Global Logistic Properties - Moving towards an asset light model
- Improving demand in China, Japan and US continue to deliver robust results.
- Strong balance sheet and ability to recycle capital will underpin future earnings growth.
- Maintain Add with a RNAV-based target price of S$2.73.
Strong market positioning across entire geographic footprint
- GLP is a fund manager, developer and owner-operator of modern logistics facilities, with a global portfolio of 53m sqm spanning across China, the US, Japan and Brazil.
- In terms of market share, it holds pole positions in China, Japan and Brazil and ranks second in the US.
- It also manages a US$38bn fund management platform that provides the group with a strong fee income base.
Improving performance in China
- China makes up 56% of group NAV. Demand for logistics space remains fairly robust with higher occupancy and tenant retention ratio on the back of demand from the ecommerce, organised retail and auto-parts sectors. Rental growth was a positive 6.3% in 2QFY17. Supply outlook remains constrained as incremental supply is expected to grow at a 5% CAGR over the next 2 years.
- GLP’s portfolio is located in strategic locations, such as the strong sub-markets of Beijing, Shanghai and Suzhou.
Japan and US continue to perform well
- Japan and US are the other key markets for the group, making up 27% and 7% of NAV, respectively. Japan continues to deliver steady rental income with occupancy remaining at a high 98%.
- An additional boost came from development profits as it exceeded its FY17 completion target. In the US, it enjoyed robust rental uplift of 19.6% in 2QFY17 thanks to strong leasing appetite.
Solid balance sheet with a diversified capital base
- Its balance sheet is healthy, with a look-through leverage ratio of 27% and gross cash balance of US$1.8bn as at 2QFY17.
- Also, it has the potential to recycle capital with a deep funding headroom, providing it with a large capacity for development activities, in view of its large land reserve of 12.8m sqm in China.
Asset monetisation and capital recycling
- We believe GLP will continue to create value within its development and fund management platforms. As the group moves towards a more asset-light model, monetising these assets will enable them to lock in value from its real estate portfolio.
- Since FY12-2QFY17, it has monetised US$6.9bn of assets and generated cash profits of US$1.8bn i.e. an average 26% return. In addition, about 67% of GLP’s assets are managed in funds and this is expected to increase over time.
- We continue to like GLP for its leadership positions across its key markets and vast China landbank/reserves that will extend earnings visibility. As the group moves towards an asset-light model, we expect ROEs to improve over time.
- Maintain Add with an unchanged TP of S$2.73, pegged at parity to RNAV.