Goodman Group - Commonwealth Bank

Equities: Goodman Group 07 March 2013 ‫ ׀‬ASX Code: GMG ‫ ׀‬Property

Follow the money

Overweight Price target

Event

$5.13 (from $5.08)

Implication

Share price 52-week range Forecast price return Forecast dividend return Forecast total return Market cap

AUM growth set to accelerate. GMG’s assets under management (AUM)

Forecasts and ratios

We have reviewed GMG’s Investment Management division (17% of EBIT) following the 1H13 result.

has increased at a 13.5% CAGR to $17.3b since hitting a low of $12.6b in 2010, driven by new funds increasing development activity and rising asset prices. Based on our modelling, we believe there is scope for AUM growth to accelerate further. We forecast AUM to grow to $24.1b in FY15. Figure 1: CBA AUM forecast 25

2.0 1.8

$bn

20

0.3

0.3

0.2

0.5

0.8

0.4

12

13f

14f

15f

384

484

545

597

650

EPS c

25.3

30.5

32.6

34.9

37.9

8.3

20.5

7.0

6.9

8.8

P/E x

13.9

12.0

15.1

14.1

13.0

EV/EBITDA x

15.7

15.0

16.6

15.0

13.5

DPS c

17.5

18.0

19.6

20.9

22.8

5.0

4.9

4.0

4.2

4.6

EPS growth %

(0.5 )

Price relatives Starting index and share price rebased to 100 24.1 21.1

150.0 140.0

18.1

17.3

11

NPAT $m

Yield %

(0.4 )

(0.4 )

15

1.0

Year end Jun

$4.93 $3.22 - $4.93 4.1% 4.2% 8.3% $8,446m

130.0

10 1h13

Acq

Dev

Val

Disp

13f

Acq

Dev

Val

Disp

14f

Acq

Dev

Val

Disp

15f

120.0

Source: Company data, CBA estimates

110.0

Forecast AUM growth implies Investment Management EBITDA growth

100.0

of 27% p.a. This assumes (1) development Work in Progress (WIP) increasing to $2.7b in FY15, (2) 2% underlying rent growth, and (3) 15bps p.a. cap rate compression.

90.0 Mar 12

Jun 12

Sep 12

S&P/ASX 200

Dec 12

Mar 13 GMG

$4.9b acquisition capacity. Assessing GMG’s look-through gearing and undrawn equity, we estimate GMG’s funds have $4.9b acquisition capacity. This provides two years of funding on our forecast WIP and we are confident GMG will be able to recycle capital as necessary.

Leverage to cap rate compression. We expect cap rate compression to become an important theme over the next 12-18 months. As a sensitivity, 50bps of cap rate compression equates to 1.5-2.0% EPS growth.

Earnings and valuation revisions No changes to earnings. Valuation $4.79 (+1%); price target $5.13 (+1%).

Investment view Maintain Overweight. GMG’s positive momentum continues as its competitive advantages have enabled it to build scale and drive operating leverage. With improving earnings visibility, a strong development pipeline, and undemanding earnings multiples compared to peers, GMG remains one of our preferred A-REIT exposures.

David Lloyd T. +612 9118 1192 E. [email protected] James Druce T. +612 9118 1193 E. [email protected]

Important Disclosures and analyst certifications regarding subject companies are in the Disclosure and Disclaimer Appendix of this document and at www.research.commbank.com.au. This report is published, approved and distributed solely by Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945. CBA is not registered as a broker-dealer under the U.S. Securities Exchange Act of 1934 and is not a member of the Financial Industry Regulatory Authority, Inc. or any U.S. self-regulatory organization.

Global Markets Research

Equities: Goodman Group

Financials Profit & Loss

FY11

FY12

FY13f

FY14f

FY15f

Revenue

852.6

868.8

903.4

898.6

988.7

-1.8

-13.7

-19.4

81.3

90.3

Share Price

4.93

-367.6

-384.2

-324.8

-197.6

-211.3

Price Target

5.13

483.2

470.9

559.1

782.3

867.7

Analyst Valuation

4.79

-5.8

0.0

0.0

0.0

0.0

EBIT

477.4

470.9

559.1

782.3

867.7

Financial Year End Date

Net Interest Expense

-16.9

-10.7

-33.0

-38.7

-62.4

Last Reported Year

Profit Before Tax

460.5

460.2

526.1

743.6

805.3

Asset Allocation

-7.5

-9.7

-20.9

-20.0

-20.0

Industrial

Minorities

-61.0

-42.2

-33.6

-45.0

-45.0

Office

0%

NPAT

392.0

408.3

471.6

678.6

740.3

Residential

0%

Retail

0%

Retirement

0%

Other

0%

IFRS Revenue Expenses EBITDA Depreciation & Amort

Tax

Specific Items Reported Profit Revaluation (gain)/loss IFRS adjustments

0.0

0.0

0.0

0.0

0.0

392.0

408.3

471.6

678.6

740.3

26.4

-6.5

-58.4

-81.3

-90.3

Company Information Overweight

Recommendation

4.68

DCF Valuation

30 June 2012

100%

50.8

161.1

163.4

0.0

0.0

Operating Metrics (%)

