such as capitalisation rates, letting up periods and incentives that are consistent with those observed in the relevant market adjusted for a profit and risk factor. This profit and risk factor is dependent on the function, location, size and current status of the development and is generally in a market range of 10% to 15%. This adjusted end value is then compared to the forecast cost of a completed development to determine whether there is an increase or decrease in value.

This practice of determining fair value by reference to the development feasibility is generally also applied for Goodman's investments in Partnerships. However, certain Partnerships do obtain independent valuations for investment properties under development each financial year.

85

Goodman Group

Notes to the consolidated financial statements

Operating assets and liabilities (continued) 6 Property assets (continued)

(d) Inventories

Goodman

2020 2019

$M $M

Current

Land and development properties544.1 307.9

544.1 307.9

Non-current

Land and development properties636.1 761.1

636.1 761.1

GIT

2020

2019

$M

$M

-

-

-

-

5.9 6.5

5.9 6.5

Goodman

During the current and prior financial year, no impairment losses were recognised on land and development properties.

During the financial year, borrowing costs of $6.7 million (2019: $23.1 million) previously capitalised into the carrying value of inventories were expensed to the income statement on disposal of the inventories.

(e) Investment properties

Reconciliation of carrying amount of directly held investment properties

Goodman

2020

2019

$M

$M

Carrying amount at the beginning of the year

1,897.1

1,774.6

Capital expenditure

123.4

59.7

Carrying value of properties disposed

(165.2)

(30.4)

Transfers to inventories

-

(54.5)

Net gain from fair value adjustments

45.2

146.8

Effect of foreign currency translation

0.7

0.9

Carrying amount at the end of the year

1,901.2

1,897.1

Analysed by segment:

Australia and New Zealand

1,894.0

1,866.2

United Kingdom

7.2

30.9

1,901.2

1,897.1

GIT

2020 2019

$M $M

1,158.6 1,222.4

8.5 9.2

(1.0)

(215.4)

-

-

36.5 142.3

(0.2) 0.1

1,202.4 1,158.6

1,202.4 1,158.6

--

1,202.4 1,158.6

86

Goodman Group

Goodman

During the financial year, borrowing costs of $1.8 million (2019: $0.6 million) previously capitalised into the carrying value of investment properties were expensed to the income statement on disposal of the investment properties.

Non-cancellable operating lease commitments receivable from investment property customers

The analysis in the table below reflects the gross property income, excluding recoverable outgoings, based on existing lease agreements. It assumes that leases will not extend beyond the next review date, where the customer has an option to end the lease.

Goodman

20201

2019

$M

$M

GIT

2020

2019

$M

$M

Non-cancellable operating lease commitments receivable:

Less than one year

85.8

83.8

47.0

47.9

One to two years

71.4

64.1

39.3

34.5

Two to three years

54.3

48.7

27.6

27.5

Three to four years

44.7

36.9

20.3

17.0

Four to five years

33.3

29.0

14.4

11.3

More than five years

190.3

128.3

29.1

26.8

479.8

390.8

177.7

165.0

1. Excludes gross operating income of $83.2 million in respect of a leased property that was disposed in July 2020.

(f) Investments accounted for using the equity method

Investments accounted for using the equity method comprise associates and JVs, which are collectively referred to as Partnerships.

Associates

An associate is an entity in which Goodman exercises significant influence but not control over its financial and operating policies. In the consolidated financial statements, investments in associates are accounted for using the equity method. Investments in associates are carried at the lower of the equity accounted amount and recoverable amount. Under this method, Goodman's share of post-acquisition gains or losses of associates is recognised in the consolidated income statement and its share of post-acquisition movements in reserves is recognised in consolidated reserves. Cumulative post-acquisition movements in both profit or loss and reserves are adjusted against the cost of the investment.

JVs

A JV is an arrangement in which Goodman is considered to have joint control for accounting purposes, whereby Goodman has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. In the consolidated financial statements, investments in JVs are accounted for using the equity method. Investments in JVs are carried at the lower of the equity accounted amount and recoverable amount. Goodman's share of the JVs' net profit or loss is recognised in the consolidated income statement from the date the arrangement commences to the date the arrangement ceases. Movements in reserves are recognised directly in consolidated reserves.

