Global Logistic Properties - CIMB Research 2016-12-05: Moving towards an asset light model

GLOBAL LOGISTIC PROP LIMITED MC0.SI

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.

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.

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 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.

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.

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.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2016-12-05

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