FY11

FY12

FY13f

FY14f

FY15f

Other

-85.3

-78.5

-31.5

0.0

0.0

EBITDA margin

80.1

87.7

116.3

126.1

130.5

CBA Profit

383.9

484.4

545.2

597.3

649.9

EBIT margin

79.2

87.7

116.3

126.1

130.5

Net Profit Margin

64.8

77.7

100.2

107.5

109.1 9.2

Balance Sheet

FY11

FY12

FY13f

FY14f

FY15f

ROIC (NOPLAT)

6.9

7.7

8.1

8.7

Cash

227.8

310.8

511.1

795.0

1100.0

Return on Assets

6.4

6.9

7.7

8.3

8.9

Net Receivables

226.5

164.3

379.6

379.6

379.6

Return on Equity

9.2

10.4

10.6

10.6

10.9

Inventories

216.2

194.3

143.3

143.3

143.3

Net Debt (m)

1686.0

2036.7

1738.3

1665.9

1592.0

12.3

121.4

27.5

27.5

27.5

3.5

3.7

2.7

2.4

2.0

682.8

790.8

1061.5

1345.4

1650.4

ND / ND+E

25.2

28.2

23.0

21.2

19.5

TD / TTA

26.1

29.4

26.6

27.3

27.9

5.2

5.5

5.3

6.4

6.9

Other Current Assets PP&E

Net Debt / EBITDA (x)

6.9

12.7

14.5

14.5

14.5

Property Investments

2924.7

2674.5

2638.7

2931.6

3253.0

Equity Accounted

2597.4

2893.4

3086.0

3086.0

3086.0

Inventories

268.7

601.0

694.4

694.4

694.4

Per Share Data (c)

Intangibles

229.7

232.9

235.4

235.4

235.4

EPS Shares (m)

Other Non Current Assets Trade Creditors Borrowings Other Current Liabilities Borrowings Other Non Current Liabilities

854.7

1014.6

949.0

949.0

949.0

6882.1

7429.1

7618.0

7910.9

8232.3

214.6

259.5

160.9

160.9

160.9

Net Interest Cover (x)

FY11

FY12

FY13f

FY14f

FY15f

1519.2

1590.3

1671.9

1713.2

1713.2

Reported EPS

25.8

25.7

28.2

39.6

43.2

Normalised EPS

25.3

30.5

32.6

34.9

37.9

Dividends

17.5

18.0

19.6

20.9

22.8

0.0

42.5

0.0

0.0

0.0

69.3

59.1

60.0

60.0

60.0

230.4

219.9

231.3

231.3

231.3

Net Tangible Assets

244.3

256.1

272.7

291.4

311.8

Book Value

300.3

305.3

319.4

338.1

358.5

-4.1

2.6

12.0

25.1

27.1

445.0

521.9

392.2

392.2

392.2

1913.8

2305.0

2249.4

2460.9

2692.0

192.2

218.4

217.9

217.9

217.9

2106.0

2523.4

2467.3

2678.8

2909.9

Payout Ratio (%)

Free Cash Flow Multiples (x) Enterprise Value (m)

Shareholder Capital

FY11

FY12

FY13f

FY14f

FY15f

7472.3

8191.8

10532.8

10505.5

10476.6

7055.1

7363.4

7806.2

7806.2

7806.2

Minorities

573.1

318.8

348.3

393.3

438.3

Reserves

-2375.0

-2373.0

-2005.8

-2005.8

-2005.8

5013.9

5174.6

5820.0

6185.3

6580.6

0.7

1.7

2.2

1.6

0.8

FY11

FY12

FY13f

FY14f

FY15f

Yield (%)

4.96

4.90

3.97

4.24

4.62

Price to NTA

1.44

1.43

1.81

1.69

1.58

Total Equity

EV / EBITDA

15.7

15.0

16.6

15.0

13.5

EV / EBIT

15.9

15.0

16.6

15.0

13.5

Reported P/E

13.7

14.3

17.5

12.4

11.4

Normalised P/E

13.9

12.0

15.1

14.1

13.0

PEG Cash flow Operating Profit

-362.8

283.7

260.8

701.0

777.4

Net interest Received

-40.3

-33.0

-90.0

-108.7

-112.4

Other

735.7

11.7

357.5

50.0

30.0

Operating Cash flow

332.6

262.4

528.3

642.3

694.9

-158.7

55.4

-306.3

-673.6

-735.1

210.9

152.7

221.9

462.0

504.0

-447.1

-428.9

-243.4

0.0

0.0

Capex Sale of investments Payments for Investments Other

0.0

0.0

-7.2

0.0

0.0

-394.9

-220.8

-335.0

-211.6

-231.1

78.5

33.2

449.1

0.0

0.0

Dividends Paid

-284.1

-328.0

-324.5

-358.4

-390.0

Net borrowings

-117.2

372.5

-66.9

211.6

231.1

96.6

0.0

0.0

0.0

0.0

-226.2 -288.5 226.6

37.0 78.6 306.4

7.0 200.3 511.1

-146.8 283.9 795.0

-158.9 305.0 1100.0

Investing Cash flow Capital Raisings

Other Financing Cash flow Total Cash Change Cash at End Of year

FY11

FY12

FY13f

FY14f

FY15f

EBITDA

Growth Rates (%)

-9.6

15.1

15.7

10.8

10.9

EBIT

-9.3

16.6

15.7

10.8

10.9

Normalised EPS

8.3

20.5

7.0

6.9

8.8

DPS

2.9

2.9

8.7

6.9

8.8 FY15f

Consensus Estimates

FY11

FY12

FY13f

FY14f

Sales / Revenue (m)

