DBS Vickers 2015-08-03: Global Logistic Properties - 1Q16 Results. Slowing development starts. Maintain BUY.

Slowing development starts 

  • 1Q16 results in line with our estimates but below consensus. 
  • Slower development starts in FY16 in China; medium term outlook intact. 
  • Maintain BUY, TP revised to S$3.00. 


1Q16 results in line with our estimates but below consensus. 

  • GLP reported a 49% rise in PATMI on top of a 65% rise in EBIT to US$268m and US$450m respectively. 
  • The better performance was on the back of higher asset values, development gains and higher fee income (+16% to US$36m). 
  • Stripping out revaluation gains, earnings would have dipped 7% to US$57m. GLP’s capital structure remains conservative with gearing ratio of 21%, with 75% of its debt fixed at an average weighted interest cost of 2.8%. 
  • Looking ahead, with expectations of the closing of the acquisition of the US logistics portfolio for US$4.55bn, gearing is expected to rise to c. 30% before settling down towards current levels after GLP reduces its stake in Apr-16. 

Operational performance remains steady. 

  • GLP recorded 12m sqft of new and expansion leases for the quarter (+ 48% y-oy) with tenant retention high at 70%. 
  • Average occupancy were 92% (China : slight dip to 88%, but expected to creep back up to 90% in FY16; Japan: stable at 98%, Brazil: slight dip to 94% and USA: stable at 92%). 
  • Rental reversions remained healthy across its main markets. (China: +7.3%, Japan: +5.5%, Brazil: +6.2%, USA: +20.8%). 


Cut in development starts for 2016. 

  • The group is revising down its development starts for 2016 in China, to US$1.7bn (vs US$2.2bn previously). This is mainly due to slowing demand seen in selective regions that it operates in (Tianjin and Dalian). 
  • Management expects this slowdown to be temporary and remains optimistic on the outlook in the medium term given strong indications from major tenants (mainly e-commerce players) looking to further expand. 
  • Despite management’s near term cautiousness, development starts amount to US$3.4bn in 2016, which is 30% higher y-o-y. 
  • Management maintains its medium term robust growth outlook and expects US$8bn in development completions over the next 3 years, of which GLP’s share is expected to be US$3.6bn or 45% of the total. 
  • A majority of these developments are expected to be funded through the newly set up China Logistics Fund 2 (CLF2). 

AUM of Fund Management platform rose to S$27bn. 

  • Management fees rose 50% to US$150m in FY15 and is expected to continue rising ahead. 
  • As of Jun-15, total AUM rose to US$27bn, of which the group has another US$10bn of uncalled capital to be deployed. 
  • Given the scaleable nature and high recurring cashflows from this business, we expect this platform to continue growing through new funds. 

Paring down in stake in US logistics business. 

  • GLP recently announced an acquisition of a US$4.55bn portfolio in the US. Management is in advanced discussions with third party capital partners who are keen to co-invest alongside GLP. 
  • The medium term target to divest 10% by Apr-16 remains intact. 


  • We maintain our BUY call, but cut our target price to S$3.00 (prev S$3.17) based on a wider 20% discount to RNAV given guidance of slowing growth outlook in China. 

Key Risks: 

Slowdown in Chinese economy. 

  • If a slowdown in the Chinese economy leads to a reduced appetite for logistics warehouse space, there could be slower-than-projected revenue growth. 

Foreign currency risks. 

  • Exposure to various currencies (CNY, JPY, BRL) could lead to volatility in the group's USD earnings.

Analyst: Derek TAN; Rachael TAN

Source: http://www.dbsvickers.com/