Global Logistic Properties

DBS Group Research, May 26

GLOBAL Logistic Properties (GLP) reported a 20 per cent growth in Q4 FY2014 revenue to US$150.4 million. However, lower fair-value gains from associates, including a revaluation loss from Brazil and forex losses, led to a 29 per cent drop in reported Patmi (profit after tax and minority interests) to US$160 million (US$152 million after perpetual securities distributions).

For the year, revenue dipped 6.8 per cent to US$598.3 million, while Patmi (before perpetual capital distributions) inched up 0.1 per cent to US$685.2 million. The group has proposed a final 4.5 S cents dividend per share.

Operation-wise, China showed the highest new leases tied for the quarter, of 1.044 million sq m, +123 per cent y-o-y, leading to a total take-up of 2.3 million sq m for the year. Average rental growth achieved was 5-7 per cent and occupancy rose 3 percentage points to 91 per cent.

In Japan, leasing momentum continued to be strong with lease rates up 58 per cent y-o-y to 0.4 million sq m for the year and rents tracking ahead of budget.

Brazil saw a 6.3 per cent growth in Q4 rents, with total take-up reaching 0.29 million sq m for FY2014.

With the recent tie-up with strategic partners to establish a China Holdco, forward growth should accelerate from FY2016 onwards. The first tranche of the transaction, valued at US$875 million, should be completed in six months and the second tranche of US$163 million, by June 2014.

With strategic access to land holdings and planned acceleration of development activities in China, this should translate into stronger growth momentum in the medium term. It targets to start development on 3.3 million sq m of gross floor area (GFA) worth US$1.7 billion for FY2015, up 40 per cent y-o-y. Land reserves stand at a healthy 12.8 million sq m GFA.

In Japan, it targets development starts of US$675 million for FY2015, similar to FY2014, as appetite for modern logistics warehouse space continues to be fuelled by increased outsourcing activities and obsolescence of old building stock.

In addition, the recent purchase of the US$1.4 billion portfolio of assets in Brazil from BR Properties would double the size of the group's activities in the country. GLP intends to fund the acquisition with internal resources, borrowings as well as bringing in other shareholders. The group has gross cash of about US$1.5 billion on its balance sheet and a net debt of US$1.1 billion, equating to a net debt-to-asset ratio of 9 per cent.

We retain our "buy" call for GLP and raise our target price to S$3.42 as we roll our valuations forward into FY2015. We expect earnings growth momentum to pick up over the next 24 months as the group ramps up its activities in China and Brazil.

BUY