• 2QFY17 results in line
• Chinese outlook appears firm
• Strong execution on fund platform

Earnings broadly within expectations

GLP reported that its 2QFY17 PATMI increased 52% to US$173m mainly due to increased contributions from the group’s fund management platform. Specifically, we understand that fund fees over the quarter rose 25% YoY to US$47m, comprising US$31m of asset and property management fees and US$16m of development fees. On a core basis (adjusting for non-recurring items and revaluations), the group’s core earnings in 2QFY17 were 53% higher YoY at US$68m.

In terms of the topline, GLP’s revenues over the quarter also increased 13% YoY to US$214m mostly because of the completion and stabilization of the group’s Chinese projects with higher rents, higher management fee income, and the appreciation of the JPY, partially offset by the weaker RMB and rent adjustments in China due to the transition of business tax to a VAT regime. Overall, we judge this quarter’s performance to be broadly in line with expectations.

Chinese lease ratios show signs of stabilization

After dipping from 91% in FY15 to some 86% as at end 1QFY17, the group’s lease ratio in China bucked the trend by improving to 87% over the last quarter. Meanwhile, we also saw sameproperty rental rate growth for GLP’s Chinese portfolio stable at 4.7% over 2QFY17. We understand the group remains confident in hitting its Chinese development starts and completion targets and has started S$406m of new developments in markets with average lease ratios of 92% and limited supply.

In addition, GLP reported healthy lease ratios of 98% and 94% in Japan and US, respectively, with firm effective rent growth rates of 19.6% and 4.5%. The group’s fund management platform was a bright spot over the quarter as the syndication of the 2nd US portfolio was completed in Sep2016 and GLP has indicated that there is strong investor interest in the syndication of a 3rd US portfolio for which the acquisition is expected to complete in Dec 2016 with partners. Maintain BUY with an unchanged fair value estimate of S$2.37.

Source: OCBC Research - 9 Nov 2016