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Proposed Moorabbin Airport Acquisition

The Independent Directors of Goodman Group today announced the proposed strategic acquisition of Moorabbin Airport and business park in Victoria (the “Property” or the “Site”) for $201.5 million from Goodman Holdings. Transaction overview: + Substantial 294 hectare airport and business park in Melbourne’s inner south east, being a Masterplan approved site from the Commonwealth Government + 100% occupied income producing investments (including aviation activities) and proven development land allowing for the flexible needs of existing and future customers + Strategic opportunity for Goodman Group to further expand its existing activities on the Property, which commenced in 1999 with Chifley Business Park + Purchase price of $201.5 million supported by an independent valuation by CBRE + Funded via an issue of ordinary equity of $146.52 million (225.4 million2 securities at an issue price of 65.0 cps), $35.0 million of vendor finance and $20.0 million2 cash to fund working capital + Long-term alignment of Goodman Group CEO reinforced via: - Equity escrowed for periods of 2 and 5 years - $35.0 million vendor finance payable 3 years after settlement + Transaction is accretive to NTA and provides EPS on the issue of each new ordinary Security issued at the upper end of broker consensus3 for FY11 + Subject to review by an independent expert, Securityholder approval and Government and regulatory approvals 1. Goodman Holdings is a Goodman family owned entity. Goodman Holdings is the majority owner of Moorabbin Airport and business park and will procure the sale of the minority interests within the total consideration. 2 Subject to minor changes in working capital to be verified prior to issue of Notice of Meeting. 3 Broker consensus is between 5.2 and 5.5 cents on a fully diluted basis, adjusting for the CIC hybrid securities and options. Subject to an independent expert confirming the transaction is fair and reasonable to Goodman Group Securityholders, the Independent Directors of Goodman Group propose to unanimously support the transaction. Under the proposed acquisition, the Property is to be acquired from Goodman Holdings through the 100% acquisition of the holding entities of Moorabbin Airport Corporation Pty Ltd (“MAC”). The acquisition structure allows the Group to manage and capitalise on opportunities across the entire Site. Goodman Group Chairman, Ian Ferrier, said: “The proposed acquisition provides Goodman Group the opportunity to apply its fully integrated business model to maximise value as it conducts the next stage of development at the Property, where Goodman Group has been directly involved since 1999. The ability for Goodman Group to fund the acquisition via escrowed Securities and vendor finance reinforces the long-term alignment between the Group CEO and Goodman Group”. The proposed transaction has been subject to the following stringent governance measures: + Reviewed and recommended by a sub-committee of the Goodman Group Board, comprised of Independent Directors; + Engagement of CB Richard Ellis to conduct an independent valuation of the Property, which the parties had regard to when negotiating the proposed transaction, + Appointment of Deloitte Corporate Finance to provide an independent expert’s report on whether the proposal is fair and reasonable to Goodman Group Securityholders. Furthermore, the proposed transaction will be subject to Goodman Group Securityholder approval at a Securityholder Meeting. The Property The Property is a strategic asset located in the established inner South Eastern Melbourne suburb of Moorabbin. It has a total land area of 294 hectares, made up of 123 hectares of prime business park space and the Moorabbin Airport. Goodman Group has had an active interest in Chifley Business Park, which forms part of the Property, since 1999. It originally undertook the development of Chifley Business Park and subsequently sold its interest to the Goodman Australia Industrial Fund. Chifley Business Park is a 37 hectare estate located within the Property, with a current total investment value of $106 million. To date 50 hectares of prime industrial and retail space has been developed on the Site and this proposal offers the opportunity to conduct further development in a proven location. Key aspects of the Property under the proposed acquisition are: + Total land area of 294 hectares as determined by the latest Masterplan approved in July 2010 for five years; + $91.6 million of income producing investments across 50 hectares; - 100% occupancy; - weighted average capitalisation rate of 7.8%; - weighted average lease expiry of 20.2 years; + $87.8 million of proven development land across 73 hectares with a range of Masterplan approved usage options; - This equates to a land rate of $120 per square metre; - Terms agreed with a blue chip customer on 5 hectares of development land; + $22.1 million of aviation activities across 171 hectares; - It is proposed that a subsidiary of Goodman Holdings will be retained by Goodman Group for the operation of the aviation component and will make payments of $1.7 million per annum escalating at 3% per annum - Main airport activities relate to charter flights, flight training and aircraft maintenance; + A 994 year leasehold interest (87 years remaining) from the Commonwealth Government to be planned and developed in accordance with the head lease over the Property and the Airports Act 1996 and associated Regulations. Goodman Group’s Chief Operating Officer, Anthony Rozic said: “The proposed acquisition of the Property is directly in line with Goodman Group’s Melbourne business strategy to own, develop and manage business space in prime locations. The Site is currently occupied by major customers including Coca Cola, Visy, CASA, Oxford Aviation and DFO. The proposed acquisition provides immediate investment income and a proven investment in the land constrained market of inner south east Melbourne which would not be possible to replicate. Further, we look forward to working with all levels of Government and, recognise the importance of Moorabbin Airport as a valuable asset in the economic and transport infrastructure of Victoria. We are also committed to working closely with the local community to ensure that all of the activities contribute to job creation and economic activity in the area”. The Independent Directors, in their assessment of the acquisition, have determined that the Property is of strategic importance and consistent with the Group’s strategy in this region. Airport Operations and Management Agreement Goodman Group is committed to Moorabbin Airport and all of its key objectives under the Masterplan. This includes the sustainable and responsible protection of airspace, safety zone and airfield requirements and ensuring that it remains a vital piece of aviation infrastructure, in line with the Government’s stated objectives. In order to ensure a seamless transition of the Airport, it is proposed that Goodman Holdings, the Operator of the Moorabbin Airport since 1998, is retained under a separate Airport Management Agreement (“AMA”). Air Services Australia (“ASA”) and the Civil Aviation Safety Authority (“CASA”) are the government agencies responsible for air traffic management and safety roles. The AMA is subject to regulatory approvals and it is proposed that Goodman Holdings, as an experienced and committed operator of the Airport, will assume all responsibilities for the aviation activities relating to Moorabbin Airport. Key terms of the AMA include: + Appointment of Goodman Holdings as Operator for a term of 10 years; 4 The head lease has an initial term of 50 years (38 years remaining) with an extension for a further 49 years at the option of the lessee. + Goodman Holdings to make payments of $1.7 million per annum to Goodman Group in exchange for entitlement to all aviation revenues and responsible for all aviation expenses; + Goodman Group to hold step in rights in relation to the Operation of the Airport, + Goodman Holdings to indemnify Goodman Group against any claims related to the aviation activities. Funding and financial impact The proposed acquisition is to be funded via: + $146.5 million2 through the issue of 225.4 million2 Goodman Group securities at an issue price of 65.0 cents. One third of Securities are to be escrowed for 2 years and two thirds are to be escrowed for 5 years. + $35.0 million vendor finance payable 3 years after settlement, paying a coupon of 6% per annum; + $20.0 million2 cash to fund working capital of the entities to be acquired. The impact of the proposed acquisition on Goodman Group is summarised as follows: + Provides EPS on the issue of each new ordinary Security issued at the upper end of broker consensus3 for FY11; + Accretive to NTA, increasing 31 December 2009 pro forma NTA by 0.3 cents per security; + No material impact to gearing or liquidity. The Group will announce its annual results on 19 August 2010. As at the date of this announcement, the Board reaffirms its previous guidance of adjusted fully diluted EPS of 5.2 cents. Conditions A Letter of Intent has been executed by Goodman Group and Goodman Holdings setting out the commercial terms. Such terms will become binding when legally binding full form contracts are executed. Under the Letter of Intent both parties will work together to document and complete the transaction subject to the following conditions: + Deloitte concluding that the acquisition is fair and reasonable to Goodman Group Securityholders; + Goodman Group Securityholder approval at a Securityholder meeting; + No material adverse change occurring in MAC and its aviation operations; + Receipt of relevant Government and regulatory approvals. Final timing of the acquisition is subject to completion of legal documentation, regulatory and tax approvals and approval by Goodman Group Securityholders. Full details regarding the acquisition, Independent Expert’s Report, timetable and details of the Securityholder Meeting will be outlined in the Notice of Meeting. UBS has been retained as financial advisor and Allens Arthur Robinson and Minter Ellison as legal advisors to Goodman Group. Goodman Holdings has appointed its own separate advisors and each party is responsible for its own costs. Board renewal The Board has been notified by Patrick Goodman that he intends to resign at this year’s Annual General Meeting (AGM) in November. The Board would like to express its thanks to Patrick for his commitment and contribution to Goodman Group over the past 12 years. Patrick Goodman said “Goodman Holdings remains committed to the business and this is demonstrated through the proposed Moorabbin asset for equity swap. However, it is now the right time to ensure that the Board is reinvigorated during a period of positive strategic changes. After 12 years as a Director of Goodman Group, I will leave being proud of my association with the Group and in the assurance that new talent will help to continue the development of the business”. The Board has been reviewing its renewal process and intends to appoint up to two new Independent Directors.