Goodman Group's resurrection

In the conference call accompanying Goodman Group's half-year results, chief executive Greg Goodman was asked to name the one risk that keeps him up at night.

'Leverage is the biggest risk around for property groups globally,' he said, also adding, 'I think we have got that under control. So I sleep very well'.

And we'd reckon that Goodman knows a thing or two about sleepless nights: the long-time CEO was also at the helm during March 2009 when the stock fell to just 78 cents as doubts surfaced about the company's ability to pay its debts.

Deleveraging

The Goodman of today, however, shows few signs of its troubled past. In fact, it seems to be going out of its way to make sure that such a situation never happens again even if the result is lower growth in the short term.

The group's gearing (net debt as a proportion of total assets less cash) has been in steady decline since it peaked in 2009 and now stands at 16%. Management expects this trend to continue with total gearing eventually falling below 10%.

The main cause of this decline is the company's focus on using asset sales to fund its development activity rather than using debt. Goodman has sold around $3bn of assets in the past two years, including $1.3bn in the first half of 2016.

It is not just lower debt that has led to the reduction in gearing levels. The company's cash holdings totaled $850 million at 31 December 2015, representing 7% of total assets. This is much higher than many other property trusts, with Stockland for example only holding 2% of its assets in cash at the same time. The company admits that if it was more aggressive with the use of its cash, earnings per share might have grown by 2% more during the period but total gearing would have increased by around 8%.

Global Expansion

Debt isn't the only way the company has changed: Goodman has also become much more geographically diversified.

In the six months to 31 December 2015, 63% of the company's operating profit came from outside Australia, compared to 47% in the year to 30 June 2010. The biggest mover has been the Asia-Pacific region, which now contributes 27% but was lumped in with 'other regions' back in 2010.

Goodman expects to increase its offshore earnings further and currently has $3.4 billion of development activity in progress in eleven countries.

Further adding to the geographical diversity, the company recently acquired 100% of its Brazillian operation after negotiating a split with joint venture partner WTorre. Goodman will now own 100% of the management platform as well as owning three properties located in Rio de Janeiro, Sao Paulo and Betim.

E-commerce

One big tailwind for the company has been the growth in e-commerce across the world. Companies, particularly retailers, are investing heavily in their supply chains to reduce the time it takes to get a product from warehouse to customer.

In fact, three of Goodman's largest five customers are retailers, with Amazon, Zalando and Decathlon only being beaten by logistics players Japan Post (Toll) and DHL.

Goodman's growing footprint in China should help. In 2015, Chinese consumers spent the equivalent of $650 billion through online retailers. This is expected to increase to over $1 trillion by 2020.

Outlook

The ghosts of Goodman's past have been well and truly vanquished and the company is in a position to take advantage of some strong macro trends such as the rise of online retailing and the growth of consumerism in places such as China.

It good to see, though, that the company continues to be very selective about the opportunities it takes. The company's main focus is to improve the quality of its global property portfolio and underlying income streams whilst reducing debt in a period it considers 'low-growth'.

Unfortunately, we're not the only ones to have spotted the improvement and the unfranked dividend yield of 3.5% allows no margin of safety. SELL