Global Logistic Properties

Transcription

1 Singapore Company Guide Version 6 Bloomberg: GLP SP Reuters: GLPL.SI Refer to important disclosures at the end of this report DBS Group Research. Equity 14 Sep 2016 BUY Last Traded Price ( 13 Sep 2016): S$1.82 (STI : 2,818.38) Price Target 12-mth: S$2.47 (36% upside) Potential Catalyst: Better-than-expected operational results Where we differ: Estimates in line with consensus Analyst Rachel TAN racheltanlr@dbs.com Derek TAN derektan@dbs.com Mervin SONG CFA mervinsong@dbs.com What s New Acquisition of a US$1.1bn portfolio in the US Properties located in markets of Dallas, Chicago and Atlanta which are key growth markets in the US BUY call maintained, TP S$2.47 Price Relative Forecasts and Valuation FY Mar (US$ m) 2015A 2016A 2017F 2018F Revenue EBITDA Pre-tax Profit 862 1, Net Profit Net Pft (Pre Ex.) 201 (30.0) Net Pft Gth (Pre-ex) (%) (18.6) nm nm 15.6 EPS (S cts) EPS Pre Ex. (S cts) 5.68 (0.9) EPS Gth Pre Ex (%) (20) nm nm 16 Diluted EPS (S cts) Net DPS (S cts) BV Per Share (S cts) PE (X) PE Pre Ex. (X) 32.3 nm P/Cash Flow (X) nm 12.5 EV/EBITDA (X) Net Div Yield (%) P/Book Value (X) Net Debt/Equity (X) ROAE (%) Earnings Rev (%): - - Consensus EPS (S cts): Other Broker Recs: B: 11 S: 2 H: 3 Tightening its grip in the US Value at current prices. We maintain BUY on Global Logistics Properties (GLP) with TP of S$2.47, pegged at 30% discount to RNAV to reflect ongoing uncertainties in the operating environment. Trading at 0.8x P/BV, below the lower end of historical range, we believe that negatives of a cautious outlook is priced in. Deepening presence in US. We are positive on GLP s announcement of a US$1.1bn (at valuation) logistics portfolio in the US from Hillwood, a property developer. The acquisition will be in various tranches initial closing of US$700m is fully leased and income producing by end of December 2016 and the remaining US$400m, when the target properties under development complete and achieved pre-agreed lease ratios. GLP intends to pare down their effective stake in this portfolio to 10% upon syndication to third-party capital partners. Assets are located in key markets of Dallas, Chicago and Atlanta, which according to Colliers, have one of the brightest outlook for absorption and rental growth in the US. AUM of fund management platform rose to US$36.5bn. As at 1Q17, total AUM had risen to US$36.5bn, and the group has another US$12bn of uncalled capital, expected to be deployed in the next two years. Given that this business is a highly scalable and an ROE-enhancing business arm of the group, management is focusing on driving returns and operational scale by establishing new funds. Valuation: We maintain our BUY call and target price of S$2.47, pegged at 30% discount to RNAV. Despite a weaker outlook, we believe the current share price, which is at 0.8x P/BV, below the lower end of historical range, is attractive. Key Risks to Our View: Faster-than-expected ramp-up in competing supply on the back of a slowdown in China's retail sector would impact demand for logistics warehouses. At A Glance Issued Capital (m shrs) 4,687 Mkt. Cap (S$m/US$m) 8,530 / 6,290 Major Shareholders (%) GIC Pte Ltd 36.9 Hillhouse Capital 8.2 Blackrock 6.0 Free Float (%) m Avg. Daily Val (US$m) 17.2 ICB Industry : Real Estate / Real Estate Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P ed: TH / sa:sm, PY