330

592

666

703

786

EBITDA (m)

476

476

608

667

738

Pre Tax (m)

445

515

575

651

711

Net Profit (m)

384

463

546

605

654

Earnings per share (c) Dividends per share (c) Cashflow Per Share (c)

28.5 17.5 18.0

27.1 18.0 15.6

32.7 19.5 30.1

35.0 21.0 34.4

37.8 22.6 36.5


2



AUM growth set to accelerate We have analysed GMG’s Investment Management division (17% of EBIT) after a strong 1H13 result and believe it to be a key source of earnings growth. GMG’s AUM has increased at a 13.5% CAGR to $17.3b since hitting a low of $12.6b in 2010, driven by new funds increasing development activity and rising asset prices. Based on our modelling, we believe there is scope for AUM growth to accelerate further. We forecast AUM to grow to $24.1b in FY15. Figure 2: Third-party AUM 35

31.5

30

$bn

25

Figure 3: AUM by geography as at Dec 12

Third party AUM Sale of GIP to Aberdeen

24.3

7%

14.3

15

14.3

12.6

14.4

16.1

Australia

9%

13.5% CAGR

20

3% 3% Europe UK

17.3

HK 52%

11%

10

NZ China

5

Japan

0 06a

07a

08a

09a

10a

11a

12a

15%

1h13



Figure 4: Assets under management bridge to FY15

25

2.0

$bn

20

0.3

1.8

0.2

0.3

0.5

0.8

0.4

(0.5 )

(0.4 ) 24.1

(0.4 )

15

1.0

21.1 18.1

17.3 10 1h13

Acq

Dev

Val

Disp

13f

Acq

Dev

Val

Disp

14f

Acq

Dev

Val

Disp

15f


The key AUM drivers are shown in Figure 4 above and are based on:

Development WIP increasing to $2.7b in FY15, implying development completions of $1.8b and $2.0b in FY14 and FY15, respectively.

Underlying income growth of 2%, which flows through to asset prices 15bps of cap rate compression in FY14 and FY15 The effect of our prospective AUM growth on Investment Management EBITDA is large. Investment Management EBITDA contributed 17% to Group EBIT in 1H13 and we expect this to grow significantly based on our forecast EBITDA CAGR to FY15 of 27.0%. The growth is assisted by our assumption of economies of scale. EBITDA margins were a highlight of the 1H13 result in our view, which we suspect have further room to improve (Figure 6) given management costs appear largely bedded down. We detail our assumptions below.

3



Figure 5: Investment management operating earnings Revenue (LHS) Expenses (LHS) 27.0% EBITDA CAGR EBITDA (RHS)

250.0 200.0

Figure 6: Assets under management and EBITDA margin

100.0

120

50.0

90

0.0

60

(50.0)

30

(100.0) 10a

11a

12a 1h13 13f

14f

20.0 15.0 10.0

20%

5.0

0%

0.0 08a

15f


25.0

40%

0 09a

EBITDA margin (LHS)

60%

$m

150

08a

AUM (RHS)

180

150.0

$m

80%

210

09a

10a

11a

12a 1h13

13f

14f

15f


Figure 7: Assumptions and outputs from Investment Management modelling

Assumptions AUM ($bn) Revenue ($m) Revenue growth Total mgmt fee Expenses ($m) Expenses growth Valuation growth Cap rate compression (bp) Outputs EBITDA ($m) EBITDA margin EBITDA growth

09a

10a

11a

12a

1h13

13f

14f

15f

14.3 131.9 -25% 0.92% (68.0) -15.0% na

12.6 125.6 -5% 0.93% (71.9) 5.7% na

14.4 121.0 -4% 0.90% (58.4) -18.8% na

16.1 139.1 15% 0.91% (59.8) 2.4% na

17.3 86.8 30% 1.04% (30.8) -0.65% na

18.1 176.1 27% 1.00% (61.6) 3.0% 1.0% 0

21.1 195.0 11% 1.00% (63.4) 3.0% 2.0% -15

24.6 227.6 17% 1.00% (65.3) 6.1% 2.0% -15

63.9 48.4% -33.4%

53.7 42.8% -16.0%

62.6 51.7% 16.6%

79.3 57.0% 26.7%

56.0 64.5% 55.6%

114.5 65.0% 44.3%

131.6 67.5% 15.0%

162.3 71.3% 23.3%


Key drivers of AUM Development Development is the key driver of AUM and more generally of GMG’s operating earnings. WIP is the lead indicator of development completions and has been growing strongly over the past three years. From $600m in FY09, it is now $2b and management has stated that it expects WIP to increase to $2.5b in the near term. We are confident this can be achieved. Our confidence stems from:

Structural and cyclical demand for logistics driven by Ecommerce, faster delivery times and supply chain efficiencies

GMG’s entry into and execution in new markets, the US and Brazil De-risking of the development pipeline with 70%+ developments pre-committed and preleased

Funding capacity from uncalled equity and uncommitted facilities We elaborate on each factor below, but leave funding capacity to our analysis of acquisition capacity in a section below.

