• 3QFY17 results in line
• Non-binding proposals received
• Downgrade to HOLD, FV: S$2.87

3QFY17 numbers within expectations

3QFY17 PATMI fell 7% YoY to US$171m mainly due to the absence of a one-time syndication gain related to GLP’s first US portfolio in 3QFY16 and foreign exchange losses in 3QFY17. Adjusted for non-recurring items, core earnings and sameproperty net operating income both rose 22% and 7%, respectively, as scale of operations and the group’s fund management platform continues to grow. We deem these results to be mostly within expectations.

New and renewal leases increased 42% YoY to 36m sq ft while global lease ratio remained at a high 92%. Rent growth on renewal leases and customer retention are also tracking at a healthy 92% and 73% respectively. Over the quarter, the group also generated US$45m in fund management fees, up 20% YoY.

Received non-binding proposals; no assurance of sale

Regarding the ongoing strategic review, GLP has received various non-binding proposals which will be evaluated by a special committee and has highlighted that there is no assurance any transaction will materialize. In addition, the group reported that CEO Ming Z. Mei and Fang Fenglei, a non-executive and non-independent director, have separately reported interests in parties which have submitted non-binding proposals and recused themselves from decisions regarding the review.

See balanced risk-reward at current share prices

After updating our valuation model with the latest financials and being cognizant of a potential sale ahead as an option under the strategic review, we update our fair value estimate to our RNAV of S$2.87. While we continue to be positive on GLP which enjoys significant fundamental strength with its operating scale, network of key clients, and a firm outlook for advanced logistic facilities, particularly in the group's major market China, we see the risk-reward for GLP shares at current levels to be fairly balanced and believe it could be judicious for long-time investors to take some profits off the table after a breathtaking 57% rally since Nov 16. Downgrade to HOLD.

Source: OCBC Research - 10 Feb 2017