2 WHAT S NEW Deepens exposure in the US What Happened GLP has announced the proposed acquisition of a US$1.1bn portfolio from Hillwood, a property developer based in the US. The initial closing of US$700m expected to be in December 2016 with the remaining US$400m to be acquired in phases upon completion and lease up which is expected to take another 18 months. GLP intends to syndicate its stake to a target 10% to other capital partners. GLP will be the asset manager with total equity commitment of US$47m. Attractive returns with solid tenants Initial yield of 5.7% is in line with previous US acquisitions (5.6% and 6.0% for the previous two deals) but we note that the underlying rent of US$4.19 psf per year is lower than the current passing rent of US$4.94psf per year. The difference is mainly due to the larger-sized properties for the target portfolio compared to their existing properties. The target portfolio has a concentration in Dallas, Chicago, Atlanta and Pennsylvania which are existing markets that GLP has exposure in. Tenants are mainly in the consumer sector. As a percentage of leased area, tenants are in the Online retail (42%), F&B (12%), and Retail (19%) trades, implying that outlook is supported by improving consumption growth outlook in the US. The initial close of US$700m will have properties with leases signed with a long weighted average lease expiry (WALE) of nine years and a 100% lease ratio, implying strong earnings visibility. The remaining US$400m will be acquired upon completion and lease up. Securing long-term funding to finance the deal In terms of funding, GLP intends to fund the acquisition with US$470m in equity of which GLP's eventual stake will be 10% or US$47m after syndication to third-party capital partners. The remaining US$635m through debt, of which GLP intends to take a 12-year fixed rate loan of 3.5% for the initial closing with future closings backed by 5-year revolving credit facilities. Our Thoughts We believe that this acquisition will further strengthen GLP s position in the US with a majority of the assets located in key markets where GLP has exposure in. According to Colliers, the key markets of Dallas, Chicago, Atlanta are one of the fastest-growing logistics markets in the US with strong net absorption rates. Colliers is also projecting rental growth of between % for these markets. This implies that the outlook for rental growth upon lease renewal is expected to be strong. The return on equity (ROE) for GLP s US$47m equity stake is expected to be 13% ( inclusive of management fees and rental income). We believe that yields could rise close to 6% upon the ability to raise portfolio rents nearer to their portfolio average in the medium term. Impact on earnings to be marginal at c.1%. BUY call and TP of S$2.47 is maintained. Page 2

3 Summary of Acquisition Key Markets Source of all data: Company, DBS Bank Summary of Acquisition Source of all data: Company, DBS Bank Page 3

4 Vacancy vs YTD Absorption (largest 20 markets) Key Markets Source of all data: Colliers 2Q16 industrial report, DBS Bank Rental Outlook and Growth Key Markets Source of all data: Colliers 2Q16 industrial report, DBS Bank Page 4

5 CRITICAL DATA POINTS TO WATCH Earnings Drivers: Riding on the growing demand from e-commerce players for logistics space. Riding on the tailwinds of China s rising consumerism and thriving e-commerce sector, Global Logistics Properties (GLP) remains in the front seat to take advantage of China s rapidly changing retail landscape. With an extensive portfolio of warehouses (11.8m sqm of space) in 35 cities in China, the group is one of the leading providers of modern logistics solutions to end-users. GLP s network of warehouses enables customers to expand; this has been positively received by current users of its space. Its strong network of warehouses enables management to enjoy recurring demand from existing clients. Close to 90% of GLP s portfolio is occupied by businesses geared towards domestic consumption. Strong operational momentum across markets. As expected, FY16 recorded a strong year largely led by positive effective rent growth on renewal and same-property net operating income. The group s lease ratio remains relatively stable at 92% with WALE of 2.6 years to 5.5 years. While management has turned cautious on China and Japan, hence reducing development targets, the US market appears to have strong growth potential. US$'mn US$'mn 1, , , Revenue and Operating Profit (US$ m) FY15A FY16A FY17F FY18F Revenue Operating profit (ex reval) Revenue Contribution (US$ m) Fund management platform delivers superior returns at lower risk. GLP s fund management platform delivers superior returns at lower risk. Management fees increased 80% to US$130m in FY16 and this segment is expected to potentially earn US$400m in the medium term. As of end-march 2016, total AUM had risen to US$35bn, with another US$11bn of uncalled capital to be deployed. We expect the fund management business to continue growing through new funds due to its scalable nature, boosting returns and ROEs for the group. Going forward, the group is looking to launch a new China fund with equity capital of c.us$3bn to increase its reach in China. Development starts and completion pipeline. In FY17, GLP has set lower targets for development starts and completions targets of US$2.1bn (vs US$2.8bn in FY16) and US$1.5bn (vs US$2.1bn in FY16) respectively as management turns cautious. Nevertheless, value creation margin at 27% remains above historical average of 25%. Deepening presence in US. We are positive on GLP s announcement of a US$1.1bn (at valuation) logistics portfolio in the US from Hillwood, a property developer. The acquisition will be in various tranches initial closing of US$700m is fully leased and income producing by end of December 2016 and the remaining US$400m, when the target properties under development complete and achieve pre-agreed lease ratios. GLP intends to pare down its effective stake in this portfolio to 10% upon syndication to third-party capital partners. Assets are located in key markets of Dallas, Chicago and Atlanta, which according to Colliers, have one of the brightest outlook for absorption and rental growth in the US. E BIT Margins (%) - FY15A FY16A FY17F FY18F FY19F China Japan US & Brazil EBIT Margins (%) FY15A FY16A FY17F FY18F RNAV Valuation of GLP S$'m Japan Logistics Business (Stabalized) 2,173.8 China Logistics Business (Stabalized) 4,953.7 China Landbank (NPB of future devt) 3,815.0 Other Assets 58.1 GLP J-REIT Brazil USA Fee income business (15x P/E) 1,054.4 Gross Asset Value 13,296 Less: Estimated net debt RNAV 12,668 RNAV/ share (US$) 2.62 RNAV/ share (S$) 3.53 Discount 30% Target Price 2.47 Source: Company, DBS Bank Page 5

