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

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.
  • Maintain Add with unchanged TP of S$2.73.

2QFY17 results summary 

  • 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.

Improving portfolio operating metrics 

  • 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.

Higher rent, retention ratio and occupancy in China 

  • 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.

Development completions ahead of target in Japan 

  • 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 continue to surge ahead 

  • 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.

Strong balance sheet 

  • 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.

Maintain Add 

  • 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 | 2016-11-08
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 2.730 Same 2.730