4

Glob bal Markets Ressearch

Equ uities: Goo odman Gro oup

Figu ure 8: Develo opment EBITD DA

Figu ure 9: Development comp pletions and WIP W 4.0 3.0

2.5

$bn

2.5

1.0

W WIP

3.1 2.4

2.1

2.0

1 1.8 1.7 1.9

1.8

2.0 1.5

C Completions

3..3

3.5

1.3 0.9

0 0.6

0.5

0.9 9

0.8 0.4

0.0 06a

Sourrce: Companyy data, CBA estiimates

07a a

08a

09a a

11a

10a

12a

1h h13

Sourc rce: Company data, CBA estim imates

Deve elopment dem mand Demand for indus strial space iss correlated strongly s with GDP G growth,, the outlook for which ears to be imp proving versu us 12 months s ago. And wh hile some groowth will be driven d by GMG G’s appe abilitty to penetratte new markeets (China, the e US and Bra azil), there aree structural re easons why GMG G has displayed d stro ong growth in n low growth markets like Europe. We are of the vie ew these struc ctural reasons s apply generrally to develo oped econom mies and coulld be a persis stent tailwind for GMG G over the forrecast period . These includ de:

Supply S chain efficiencies. e L Large and effficient distribu ution centres are becomin ng increasinglly im mportant to service an inc reasingly global customerr base and m eet the mode ern demands of consumers such as next-d ay delivery and returns. This is more trrue in a low growth w there is a greater foc cus on the cost control. environment when

Ecommerce E re emains a high h growth indu ustry that requires distribuution centres which facilita ate fa ast delivery, high h volumes , more produ ucts and more e space. A leaad indicator is Amazon, which w has been rapid dly expanding g in Europe.

In nventory obso olescence. O Older logistics s facilities are often inadeq quate for toda ay’s use. Ofte en awning heights are too low w or the sites too small for new e-retaileers whom dem mand purposseb built facilities (older ( 100,00 00sqm sheds do not exist). New markets mpared to 200 08, when WIP P touched $3b b, GMG has a materially laarger develop pment platforrm. Com In the e past 12 mo onths, GMG eentered Brazill and the US, while its Chi na business is still nascen nt by show wing strong momentum. m A As these mark kets begin to contribute m meaningfully, we w are confid dent $2.5b b is possible.. We show a build-up in th he graph belo ow (Figure 10) 0). A sid de benefit of entering e new markets is th hat we expect developmennt completion ns to exhibit less volattility, with the platform now w diversified across emerg ging/developeed countries and across Asia, A the Americas A and d Europe. Figu ure 10: Development WIP P historical an nd forecast 3..5

Aus/NZ

Assia (Jap, HK, Ch hina)

Europe

UK

US

Sth America

3..0

2.7 2.5

$bn

2..5 2.1

2..0 1..5 1..0 0..5 0..0 07a

08a

09a

10a

11a

1 12a

1h1 13

13f

14f

15f

Sourrce: Company data, CBA estim mates

5



De-risked development pipeline GMG has de-risked its development business exemplified through its matching principle. The idea is that both the tenant and the third-party capital for the development is matched before a development begins. The difference being that before 2009, GMG would often warehouse assets by developing on balance sheet before being sold into one of its funds. While the margins are higher for this model, there is proportionately more risk. The matching principle is exhibited below with pre-commitments and developments for thirdparties averaging over 70% in the past three years. We expect the pre-commitment percentage to fall with growth in China, because speculative developments are more common as they suit rapidly expanding tenants whom are unable to wait 12 months for a new development to complete. Consequently, we expect the development yield to lift. Figure 11: Pre-commitments & developments for 3rd parties Pre-commitment

3rd party development

100%

Figure 12: Development yields

10.0%

Development yield

9.0%

80%

8.0%

60% 7.0%

40%

6.0%

20%

5.0%

0% 07a

08a

09a

10a

11a

12a


1h13

07a

08a

09a

10a

11a

12a

1h13


Asset prices Asset price growth is a free kick for management fees. While in the past, devaluations have tended to be a drag, we believe the tide is turning and cap rate compression will eventuate so long as bond rates continue to remain low, as we expect. The charts below show GMG cap rates against long-term government bonds – the gap represents the implied risk premium. In every case, cap rates have continued to remain flat or have risen despite long-term bond rates falling. Assuming downside risk to rents and occupancy does not increase materially, we see three potential outcomes:

Cap rates compress Bond yields rise A mixture of both 50bps of cap rate compression equates to 1.5%-2.0% accretion to EPS

The last option is the most likely, in our view. Figure 17 and Figure 18 show that the spread between bond rates and cap rates are at their highest level in five years (500-700bps). This compares to 0-100bps pre-GFC. Hence, there is plenty of scope for both cap rate compression and rising bond yields. As a sensitivity, 50bps of cap rate compression equates to 1.5-2.0% EPS growth.

