Global Logistic Properties - CIMB Research 2017-08-08: Business As Usual

Global Logistic Properties - CIMB Research 2017-08-08: Business As Usual GLOBAL LOGISTIC PROP LIMITED MC0.SI

Global Logistic Properties - Business As Usual

  • GLP’s core EPS of 1.51 UScts for 1QFY3/18 was in line at 25% of our FY18 forecast and 23% of consensus.
  • China benefited from rental growth and active leasing activities.
  • Japan was affected by income vacuum from asset sales, the US continues to see strong leasing and rental uplift.
  • Rising fee income is underpinned by increasing AUM. The group is exploring options to grow in new and existing markets.
  • We maintain our Hold call with a higher TP of S$3.38.

1QFY18 results highlights 

  • GLP reported 1QFY3/18 net profit of US$144.2m, -29% yoy despite a 27% increase in revenue to US$261.8m. This is due to the impact of lower revaluation gains in the current period vs. a year ago. Excluding revaluations, earnings would have been US$71m (EPS: 1.51 UScts), +3% yoy. 
  • The group leased/renewed 3.3m sqm of leases in 1Q with an average 72% retention ratio and rent renewal growth of 7.7%. 
  • It also met 11%/15% of its development starts/completions targets as at end-1QFY18, largely in China.

China performance supported by rental growth and active leasing 

  • China is still the main driver, up 21% yoy to US$38m and accounting for 44% of core earnings excluding revaluations. 
  • Performance was underpinned by effective rent growth of 4.4% and renewing/leasing of 1.79m sqm in 1Q. However, portfolio occupancy fell 1% pt to 84% due to lower lease ratio of stabilisations.

Japan impacted by income vacuum from asset sales 

  • Japan saw a 9% decline in core earnings excluding revaluations to US$41m due to income vacuum from disposal of properties to GLP J-REIT, partly offset by higher fund fees. It leased/renewed 0.23m sqm of space with an effective uplift of 6.8% in rents.
  • While Japan has not commenced nor completed any of its FY18 development targets as at 1QFY18, management indicated that these activities are likely to be back-end loaded and remain on track.

The US remains a star performer 

  • The US saw a 7% improvement in core earnings, thanks to 20.4% effective rental renewal uplift with 0.89m sqm of space leased/renewed. 
  • Occupancy remained healthy at 94% with a retention rate of 78%. There was a 14bp compression in cap rates in 1Q.

Expanding AUM to boost fee income 

  • Fund management income rose 15% yoy to US$48m, led by higher asset and property management fee. With 29% of its US$39bn AUM still uncalled, we anticipate contributions from this segment to continue growing going forward. 
  • In addition, the group is also exploring options to expand in new and existing markets. Net debt to assets stands at 23.3% as at 1QFY18.

Maintain Hold with higher target price 

  • We leave our FY18-20 EPS estimates unchanged but lift our RNAV-based target price to S$3.38, in view of the privatisation offer on the table. The expected completion date is on or before 14 Apr 2018. 
  • In the meantime, we believe that the share price would likely trade close to the offer price. Hence, we maintain our Hold call. 
  • Downside risks to our call include not obtaining the required shareholder approval. 
  • Upside risk is further cap rate compression and valuation uplift to GLP’s portfolio in various markets.

LOCK Mun Yee CIMB Research | 2017-08-08
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 3.38 Up 3.050