6 Balance Sheet: Low leverage ratio. Total debt-to-asset ratio is expected to remain fairly stable at c.0.40x, which is well within management's comfortable level. As such, this provides GLP with additional debt headroom for future debt-funded acquisitions. Currently, the group has 70% of its debt on fixed rate with a weighted average cost of debt of 3.0% and a long debt maturity of 5.2 years. Share Price Drivers: Robust outlook for e-commerce in China. GLP has a large (11.8m sqm in completed properties) portfolio in China that is positioned strategically to benefit from growth in e-commerce through its modern logistics space, and it has another US$5.3bn slated for completion in FY We expect the group s assets to hit higher occupancies and pricier leases, if e-commerce increases in scale (8-year CAGR was 80%) on the back of strong consumer demand (11-year CAGR was 63%, expected to double over the next three years). Incremental earnings contribution from China would be a share price catalyst. Realisation of value through its fund business. GLP continues to expand through its fund platform. Looking ahead, the potential conversion of its development funds in China and Japan into income funds could unlock performance fees, offering upside to the earnings that are currently not in our estimates. Additionally, GLP continues to look for opportunities in the US and potentially Europe to expand its fund management business. Key Risks: Slowdown in Chinese economy If a slowdown in the Chinese economy leads to a reduced appetite for logistics warehouse space, there could be slowerthan-projected revenue growth. Leverage & Asset Turnover (x) Capital Expenditure ROE (%) PB Band (x) Foreign currency risks Exposure to various currencies (CNY, JPY, BRL) could lead to volatility in the group's USD earnings. Company Background Global Logistics Properties (GLP) is a leading provider of modern logistics facilities in China, Japan, Brazil and the US. The group develops, owns and manages c.41m sqm GFA of logistics properties, catering to growing domestic consumption. Source: Company, DBS Bank Page 6

7 Income Statement (US$m) FY Mar 2014A 2015A 2016A 2017F 2018F Revenue Cost of Goods Sold (114) (139) (157) (137) (173) Gross Profit Other Opng (Exp)/Inc (129) (165) (229) (241) (245) Operating Profit Other Non Opg (Exp)/Inc Associates & JV Inc Net Interest (Exp)/Inc (79.2) (47.9) (101) (130) (136) Exceptional Gain/(Loss) Pre-tax Profit , Tax (142) (194) (310) (50.3) (56.8) Minority Interest (39.6) (182) (314) (125) (144) Preference Dividend 0.0 (32.0) (28.7) (28.7) (28.7) Net Profit Net Profit before Except (30.0) EBITDA Growth Revenue Gth (%) (2.7) EBITDA Gth (%) (23.6) (4.4) 50.7 (16.3) 11.9 Opg Profit Gth (%) (21.6) 6.0 (3.2) Net Profit Gth (Pre-ex) (%) (27.7) (18.6) nm nm 15.6 Margins & Ratio Gross Margins (%) Opg Profit Margin (%) Net Profit Margin (%) ROAE (%) ROA (%) ROCE (%) Div Payout Ratio (%) Net Interest Cover (x) Mainly on the back of new completions in China, Japan and higher rental growth Source: Company, DBS Bank Page 7

