Global Logistic Properties Limited - Phillip Securities 2017-05-23: Focus On Revitalising Existing Portfolio

Global Logistic Properties Limited - Phillip Securities 2017-05-23: Focus On Revitalising Existing Portfolio GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties Limited - Focus On Revitalising Existing Portfolio

  • Global Logistic Properties (GLP) FY17’s PATMI exceed our full-year FY17 forecast by 9.1% amid higher revaluations from Japan, US and Brazil properties.
  • Development starts and completion targets in FY18 unchanged from a year ago as key markets face near term supply challenges.
  • Management to focus on revitalising current portfolio amid declining lease ratio and rents.
  • Cards are still on the table to look beyond existing core markets for growth.



Maintaining development start and completion targets in FY18 as key markets face near term supply challenges 

  • Management is intending to maintain development starts and completion targets at US$2.2 billion and US$1.7 billion respectively. These amounts are largely unchanged from FY17 actual development starts and completion of US$2.2 billion and US$1.6 billion respectively. 
  • The value of development starts and completion are derived mainly from China and Japan markets as they remain as GLP’s key markets (83% of net assets as at 4Q17). We are expecting near term challenges in both China and Japan amid a growing supply of warehouse and logistics properties. 
  • Consequently, we are of the view that development profit in FY18 is unlikely to keep up, and projected to decline 13% YoY to US$233 million (FY17: US$266 million) based on a long term development margin of 25% (FY17: 28%).


Management to focus on revitalising current portfolio amid declining lease ratio and rents 

  • GLP’s China portfolio performance weakened as lease ratio dipped 2 ppts to 85% while effective rent has dipped 1.8% QoQ to RMB1.04/SQM/day as certain markets in China continue to face rising vacancy rates which has been exerting pressure on rent. 
  • Management mentioned that they will be focused on boosting portfolio performance in occupancy and rental rates moving forward. 
  • While we are optimistic that vacancy rates could improve as 4Q17’s occupancy took a hit from a significant amount of space that required stabilisation, rents could continue to face pressure in the next few quarters as effective rent growth on renewal continues to dip (4Q17: 4% QoQ, 3Q17: 5.3% QoQ) despite more favourable market conditions.


Balance sheet ready for acquisition following the syndication of USIPIII by 2H18 

  • GLP has syndicated its stake in GLP US Income Partners III (USIPIII) from 100% to 49.9% as at 31 March 2017, and is expected to further syndicate its stake to 9.7% by 2H18. Post-transaction, the Group’s cash position is expected to grow to US$1.3 billion where net gearing ratio is expected to drop to 17.7% (4Q17: 19.2%), giving it plenty of room to pursue acquisitions. GLP targets a net gearing ratio of 40%.
  • Given the favourable and growing dynamics of logistics properties in European markets, we view that the management could look beyond its current key markets for growth opportunities.


Investment Actions 

  • The Group is likely to face some near-term headwinds in the key markets of China and Japan amid a near term oversupply condition. However, given its exposure to the strong markets (Tier-1 and 1.5 cities) in China backed by a strong balance sheet to pursue growth, we opine that the impact is unlikely to be significant. 
  • We maintained our “Neutral” call with an upgraded TP of S$2.87, following the payback of capital securities which has boosted the Group’s net debt position.




Peter Ng Phillip Securities | http://www.poems.com.sg/ 2017-05-23
Phillip Securities SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 2.87 up 2.600



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