6



Figure 13: Australian cap versus long-term bond rate

Figure 14: Japan cap rates versus long-term bond

10.0%

10.0%

AU Bond 10

Australia

8.0%

8.0%

6.0%

6.0%

4.0%

4.0%

2.0%

2.0%

0.0% Jun 07

Jun 08

Jun 09

Jun 10

Jun 11

Jun 12

0.0% Jun 07

JP Bond 10

Jun 08

Jun 09

Japan

Jun 10

Jun 11

Jun 12



Figure 15: UK cap rates versus long-term bond

Figure 16: Europe cap rates versus long-term bond

10.0%

10.0%

UK Bond 10

UK

8.0%

8.0%

6.0%

6.0%

4.0%

4.0%

2.0%

2.0%

0.0% Jun 07

Jun 08

Jun 09

Jun 10

Jun 11

Jun 12

0.0% Jun 07

EU Bond 10

Jun 08

Jun 09

Continental Europe

Jun 10

Jun 11

Jun 12



Figure 17: Australian and Japan spread to cap rates

Figure 18: UK and European spread to cap rates

8%

8%

Australia

Japan

7%

6%

6%

5%

5%

Spread

Spread

7%

4% 3% 1%

1%

Jun 09

Jun 10


Jun 11

Jun 12

Jun 09

Jun 11

3% 2%

Jun 08

Europe

4%

2% 0% Jun 07

United Kingdom

0% Jun 07

Jun 08

Jun 10

Jun 12


Acquisition capacity and divestments Figure 19 shows the factors that have moved AUM since 2008. While acquisitions appear to be a key driver, we believe this reflects the acquisition of developments done by GMG, as opposed to vanilla acquisitions from third-parties. Given GMG’s development pipeline, we are therefore focused on the funds’ acquisition capacity of GMG developments. This is a combination of:

Acquisition capacity in existing funds (we have focused solely on the six largest), and Uncalled equity, which can also be geared Our numbers suggest GMG has $4.9b of funding capacity. Given our forecast of development WIP of $2.0b-$2.7b to FY15, GMG has over two years of funding capacity. We expect this capacity to improve with further equity committed by third-parties.

7



Regarding acquisition capacity in existing funds, we have assumed gearing is raised to 40%. As a general rule, we believe GMG would be comfortable with look-through gearing of between 3540% and balance sheet gearing of 25% (c.f. 34% and 21% at December 2012). A potentially constraining factor may be GMG’s ability to fund its own commitment to funds (target is generally 20%). We are confident GMG will be able to do this, given its active strategy and history of recycling capital. We note retained earnings of approximately $200m pa allows GMG to fund its stake in $1b of developments each year. We also note a possible source of capital is GMG’s land holdings in the inner cities of Sydney and Melbourne, which can be sold to residential developers. The $1.25b land holdings have been valued as high as $10b after being rezoned (The Australian, 21 February 2013) and GMG has already begun to realise this with the sale of 19-33 Kent Rd for $100m to Meriton.

Acquisitions

Disposals

Development

Valuation / FX

6 5 4

4.9

2.2

$bn

4.0

1.5

Total

6.0

Figure 20: Funding capacity

UE 40% levered

Figure 19: AUM movements

3 0.5

0.4

0.1

08a

09a

10a

11a

12a

1h13 split by country is CBA's estimate

Uncalled equity

US

Figure 22: Gearing of GMG’s 6 largest funds Japan

China

Other

60%

Gearing

Gearing threshold

50%

2,500

1900

2,000 1,500

ABPP (UK)


Figure 21: Uncalled equity 3,000

GHKLF (HK)

1h13

Source: Company data, CBA estimates Note:

GELF (EUR)

(2.0)

Uncalled Equity

(0.3)

0

0.0

GMT (NZ)

0.4

0.1 GTA (AUS)

1

GAIF (AUS)

2

2.0

1,300

40%

1,400

30% 20%

1,000

10%

500

0% 0 10a

11a

12a

1h13


GAIF (AUS)

GTA (AUS)

GELF (EUR)

GHKLF (HK)

ABPP GMT (NZ) (UK)


Performance fees Performance fees are a source of additional upside. They are difficult to forecast, but we understand there are only two funds that are currently earnings performance fees: GTA (NZ), GHKLF (HK). At the peak, performance fees represented 7% of group profit, compared to 1% now. While most funds will have to earn back years of underperformance before performance fees can be paid, we note the prospects are improving.

8



Figure 23: Historical performance fees

40.0

Figure 24: Performance fees as a percentage of group profit 10.0%

Performance fees

37.0

8.0%

30.0

Performance as a % of group profit

7%

6.0%

20.0

3%

4.0%

10.2 10.0

5.2

7.0

5.3

0.0

2%

1%

2.0%

1%

0.0%

08a

09a

10a


11a

12a

08a

09a

10a

11a

12a


9



Current recommendation definitions CBA Institutional Equities investment recommendations are determined by the covering analyst and reflect the analyst’s assessment of a stock’s expected total shareholder return (TSR). Stock expected TSR is calculated as the difference between the analyst’s 12-month price target and the current share price plus the forecast dividend yield. Overweight: Stocks with an Overweight recommendation represent the most attractive stocks under the analyst’s coverage. They are generally forecast to generate higher TSR compared to the rest of the analyst’s coverage. Neutral: Stocks with a Neutral recommendation are less attractive than stocks with an Overweight recommendation. They are generally forecast to generate lower TSR compared to stocks with an Overweight recommendation in the analyst’s coverage. Underweight: Stocks with an Underweight recommendation are the least attractive stocks. They are generally forecast to generate lower TSR compared to stocks with a Neutral recommendation in the analyst’s coverage. Note: CBA’s previous recommendations prior to 9 November 2012 were: Buy: Stocks with a Buy recommendation represent the most attractive stocks under the analyst’s coverage. They are forecast to generate significantly positive expected total shareholder returns. Hold: Stocks with a Hold recommendation are less attractive than stocks with a Buy recommendation. They are forecast to generate flat to slightly positive expected total shareholder returns. Sell: Stocks with a Sell recommendation are the least attractive stocks. They are forecast to generate flat or negative expected total shareholder returns. CBA’s previous recommendations prior to 25 January 2010 were: Short term (over 6 months): Buy – appreciate by >10%, Accumulate – increase between 2% and 10%, Reduce – increase by less than 2% or fall by up to 5%,Sell – fall by >5%. Long term (24 months) Outperform (O / P) – exceed market return by >5%, Market Perform (M / P) – be in line with market return, +/-5%, Under Perform (U / P) – be less than market return by >5%.

