GLP

In a Business Times interview, GLP CEO Ming Z Mei opines that the stock's risk profile and accounting treatment are being misunderstood and allays concerns that a slowdown in its key market China, will hurt its financial performance.

On earnings:
China will continue to deliver strong FY17 profits from development completions, which are going to be the same or higher than last year, while its US assets are expected to benefit from strong rental growth on renewal leases due to many leases inked during the GFC.

On domestic consumption in China:
While China's consumption and services sector has surpassed 50% of GDP, the street has underestimated China's domestic consumption growth, where retail sales is expanding at 10% and backed by the growing trend of chain stores and e-commerce fuelling demand for modern logistics demand in China.

On mark-to-market treatment of development completions
Mei notes that analysts are not giving GLP credit for value creation via revaluation gains from operating assets and fair value gains from development projects upon completion, which it monetises via its fund management platforms in Japan, US and China. To-date, the group has unlocked US$6.3b of assets and realised US$1.6b profit through such capital recycling.

On development starts:
FY17 total development starts expected to be weaker at US$2.1b (FY16: US$2.8b), and completions at US$1.5b (FY16: US$2.1b). Same-property net property income growth in China may narrow to 7-10% (FY16: 10.7%), but GLP expects the economy to pick up in a year or two.

On cap rate compression:
GLP sees scope for cap rate compression in China where yields for logistics facilities are higher than office/retail, as well as in Japan, where assets are transacted at lower cap rates than GLP's, which bodes well for future revaluation gains.

The street currently has 12 Buys, 3 Holds and 1 Sell on GLP with mean TP of $2.28.