8 Quarterly / Interim Income Statement (US$m) FY Mar 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 Revenue Cost of Goods Sold (37.6) (38.9) (39.2) (41.3) (38.2) Gross Profit Other Oper. (Exp)/Inc (52.6) (45.7) (57.3) (78.3) (54.3) Operating Profit Other Non Opg (Exp)/Inc (0.4) 7.86 Associates & JV Inc Net Interest (Exp)/Inc (13.8) (20.8) (44.7) (39.6) (70.0) Exceptional Gain/(Loss) Pre-tax Profit Tax (79.7) (52.9) (94.6) (82.7) (67.0) Minority Interest (88.5) (62.3) (84.9) (78.1) (47.2) Net Profit Net profit bef Except (17.4) (82.2) (5.0) EBITDA Growth Revenue Gth (%) 14.0 (0.4) EBITDA Gth (%) (2.3) (21.6) 38.2 Opg Profit Gth (%) (2.3) (22.3) 43.4 Net Profit Gth (Pre-ex) (%) nm (89.8) nm (371.6) 93.9 Margins Gross Margins (%) Opg Profit Margins (%) Net Profit Margins (%) Balance Sheet (US$m) FY Mar 2014A 2015A 2016A 2017F 2018F Net Fixed Assets Invts in Associates & JVs 1,164 1,544 1,954 2,485 3,034 Other LT Assets 11,210 12,479 14,656 14,856 15,053 Cash & ST Invts 1,501 1,446 1, Inventory Debtors Other Current Assets ,467 4,895 4,895 4,895 Total Assets 14,341 17,462 23,129 23,348 24,124 ST Debt ,021 1,021 1,021 Creditor , Other Current Liab ,965 2,962 2,968 LT Debt 2,504 2,476 3,750 4,050 4,350 Other LT Liabilities 890 1,019 1,208 1,208 1,208 Shareholder s Equity 8,758 8,780 8,888 8,987 9,103 Minority Interests 1,366 3,983 4,272 4,398 4,541 Total Cap. & Liab. 14,341 17,462 23,129 23,348 24,124 Non-Cash Wkg. Capital (257) 1,109 1,451 1,917 1,782 Net Cash/(Debt) (1,161) (1,402) (3,746) (4,720) (5,070) Debtors Turn (avg days) Creditors Turn (avg days) N/A N/A N/A N/A N/A Inventory Turn (avg days) N/A N/A N/A N/A N/A Asset Turnover (x) N/A N/A N/A N/A N/A Current Ratio (x) Quick Ratio (x) Net Debt/Equity (X) Net Debt/Equity ex MI (X) Capex to Debt (%) Z-Score (X) Debt-equity remains stable Source: Company, DBS Bank Page 8

9 Cash Flow Statement (US$m) FY Mar 2014A 2015A 2016A 2017F 2018F Pre-Tax Profit , Dep. & Amort Tax Paid (13.9) (28.5) (31.5) (53.5) (50.3) Assoc. & JV Inc/(loss) (126) (71.4) (241) (107) (124) Chg in Wkg.Cap. (95.2) (463) 129 Other Operating CF (343) (375) (691) Net Operating CF (138) 507 Capital Exp.(net) (741) (1,523) (8.0) (204) (200) Other Invts.(net) 0.0 (1,467) Invts in Assoc. & JV (83.1) (422) (472) (425) (425) Div from Assoc & JV Other Investing CF (32.0) (10.5) (4,672) Net Investing CF (824) (3,409) (4,937) (629) (625) Div Paid (153) (174) (200) (208) (232) Chg in Gross Debt (167) 687 1, Capital Issues Other Financing CF 403 2,246 2, Net Financing CF ,918 4, Currency Adjustments Chg in Cash (450) (47.0) (230) (674) (49.6) Opg CFPS (S cts) Free CFPS (S cts) (12.9) (30.4) 11.8 (9.8) 8.85 Source: Company, DBS Bank Target Price & Ratings History Source: DBS Bank Analyst: Derek TAN Rachel TAN Mervin SONG CFA Page 9

10 DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends Completed Date: 14 Sep :48:10 Dissemination Date: 14 Sep :37:57 GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank Ltd. 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