Changes to Distribution Policy
We have considered our long-term cash flows and the most efficient sources of capital to finance the needs of our business and have undertaken an external review of the Group’s distribution policy. Following this process, the Group has updated its distribution policy with the effect that the distribution payout ratio will reduce to 75% of operating income from the 2008/09 financial year to provide a sustainable long-term capital management plan.
There are a number of expected benefits associated with the change in distribution policy: - generation of significant free cash flow in the 2008/09 financial year providing additional capacity to self fund co-investment in Goodman's funds and maintenance capital expenditure;
- capital market funding sourced for discrete transactions, rather than for working capital requirements;
- enhanced key performance indicators, including earnings per share (EPS), cash flow from operations and Net Asset Value, and in turn total Securityholder returns; and
- it places the Group in a strong position relative to its Australian peers and on par with global peers who have access to cash flow from retained earnings.
The Group will conduct regular reviews to consider opportunities to provide special distributions and/or capital returns when appropriate.
The distribution policy has also been amended to bring the frequency of distributions into line with the majority of Goodman’s property industry peers and corporate Australia by adopting a six-monthly distribution payment from the 2008/09 financial year. The distributions will be declared for the six months ending 31 December and 30 June and will be paid in February and August respectively.
Questions and answers
Why are you reducing the distribution payout ratio?
How will Securityholders benefit from this change?
Will the payout ratio stay at this level in future years?
Is this as a result of the security price?
Is this change a reflection of the underlying business?
Why is the distribution payment frequency changing from quarterly to six monthly?
When will my distribution be paid?
Q. Why are you reducing the distribution payout ratio?
A. The Board and management of Goodman have considered the Group’s long-term cash flows needs and most efficient sources of capital to finance the needs of the business. An external review of the Group’s distribution policy was undertaken and following this process, the Group has updated this policy. Effectively, the distribution payout ratio will reduce to 75% of operating income from the 2008/09 financial year to provide a sustainable long-term capital management plan. We believe it will also enhance long-term growth prospects.
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Q. How will Securityholders benefit from this change?
A. It will generate significant free cash flow for Goodman in the 2008/09 financial year, and provide additional capacity to continue making cornerstone investments in Goodman's funds and maintenance capital expenditure. It also is expected to improve the Group's long-term earnings per security growth target.
The change provides the Group with scope to conduct regular reviews to consider opportunities to provide special distributions and/or capital returns when appropriate.
It also places the Group in a strong position relative to its Australian peers and on par with global peers who have access to cash flow from retained earnings.
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Q. Will the payout ratio stay at this level in future years?
A. The Group’s updated policy is to payout 75% of operating profits to ensure long term sustainable growth.
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Q. Is this as a result of the security price?
A. No. This change was implemented after consideration of the Group’s long-term cash flows needs and most efficient sources of capital to finance the requirements of the business.
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Q. Is this change a reflection of the underlying business?
A. No. We have delivered a strong result for the year ended 30 June 2008 and earnings per security growth for 2009 is expected to continue.
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Q. Why is the distribution payment frequency changing from quarterly to six-monthly?
A. By adopting a six-monthly distribution payment, the frequency of distributions will be brought into line with the majority of Goodman’s property industry peers and corporate Australia. It also reduces administrative costs and has a positive environmental impact.
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Q. When will my distributions be paid?
A. The distributions will be declared for the six months ending 31 December and 30 June and will be paid in February and August respectively.
The next distribution will be declared for the six months ending 31 December 2008.
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For further information on Distribution and Tax please click here .