Global Logistic Properties - Improving performance
- 3Q/9MFY17 results were largely in line, with yoy core earnings growth coming from better rental uplift and organic portfolio expansion.
- There was sustained leasing momentum in China in 3Q.
- Japan and the US enjoys high occupancy, with positive rental uplift.
- Management stated that strategic review of business is underway, although no deadline has been indicated.
- Downgrade from Add to Hold, with a slightly higher TP of S$2.79.
3QFY17 results highlights
- GLP’s 3QFY17 results were within expectations, with revenue up 17% yoy to US$232.5m from improved performance across the board and higher fee income. Net profit of US$170.7m was -7.3% yoy, dragged by a S$53m forex loss and absence of one-off US fund syndication fee (in 3QFY16), partly offset by higher revaluation gains.
- Excluding these exceptional items, core net profit would have been US$78m, +7% yoy.
- As for 9M, core net profit came in at US$215m, making up 77% of our FY17 forecast.
China occupancy stable at 87%, with positive renewal uplift
- In terms of operations, GLP renewed/leased 3.3m sq m of space in 3Q, with average rental uplift of 6.8% and retention ratio of 73%.
- China portfolio occupancy was stable at 87%, while rents rose 5.3% from renewal with demand from the organised retail, auto parts and cold storage sectors.
- As at end-3QFY17, GLP has met 71% of its FY17 development starts target and 58% of its completions target. The group is also looking at establishing a wholesale income fund for its completed properties in China in 2017.
Japan and the US continues to perform well
- GLP’s operations in Japan remained steady, with occupancy of 97% and effective rental renewal growth of 6.6%. The group has exceeded its completion targets for FY17F and recently secured a strategic land site to build GLP Sagamihara (US$1.1bn, 655,000sq m GFA). The first phase of construction is scheduled to start in 2020.
- In the US, rent reversion continues to be strong, with a 14.4% uplift from renewal for 1m sq m of space in 3Q and sustained high occupancy level of 94%.
Strategic review of business is underway
- GLP is undertaking an independent strategic review of options for its business and has received various non-binding proposals from a number of parties. The Special Committee will be evaluating these proposals with the objective of enhancing shareholder value.
- Management indicated there is no deadline for this exercise.
Downgrade to Hold due to valuation
- We lift FY17F EPS by 12% to factor in latest results. Our RNAV-based TP is raised slightly to S$2.79, as we update GLP J-REIT’s latest share price and refresh our US$/S$ exchange rate assumption.
- After the recent share price hike, GLP is now trading at 1x P/BV and close to our TP. Hence, we downgrade to Hold.
- We still like GLP for its leadership position in the modern logistics warehouse space and fund management business but think that its near-term share price performance will be affected by the strategic review outcome.
- Risk to our call include a slower China market.