■ China operations benefited from new-builds and rent growth; more completions in 2H.
■ Weak currency continues to be a drag on Japan earnings on translation.
■ Strong performance in the US while Brazil impacted by lower asset values.
■ Maintain Add with a lower RNAV-based target price of S$3.18.
China continues to drive earnings
GLP reported a 2% yoy dip in revenue to US$189.3m on lower ¥-sourced income from assets sales to GLP J-REIT and weaker currency, deconsolidation of income from GLP Brazil Income Partners II (pared its stake to 40%), partly offset by higher contributions from China and fee income from its US portfolio. PBT rose 32% yoy due to a low base in FY15 from the absence of a one-off loss on cumulative exchange differences. Headline PATMI rose 27% yoy to US$114m (excl. revals at US$49.7m).
New completions to be back-end loaded
Excl. revals, China contribution grew 27% yoy, buoyed by income from new-builds. The group signed 1m sqm of new leases and rent renewal growth was 8.6%; occupancy rose 1%pt qoq to 89%. However, tenant retention was lower at 60%. Development completions are likely to be back-end loaded as only c.20% of its FY16 completions target was met as at end-2Q. We believe the focus would be to keep occupancy stable, at 88-89%, and rent incentives should remain a little elevated in the near term.
Strong operations in Japan but hit by weaker currency
Japan experienced a record quarter of new leases, totaling 0.322m sqm on 14% rent growth on renewal with occupancy ticking up to 99%. GLP is on track to meet its development starts target of US$980m, with plans to build GLP Nagareyama. This will continue to underpin value creation, with a development margin of c.20-25%.
Brazil impacted by cap rate expansion, US continues to deliver
Brazil saw a 1% point increase in lease ratio to 95% with same-store rent rate up 6.8% yoy, thanks to robust domestic consumption. However, a 65bp cap rate expansion resulted in a valuation deficit of US$28m. US income will be boosted in 3Q by a US$35m syndication gain, following the reduction of its stake in GLP US Income Partners I to 10%. Acquisition of GLP US Income Partners II is expected to complete in Nov 15 and syndication and paring of its stake to 10% is likely to be done by Apr 16.
The longer-term prospects of the modern logistics warehouse sector remain intact in GLP’s key markets, led by strong domestic consumption and the lack of modern space. In addition, growing AUM would result in higher fee income and boost ROEs in the longer run. We raise our FY16 forecast to include the latest round of revaluation surplus and tweak our FY17-18 numbers marginally. Maintain Add with a sum-of-parts RNAV target of S$3.18. (Read Report)
Read Related Report
1) Global Logistic Properties Ltd - Execution remains on track by OCBC Investment Research, published on 2 November 2015
2) Global Logistic Properties - 2QFY16 results fall short on one off costs, timing of income by Deustche Bank Markets Research, published on 30 October 2015
Source : CIMB Research