Global Logistic Properties - CIMB Research 2017-05-19: Benefiting From Cap Rate Compression

Global Logistic Properties - CIMB Research 2017-05-19: Benefiting From Cap Rate Compression GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties - Benefiting From Cap Rate Compression

  • FY3/17 core net profit of US$270m was largely within our expectations, forming 96% of our forecast.
  • Better results were due to higher revaluation surplus and improved organic growth.
  • FY18F development starts and completions guidance slightly higher on yoy basis.
  • Maintain Hold with a higher TP of S$3.05.

4QFY17 results highlights 

  • GLP reported 4QFY17 revenue/net profit of US$227m/US$247m, up 14%/62% yoy. The better results were due largely to revaluation gains from a 10-30bp compression in cap rates. 
  • Stripping out revals, core earnings fell 12% yoy to US$53.6m due to a high base.
  • On a full-year basis, core net profit came in at US$270m, +16% yoy thanks to organic growth from higher rents and lease-up ratio. 
  • The group proposed a DPS of 6 Scts, translating to a yield of 2.1%.

Robust leasing demand, positive rental growth 

  • The group renewed/leased 13.3m sqm of space in FY17 with 8.9% rental growth and a retention ratio of 73%. Portfolio occupancy remained fairly stable at 91%. 
  • The US market continued to see strong rental growth of 16.9%, with Japan at +5.2% and China at a slightly softer +4% vs. +5.3% in 3Q. 
  • Although China’s occupancy dipped to 85%, this was largely due to the inclusion of newly stabilised properties. Management indicated that the demand in Tier-1 and 1.5 cities in China remains robust.

Raising development starts and completions a tad 

  • GLP exceeded its FY17 development starts and completion targets by 5-6% and has set slightly higher levels of US$2.2bn and US$1.7bn worth of starts and completions for FY18, respectively. This increment in starts will come from the US while China is projected to remain flat at US$1.4bn. This would continue to underpin development value creation and boost its forward NAV. 
  • Assuming a similar development margin of 28%, the group could realise a share of pretax development profit of c.US$280m.

Fund management platform provides recurring income source 

  • The fund management business generated FY17 revenue of US$181m, +21% yoy. With US$12bn of uncalled capital, we expect this segment to continue growing. 
  • GLP had gross cash of US$1.2bn as at end-FY17 and a low net debt-to-asset of 19.2%. The group plans to continue to look for new opportunities in new and existing markets.

Maintain Hold call 

  • We lower our FY18-19F earnings estimates by 2-2.4% and introduce FY20F projections post the latest results. However, our RNAV-based TP is lifted by 9.3% to S$3.05 as we roll forward our assumptions and compress our valuation cap rates, in line with the FY17 cap rates. 
  • Key share price catalyst would be a positive outcome of the strategic review, while risks include a downturn in demand for warehouse space which would mean a slowdown in development activities.

LOCK Mun Yee CIMB Research | YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2017-05-19
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 3.05 Up 2.790