Why the Goodman Group is my preferred REIT for growth

Here's why I think Goodman Group (ASX: GMG) can continue to outperform ASX REITs

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Goodman Group (ASX: GMG) is a global property group with ownership and developments in industrial real estate in 17 countries including logistics and industrial facilities, warehouses and business parks. The company focuses on high-quality properties in key locations to deliver sustainable returns for investors.

Goodman has been a standout performer in the REIT space. It has typically delivered better returns than retail-orientated REITs such as the Scentre Group (ASX: SCG) and Vicinity Centres (ASX: VCX) and other diversified REITs such as GPT Group (ASX: GPT) and Dexus Property Group (ASX: DXS).

I believe Goodman will continue to be a standout performer, driven by its focus on high-quality properties.

Industrial headwinds

There has been a strong land take up in highly desirable industrial areas as supply chain efficiency becomes increasingly important. Choosing a location that best suits occupiers' requirements is key to reducing supply chain expenses. This demonstrates the importance of locating an industrial and logistics asset in an optimum location with good access to suppliers and customers.

For example, land in Melbourne and Sydney that is located in close proximity to ports and the city centre is becoming increasingly scarce with multiple competing uses including residential and large format retail development.  

Goodman operates some 3.3 million sqm of properties that focus on areas of competing demand from e-commerce, data centres and urban renewal products to put pressure on land use. This is reflected in its strong occupancy rate of 98% and like-for-like net property income growth of 3.3%.

Goodman Group's Q1 update

Goodman provided a Q1 FY20 operational update that highlighted its strong performance as it continues to deploy capital through development in key urban locations. The update reaffirmed its FY20 forecast operating earnings per security of 56.3 cents, up 9% on FY19.

Greg Goodman, Group CEO has said that "structural changes continue to positively impact the industrial property sector" and that the focus of many customers was to "create more efficient logistics networks". The company anticipates that these structural trends should continue to attract capital investment to the sector, and the underlying strength of the asset class in its locations is likely to drive capital values, strong rental growth and high occupancy.

Trading dividends for growth 

Goodman pay a 2.1% dividend yield while its REIT peers typically pay at least 4% or more. While its yield is lower, its growth and industrial orientated portfolio has allowed investors to enjoy significantly higher capital gains. Goodman returned more than 25% in 2019 compared to peers such as Dexus, GPT, and Scentre Group that returned 10%, 6% and -2% respectively. 

Foolish Takeaway

Goodman Group is strongly positioned to capitalise on the industrial property sector that is expected to grow more strongly than office, residential and retail orientated properties.

The company is expected to grow its EPS by 9% on FY19 which is typically a higher growth rate than its peers. A lower interest rate could further boost the Goodman Group share price and the price of those that are classified as bond proxies and REITs.

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on REITs

Group of successful real estate agents standing in building and looking at tablet.
Dividend Investing

1 ASX dividend stock down 25% to buy right now

I think this income business is a compelling buy right now.

Read more »

a cute jack russell dog closes its eyes and yawns as if waking up from a long sleep underneath a doona cover next to a pair of feet with an old-fashioned alarm clock nearby.
REITs

Get paid like clockwork with this 6% Australian dividend stock

Investors can harvest good cash flow with this stock.

Read more »

a man with hands in pockets and a serious look on his face stares out of an office window onto a landscape of highrise office buildings in an urban landscape
REITs

Is it time to grab these cheap ASX 300 stocks before it's too late?

Here’s why these ASX shares seem very cheap in my view.

Read more »

Group of successful real estate agents standing in building and looking at tablet.
Opinions

Should ASX REITs be on your buy list right now?

Analysts offer their views.

Read more »

An older couple dance in their living room as they enjoy their retirement funded by ASX dividends
REITs

Why I think this could be the #1 ASX property stock for retirement

I believe this stock is offering everything that retirees could want.

Read more »

Boys making faces and flexing.
REITs

These 3 ASX index-beaters are setting new records today (I'd still buy)

I think these stocks still have plenty of growth potential.

Read more »

A business woman flexes her muscles overlooking a city scape below.
REITs

Why ASX property shares could be set for a comeback

The recovery could be strong, too, according to one global investment giant.

Read more »

An Australian farmer wearing a beaten-up akubra hat and work shirt leans on a fence with livestock in the background and a blue sky above.
REITs

Why I'm more bullish than ever on this ASX 300 dividend stock

This is a leading passive income share, in my opinion.

Read more »