• FY16 numbers within expectations
• Lower FY17 start target in China
• FV estimate dips to S$2.37

FY16 results in line with expectations

GLP reported that its FY16 PATMI increased 47.9% YoY to US$719.1m primarily due to higher asset values in China, development completion gains in Japan and contributions from its US business.

In terms of the topline, FY16 revenues rose 9.8% YoY to US$777.5m as the group benefited from the completion and stabilization of development projects in China with higher rents, the inclusion of management fee income from GLP US Income Partners 1 and GLP US Income Partners II, partially offset by the syndication of GLP Brazil Income Partners II Portfolio to 40% and the divestment of properties to GLP J-REIT.

A final dividend of 6.0 S-cents is proposed. Overall, we judge these results to be within expectations and FY16 PATMI constitutes 101.6% of our full year forecast.

Lower development start target in China for FY17

Over FY16, the group earned US$150m in fund management fees, up 38% YoY, and we understand that 66% of the 2nd US portfolio has been syndicated and management expects to fully syndicate the remainder shortly to retain a stake of less than 10%.

In GLP’s main market China, while the group achieved its FY16 targets for development starts (US$1.7b) and completions (US$1.2b), management stated that they are seeing over-supply in a few locations, including Chengdu, Wuhan and Tianjin, and guided for a lower US$1.4b development start target in FY17.

Looking further ahead, they would likely take a disciplined approach in monitoring demand-supply conditions and for the Chinese lease ratio to reach levels above 90% before growing their start targets significantly.

We see it as a positive that GLP is taking a pragmatic and disciplined approach to capital allocation in current conditions, and continue to see long-term value in GLP’s shares at current prices.

That said, we are cognizant of the increased scope for volatility ahead as the market continues to seek clarity regarding Chinese macro-economic risks.

Our valuation model is updated for softer cap rates and rental assumptions in China, and our fair value estimate dips to S$2.37 from S$2.68 previously. Maintain BUY.

Source: OCBC Research - 20 May 2016