Transactions eliminated on consolidation

Unrealised gains arising from asset disposals to associates and JVs are eliminated to the extent of Goodman's interest. Unrealised gains relating to associates and JVs are eliminated against the carrying amount of the investment. Unrealised losses are eliminated in the same way as unrealised gains unless they evidence an impairment of an asset.

87

Goodman Group

Notes to the consolidated financial statements

Operating assets and liabilities (continued) 6 Property assets (continued)

  1. Investments in associates

Investments in associates are set out below:

Goodman

Share of net

Ownership

Investment

results

interest

carrying amount

Country of

2020

2019

2020

2019

2020

2019

Name of associate

establishment

$M

$M

%

%

$M

$M

Property investment

Goodman Australia Industrial Partnership (GAIP)

Australia

201.8

273.8

28.8

28.4

1,729.8

1,543.4

Goodman Australia Partnership (GAP)

Australia

91.6

118.5

19.9

19.9

762.6

759.9

Goodman Property Trust (GMT)1

New Zealand

52.1

65.9

21.4

21.6

490.8

433.3

Goodman Hong Kong Logistics Partnership

Cayman

284.7

20.2

1,510.6

(GHKLP)

Islands

174.5

20.1

1,103.0

Goodman Japan Core Partnership (GJCP)2

Japan

32.5

21.4

15.5

16.5

365.0

302.3

Goodman European Partnership (GEP)

Luxembourg

83.2

60.3

20.4

20.4

758.4

714.1

745.9

714.4

5,617.2

4,856.0

GIT

Share of net

Ownership

Investment

results

interest

carrying amount

2020

2019

2020

2019

2020

2019

$M

$M

%

%

$M

$M

201.8

273.8

28.8

28.4

1,729.8

1,543.4

91.6

118.5

19.9

19.9

762.6

759.9

-

-

-

-

-

-

284.7

174.5

20.2

20.1

1,510.6

1,103.0

-

-

-

-

-

-

83.2

60.3

20.4

20.4

758.4

714.1

661.3

627.1

4,761.4

4,120.4

  1. GMT is listed on the New Zealand Stock Exchange (NZX). The market value of Goodman's investment in GMT at 30 June 2020 using the quoted price on the last day of trading was $565.6 million (2019: $520.6 million).
  2. Goodman's ownership interest in GJCP reflected the weighted average ownership interest in the various property investment vehicles.

88

Goodman Group

The reconciliation of the carrying amount of investments in associates is set out as follows:

Goodman

2020

2019

Movement in carrying amount of investments in associates

$M

$M

Carrying amount at the beginning of the year

4,856.0

4,162.4

Share of net results after tax (before fair value adjustments)

226.8

223.9

Share of fair value adjustments attributable to investment

properties after tax

493.3

469.7

Share of fair value adjustments on derivative financial

instruments

25.8

20.8

Share of net results

745.9

714.4

Share of movements in reserves

(1.8)

(4.8)

Acquisitions

272.6

86.8

Disposals

(6.8)

(5.6)

Capital return

(59.7)

-

Distributions received and receivable

(207.6)

(211.2)

Effect of foreign currency translation

18.6

114.0

Carrying amount at the end of the year

5,617.2

4,856.0

GIT

2020 2019

$M $M

4,120.4 3,569.8

191.4 183.6

445.6 424.3

24.3 19.2

661.3 627.1

(1.8) (4.8)

187.9 35.1

  • -
    (59.7)-

(172.0) (181.4)

25.3 74.6

4,761.4 4,120.4

89

Goodman Group

Notes to the consolidated financial statements

Operating assets and liabilities (continued) 6 Property assets (continued)

The table below includes further information regarding associates held at the end of the financial year:

GAIP

GAP

GMT

GHKLP

GJCP2

GEP

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

2020

2019

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

$M

Summarised statement of financial position

Total current assets

230.3

347.3

170.9

170.7

13.6

22.6

129.7

64.9

326.2

152.2

1,422.6

186.0

Total non-current assets

8,406.4

7,653.1

4,385.5

3,952.4

2,954.6

2,641.4

8,913.5

7,392.9

3,486.8

2,841.5

5,043.6

5,824.7

Total current liabilities

114.9

367.1

111.4

111.0

111.8

27.3

216.6

568.5

25.7

21.6

365.9

282.8

Total non-current liabilities

2,575.2

2,251.1

682.8

280.1

611.2

673.7

1,411.1

1,446.5

1,424.5