• 2QFY16 within expectations
• On schedule to meet targets
• US acquisition proceeding smoothly

2QFY16 results broadly in line

2QFY16 PATMI increased 27.4% YoY to US$114.0m mostly due to higher contributions from China and the US, development gains in Japan and the absence of FX losses versus 2QFY15. In terms of the topline, 2QFY16 revenues fell 1.9% YoY to US$189.3m given the sale of five properties in Sep15 to GLP J-REIT and the weakening of the yen against the dollar, partially offset by the completion and stabilization of development projects in China with increasing rents and the inclusion of management fee income from GLP US Income Partners I.

2QFY16 PATMI ex-revaluations came in at US$50.0m, which increased substantially YoY versus the US$9.0m in 2QFY15 but tracked lower on a QoQ basis against US$57.0m in 1QFY16. Overall, we judge this quarter’s numbers to be broadly in line with expectations.

On schedule to meet FY16 development targets

Key operating metrics in China remain healthy, with the lease ratio up 1% QoQ to 89% and rent growth on renewal up 8.6% YoY. 2QFY16 development starts was also up 82% YoY to 702k sqm (US$370m) and, on a YTD basis, the group has now achieved 44% of its FY16 target. In Japan, the group completed US$217m of development starts over the quarter and has met 64% of the year’s target.

Overall, management believe they are well on track to hit FY16 development targets for China, Japan and Brazil, which remain intact, and would likely give more color regarding FY17 targets in a few months as they get a stronger sense of their customers’ needs ahead.

The group also reiterated that the acquisition of the US$4.55b US logistics portfolio from Industrial Income Trust is going smoothly and is expected to close in Nov15. The syndication and paring down of GLP’s stake down to 10% is anticipated to complete by Apr16. Maintain BUY with an unchanged fair value estimate of S$3.07.

Source: OCBC Research - 2 Nov 2015