Global Logistic Properties - CIMB Research 2016-11-08: More optimistic outlook

GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties - More optimistic outlook

2Q/1HFY17 results as expected, growth led by higher China, US and fee income.
Improved portfolio occupancy supported by higher tenant retention and rent growth.
China leasing improves, on track to meet FY17 development targets.
US continues to shine with strong rental growth and robust occupancy.

2QFY17 revenue came in at US$213.7m, +12.9% yoy while PATMI grew 52% yoy to US$173m. Excluding revaluations, core earnings of US$68m (+53% yoy, flat qoq), was underpinned by better China and US contributions, increased fee income and 13% appreciation of the ¥/USD.
Fee income was up 25% yoy to US$47m on management and development fees.
2Q/1HFY17 core profit of US$68m/US$137m, largely in line at 26%/51% of our full year estimates.

The group renewed/leased 3.3m sq m of space in 2Q with a higher 73% tenant retention rate and improved portfolio occupancy by 1% pt to 92%. Same-store NOI growth was 7.5%. In 2Q, GLP completed US$428m worth of developments and commenced US$459m of new starts, largely in China.
With 42%/46% of its FY17 planned development starts and completions of US$2.1bn/US$1.5bn met to date, it is looking to maintain this target for now.

1.92m sq m of leases were signed in China in 2Q. Retention ratio ticked up to 68% (vs. 62% in 1Q) and occupancy rose to 87%. The improvement was felt in both T1 and T2 cities.
On average, renewal rent growth was 6.3%. Demand came from e-commerce, organised retail and autoparts sectors.
As at 2Q, GLP has met 30% of its development completion target for China and is on track to meet its FY17 objective.
Sentiment appears to have improved with moderated new incoming supply and healthy demand.

Japan remained steady with 0.24m sq m on new/renewal leases signed at an average 4.5% higher reversions. Portfolio lease ratio continues to be high at 98%. At US$268m, GLP has exceeded its completion target for FY17 and booked in higher development profit of US$9m in 2Q.

US continued to be the star performer with 1m sq m of leases signed at an average 19.6% rental uplift. Portfolio occupancy held steady at 94% while cap rates remained unchanged, there was a small revaluation gain on the improved portfolio performance.
Brazil saw a 9.2% negative rental reversion for the 0.16 sq m of leases re-contracted. The portfolio experienced a 25bp cap rate compression in 2Q and management guided that more compression can be expected.

Balance sheet is healthy with a look through leverage ratio of 27% and gross cash balance of US$1.8bn. In addition, potential to recycle capital will further deepen funding headroom, providing it with large capacity for development activities, in view of its huge 12.8m sq m land reserve in China, and ability to evaluate potential new acquisitions.

We tweak our FY17-19 estimates for the latest results and leave our RNAV-backed target price unchanged at S$2.73.
We believe GLP will continue to create value as the market leader in China with a vast landbank as well as by expanding its fund management platform.
Key catalyst would be improving rental outlook. Risk to our call is a slower than expected China market.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-11-08

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