Sturdy topline growth from China ops and fund management
GLP reported a 6% hike in 4QFY15 revenue to US$167m while net profit came in 34.5% lower at US$105m. FY15 net profit of US$486m was achieved on the back of new and expansion leases of 3.7m sm, in line with its earlier stated target. China continued to shine on strong leasing momentum of 3.1m sm and higher rents averaging +5.5%. Existing tenants took up 72% of these leases. There was increased property management and acquisition fee income totalling US$108m. This helped to partially offset lower Japan earnings post asset sales, revaluation losses from Brazil due to cap rate expansion and one-time transaction related costs from the US portfolio acquisition as well as higher minority leakage.
Projecting 30% growth in development starts
GLP plans to increase its development start target by 30% to US$3.4bn and its development completion target by 92% to US$2.3bn, of which China will account for US$2.2bn and US$1.4bn, respectively. With a demand backlog of 8m sm in China, the group is well placed to tap growth in this segment. To fund these development capex, GLP will continue to utilise its existing cash resources of US$1.4bn and is planning a second China logistics fund with an estimated AUM size of US$6bn. As the properties are completed and marked to market, these developments will boost GLP’s NAV and fee income platform value. It will continue to ride the active leasing market in Japan and Brazil, in our view. Plans to pare down its stake in the GLP US Income Partners fund to 10% are on track.
We continue to like GLP for its leadership position in the modern logistics warehouse sector in China, and the accelerated growth momentum of its development activities and fund management business. These activities should move the group closer to its medium-term ROE target of 15%. We tweak our FY16-17 estimates by 5-8% on expectation of a more 2H-loaded earnings profile.