One year history of price target and recommendation changes GMG

Price Target

5.0 4.5 4.0 3.5

Date

Price Target ($)

Recommendation

10/08/2012 8/11/2012 9/11/2012 21/02/2013 7/03/2013

4.39 4.96 4.96 5.08 5.13

BUY BUY OVERWEIGHT OVERWEIGHT OVERWEIGHT

Source:

Mar 13

Feb 13

Jan 13

Dec 12

Nov 12

Oct 12

Sep 12

Aug 12

Jul 12

Jun 12

May 12

Apr 12

Mar 12

3.0

CBA Equities, IRESS

10



Disclosure and Disclaimer Appendix Companies Mentioned Company Name Goodman Group

GMG, AUD4.93, Overweight, AUD5.13

1. The U.S. Broker-Dealer or its affiliates beneficially own 1% or more of a class of common equity securities of GMG as of the end of the month immediately preceding the date of this research report (or as of the end of the second most recent month preceding the date of this research report, if this report is dated less than 10 calendar days after the end of the most recent month). Any such computation of beneficial ownership is based upon the methodology used to compute ownership under Section 13(d) of the Exchange Act; and 2. The U.S. Broker-Dealer or its affiliates did not make a market in the securities of GMG at the time this research report was published; This research report is provided with the understanding that Commonwealth Bank of Australia CBA, ABN 48 123 123 124, AFSL 234945 (the “Bank,” and together with its subsidiaries and affiliates, the “Group”) (“CBA”) and its affiliates are not acting in a fiduciary capacity. This research report represents the views of CBA and is subject to change without notice. The securities discussed in this research report may not be eligible for sale in all States or countries, and such securities may not be suitable for all types of investors. Offers and sales of securities discussed in this research report, and the distribution of this report, may be made only in States and countries where such securities are exempt from registration or qualification or have been so registered or qualified for offer and sale, and in accordance with applicable broker-dealer and agent/salesman registration or licensing requirements. The preparer of this research report is employed by CBA and is not registered or qualified as a research analyst, representative, or associated person under the rules of FINRA, the New York Stock Exchange, Inc., any other U.S. self-regulatory organization, or the laws, rules or regulations of any State. Analyst Certification Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research report. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing, and interpreting market information. Employees of CBA or its affiliates may serve or may have served as officers or directors of the subject company of this report. Detailed Disclaimer CBA is incorporated in Australia with limited liability. CBA is not registered as a broker-dealer under the Exchange Act and is not a member of FINRA This report is prepared, approved, and published solely by CBA. For U.S. Investors: The U.S. Broker-Dealer is a wholly owned, but non-guaranteed, subsidiary of the Bank, organized under the laws of the State of Delaware, USA, with limited liability. The U.S. Broker-Dealer is not authorized to engage in the underwriting of securities and does not make markets or otherwise engage in any trading in the securities of the subject companies described in our research reports. The U.S. Broker-Dealer is registered under the Exchange Act and is a member of FINRA. The U.S. broker-dealer is the distributor of this research report in the United States and accepts responsibility for its content. General: This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy any securities or related financial instruments. This report is for distribution only under such circumstances as may be permitted by applicable law. This report has been prepared without taking account of the objectives, financial situation or needs of any specific person who may receive this report. Any such person should, before acting on the information in this report, consider the appropriateness of the information, having regard to the specific person’s objectives, financial situation and needs and, if necessary, seek appropriate professional or financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report. CBA believes that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this report. Any opinions, conclusions or recommendations of CBA set forth in this research report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed by other business areas or groups of the Group as a result of using different assumptions and criteria. The analysis contained in this research report is based on numerous assumptions; different assumptions could result in materially different results. CBA is

11



under no obligation to update or keep current the information contained in this report. None of the entities within the Group or their directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. Any valuations, projections and forecasts contained in this report are based on the number of assumptions and estimates and are subject to contingencies and uncertainties. The inclusion of any such valuations, projections and forecasts in this report should not be regarded as a representation or warranty by or on behalf of the Group or any person or entity within the Group that such valuations, projections and forecasts or their underlying assumptions and estimates will be met or realized. Past performance is not a reliable indicator of future performance. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities, such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk. The Group may engage in transactions in a manner inconsistent with this research report. In the case of certain products, the Bank or one of its affiliates is or may be the only market maker. No inducement has been or will be received by the Group or any person or entity within the Group or the research analyst from the subject of this report or its associates to undertake the research or make the recommendation. The research staff responsible for this report receive a salary and a bonus that is dependent on a number of factors including their performance and the overall financial performance of the Group. Decisions about remuneration for research staff are not contingent on specific investment banking, corporate advisory or dealing transactions. Investment Banking does not set or determine the remuneration pool or levels for research staff. The Group provides, or seeks to provide, services to the subject of the report and its associates. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject any entity within the Group to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to entities within the Group. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior written permission of the Group or the appropriate entity within the Group.

