Goodman Group shines among Australian property firms on data-centre push

Goodman

29/12/2024 23:15

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      Data centres attract major investment on AI demand
    

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      Up nearly 46%; top gainer in the real-estate sector
    

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      Stock on track for biggest annual gain since 2006
    

  
    By Aaditya GovindRao and Roushni Nair
       Dec 30 (Reuters) - Goodman Group's  GMG.AX  stock has
been on a hot streak this year, shining bright among its
Australian real-estate peers as the artificial intelligence boom
has driven a frenzied demand for data centres.
    Global "hyperscalers", or large-scale cloud service
providers, such as Amazon  AMZN.O , Microsoft  MSFT.O  and Meta
 META.O , have been spending billions on data centres to cater
to growing demand for AI services.
    Australia's data-centre market, though nascent, saw outsized
investment this year with Blackstone  BX.N  buying AirTrunk for
A$24 billion ($14.91 billion) in September and developer NEXTDC
 NXT.AX  raising nearly A$4.6 billion in equity and debt.
    Goodman, the country's biggest property developer, counts
the world's largest hyperscalers as its customers, its website
says, but the company did not confirm the identities of its
customers in response to Reuters. 
    Its inventory, however, reflects the heightened demand for
these specialized facilities, with data centres under
construction making up 42% of its A$12.8 billion ($7.96 billion)
portfolio of projects under development at the end of September,
up from 37% at the end of last year.
    This has sent its stock flying 45.8% higher this year,
positioning Goodman for its best performance since 2006. It is
also the Australian real estate index's  .AXRE  top performer.
    Higher exposure to data centres in development makes the
market more comfortable paying a higher multiple for the
business, said John Lockton, head of investment strategy at
Sandstone Insights.
    "Investments into data centres continue to see momentum ...
We expect this environment to continue to support Goodman –
CAPEX outlook for hyperscalers implies ongoing growth for FY25."
    The consensus is split on whether Goodman's stock rise can
continue. Some factions of the market highlighted that investor
interest in data-centre-focused stocks has begun to cool as
valuations get rich.
    They drew caution from landlord DigiCo Infrastructure REIT's
 DGT.AX  initial public offering this month, where it raised A$2
billion, but the stock fell 9% on debut.
   "We think Goodman's securities are expensive at current
prices ... we are more cautious about assuming maintainable
excess returns from DC investment in the longer term," said
Winky Yingqi Tan, a Morningstar analyst focused on REITs.
    Tan also flagged risks of data-centre obsolescence leading
to capital-intensive upgrades, and rivals adding more supply, as
factors that could erode Goodman's returns over time.
    Lockton, however, remains upbeat on Goodman's prospects. He
lauds its existing pipeline, and access to land with power
supply that can be converted to data centres, which rivals have
flagged as difficult to obtain.
    

($1 = 1.6093 Australian dollars)

 (Reporting by Aaditya Govind Rao and Roushni Nair in Bengaluru;
Editing by Rushil Dutta and Rod Nickel)
 ((Aaditya.GovindRao@thomsonreuters.com;))