12



Please view our website at www.research.commbank.com.au. The Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 ("the Bank") and its subsidiaries, including Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 ("CommSec"), Commonwealth Australia Securities LLC, CBA Europe Ltd and Global Markets Research, are domestic or foreign entities or business areas of the Commonwealth Bank Group of Companies (CBGOC). CBGOC and their directors, employees and representatives are referred to in this Appendix as “the Group”. This report is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy any securities or financial instruments. This report has been prepared without taking account of the objectives, financial situation and capacity to bear loss, knowledge, experience or needs of any specific person who may receive this report. No member of the Group does, or is required to, assess the appropriateness or suitability of the report for recipients who therefore do not benefit from any regulatory protections in this regard. All recipients should, before acting on the information in this report, consider the appropriateness and suitability of the information, having regard to their own objectives, financial situation and needs, and, if necessary seek the appropriate professional, foreign exchange or financial advice regarding the content of this report. We believe that the information in this report is correct and any opinions, conclusions or recommendations are reasonably held or made, based on the information available at the time of its compilation, but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this report. Any opinions, conclusions or recommendations set forth in this report are subject to change without notice and may differ or be contrary to the opinions, conclusions or recommendations expressed elsewhere by the Group. We are under no obligation to, and do not, update or keep current the information contained in this report. The Group does not accept any liability for any loss or damage arising out of the use of all or any part of this report. Any valuations, projections and forecasts contained in this report are based on a number of assumptions and estimates and are subject to contingencies and uncertainties. Different assumptions and estimates could result in materially different results. The Group does not represent or warrant that any of these valuations, projections or forecasts, or any of the underlying assumptions or estimates, will be met. Past performance is not a reliable indicator of future performance. The Group has provided, provides, or seeks to provide, investment banking, capital markets and/or other services, including financial services, to the companies described in the report and their associates. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject any entity within the Group to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to the Group. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior written permission of the appropriate entity within the Group. In the case of certain products, the Bank or one of its related bodies corporate is or may be the only market maker. The Group, its agents, associates and clients have or have had long or short positions in the securities or other financial instruments referred to herein, and may at any time make purchases and/or sales in such interests or securities as principal or agent, including selling to or buying from clients on a principal basis and may engage in transactions in a manner inconsistent with this report. European Investors: This report is published, approved and distributed in the UK by the Bank and by CBA Europe Ltd (“CBAE”). The Bank and CBAE are both registered in England (No. BR250 and 05687023 respectively) and authorised and regulated in the UK by the Financial Services Authority (“FSA”). This report does not purport to be a complete statement or summary. For the purpose of the FSA rules, this report and related services are not intended for retail customers and are not available to them. The products and services referred to in this report may put your capital at risk. Investments, persons, matters and services referred to in this report may not be regulated by the FSA. CBAE can clarify where FSA regulations apply. Singapore Investors: This report is distributed in Singapore by Commonwealth Bank of Australia, Singapore Branch (company number F03137W) and is made available only for persons who are Accredited Investors as defined in the Singapore Securities and Futures Act and the Financial Advisers Act. It has not been prepared for, and must not be distributed to or replicated in any form, to anyone who is not an Accredited Investor. Hong Kong Investors: This report was prepared, approved and published by the Bank, and distributed in Hong Kong by the Bank's Hong Kong Branch. The Hong Kong Branch is a registered institution with the Hong Kong Monetary Authority to carry out the Type 1 (Dealing in securities) and Type 4 (Advising on securities) regulated activities under the Securities and Futures Ordinance. Investors should understand the risks in investments and that prices do go up as well as down, and in some cases may even become worthless. Research report on collective investment schemes which have not been authorized by the Securities and Futures Commission is not directed to, or intended for distribution in Hong Kong. All investors: Analyst Certification and Disclaimer: Each research analyst, primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the report. The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and other constituencies for the purpose of gathering, synthesizing, and interpreting market information. Directors or employees of the Group may serve or may have served as officers or directors of the subject company of this report. The compensation of analysts who prepared this report is determined exclusively by research management and senior management (not including investment banking). Unless agreed separately, we do not charge any fees for any information provided in this presentation. You may be charged fees in relation to the financial products or other services the Bank provides, these are set out in the relevant Financial Services Guide (FSG) and relevant Product Disclosure Statements (PDS). Our employees receive a salary and do not receive any commissions or fees. However, they may be eligible for a bonus payment from us based on a number of factors relating to their overall performance during the year. These factors include the level of revenue they generate, meeting client service standards and reaching individual sales portfolio targets. Our employees may also receive benefits such as tickets to sporting and cultural events, corporate promotional merchandise and other similar benefits. If you have a complaint, the Bank’s dispute resolution process can be accessed on 132221. Unless otherwise noted, all data is sourced from Australian Bureau of Statistics material (www.abs.gov.au).

13


Equities: CBA Institutional Equities Contacts

Equities Research

Equities Research (cont)

Institutional Equities

Head of Research Management

Materials

Head of Institutional Equities

Sarah McWilliams

Chemicals Michael Ward* Rahul Badethalav

+612 9118 1139 +612 9117 1243

Construction Materials Michael Ward* Rahul Badethalav

+612 9118 1139 +612 9117 1243

Paper & Packaging Michael Ward* Rahul Badethalav

+612 9118 1139 +612 9117 1243

Commodities Lachlan Shaw Vivek Dhar

+613 9675 8618 +613 9675 6183

Diversified Resources/Steel Andrew Hines Tomas Vasquez

+613 9675 7443 +613 9675 6059

Metals & Mining/Gold Andrew Knuckey Paul Hodsman

+613 9675 6791 +613 9675 8532

+612 9118 1449

Consumer Agribusiness Jordan Rogers Food & Beverage Andrew McLennan Sam Teeger Gaming Ben Brownette Vana Makaric

+612 9118 1177 +612 9118 1199 +612 9118 1184 +612 9118 1190 +612 9118 1198

Media Alice Bennett Nathan Burley

+613 9675 7118 +613 9675 7029

Retail – Discretionary & Staples Andrew McLennan Sam Teeger

+612 9118 1199 +612 9118 1184

Energy Luke Smith Lachlan Cuskelly

+612 9118 2868 +612 9118 1981

Telecommunications Alice Bennett Nathan Burley

Financials

Jay MacGregor

+613 9675 7118 +613 9675 7029

Banks Ross Curran Jeff Cai

+612 9118 1181 +612 9118 1186

Diversified Financials Ross Curran Naveen Patney

+612 9118 1181 +612 9118 6391

Insurance Ross Curran Naveen Patney

+612 9118 1181 +612 9118 6391

Quantitative Research & Database

Property David Lloyd James Druce

+612 9118 1192 +612 9118 1193

Supervisory Analyst

Healthcare Bruce Du

+613 9675 6244

Industrials and Utilities Developers & Contractors Ben Brownette Vana Makaric

+612 9118 1190 +612 9118 1198

Transport/Infrastructure Matt Crowe Andre Fromyhr

+612 9118 1189 +612 9118 1188

Utilities Will Allott Matt Crowe

+612 9916 0946 +612 9118 1189

For email: first [email protected] * Except:

Michael Ward – [email protected] Michael Robson - [email protected] Nick Tuffley – [email protected] Jane Turner – [email protected] Christina Leung – [email protected]

Emerging Companies Nick Maclean Jordan Rogers Naveen Patney

+613 9675 7972 +612 9118 1177 +612 9118 6391

Economics Michael Blythe Nizar Torlakovic Sidney Chow

+612 9118 1101 +612 9118 1178 +612 9118 1200

Equity Distribution Equity Research Sales Rodney Walker (Head of Sales) Angus Esslemont Christine Leonard Chad Mikhael (Emerging Companies) James Barratt (Specialist Sales) Rod Hardwick Sarah Beeby Boyd Carter (Melbourne) Melissa George (Desk Manager) Corporate Access Marisa Zammit Amanda Chamberlin Mags Ni Mhaonaigh Client Execution Services Andrew Tyrrell Paul Welsh Rod Ellis Alex Stanford Matt Bromfield Steven Sassine Anthony Brownlow (Electronic Trading) Nicolas Thompson (Melbourne) Visakha Mayo Michael Robson* Asian Sales Toll Free (HK) Toll Free (Sing) Fax (Melbourne)

+612 9117 7888 +612 9118 1471 +612 9118 1442 +612 9118 1210 +612 9117 0109 +612 9118 1444 +612 9118 1018 +613 9675 6815 +612 9118 1446 +612 9303 1120 +612 9118 1443 +612 9118 1448 +612 9117 0102 +612 9117 0101 +612 9117 0105 +612 9117 0106 +612 9118 1455 +612 9117 0108 +612 9118 1463 +613 9675 6618 +612 9117 7035 +64 9301 5686 +800 901 636 +800 616 1949 +613 9675 7622


Joe Pardea

+612 9118 6388

Publishing

+612 9118 1183

Fax (Sydney) Fax (Melbourne)

+612 9118 1000 +613 9675 7622

CommSec Retail Craig James Savanth Sebastian

+612 9118 1204

+612 9118 1806 +612 9118 1805

Commodities Luke Mathews Lachlan Shaw Foreign Exchange Richard Grace Joseph Capurso Peter Dragicevich Andy Ji Chris Tennent-Brown Martin McMahon Fixed Income Adam Donaldson Philip Brown Steve Shoobert Tariq Chotani Tally Dewan Kevin Ward Alex Stanley Economics Michael Blythe Michael Workman John Peters Gareth Aird Diana Mousina Nick Tuffley* Jane Turner* Christina Leung* Fax (Sydney)

+612 9118 1098 +613 9675 8618 +612 9117 0080 +612 9118 1106 +612 9118 1107 +65 6349 7056 +612 9117 1378 +44 20 7710 3918 +612 9118 1095 +612 9118 1090 +612 9118 1096 +612 9280 8058 +612 9118 1105 +612 9118 1960 +612 9118 1125 +612 9118 1101 +612 9118 1019 +612 9117 0112 +612 9118 1100 +612 9118 6394 +64 9374 8604 +64 9374 8185 +64 9369 4421 +612 9118 1010

14