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The 3 Sources of Global Logistic Properties Ltd’s Core Earnings

With a market capitalisation of S$8.6 billion, Global Logistic Properties Ltd (SGX: MC0) is one of the largest companies in Singapore’s stock market that is in the logistics property sector.

That’s not all – the company is also the largest provider of logistics space in China, Japan, and Brazil. It is the second largest in the US. All told, the company has a US$38 billion property portfolio and 52 million square metres of logistics space in those four countries.

Let’s take a closer look at Global Logistic Properties’ sources of core earnings.

Three ways to earn money

As a modern logistics player, the company has a business model that derives core earnings from three areas:

  1. Property development
  2. Running properties
  3. Managing property funds

In simple terms, the company develops logistics facilities from scratch and earns a profit when they are completed. In the first-quarter of its fiscal year ending 31 March 2017 (FY2017), Global Logistic Properties achieved a development margin of 30%.

The company also receives revenue by renting out the properties in its portfolio. It would incur operating expenses under this.

The downside of being a property owner and operator is that the property’s value is locked up. One way Global Logistic Properties deals with this is to sell some properties back into the funds and real estate investment trusts under its fund management platform. The company also earns recurring management fees and various types of performance fees through the platform.

Breaking down the company’s core earnings

Global Logistic Properties declared core PATMI (profit after tax and minority interests) of US$146 million in the first-quarter of FY2017, which is 7% higher than its core PATMI of US$137 million achieved a year ago.

Global Logistic Properties' core earnings chart
Source: Global Logistic Properties’ earnings release

As you can see from the chart above, the company derived 44.5% of its core earnings from its role as a developer of logistics facilities. The company commented that it expects to generate a total of US$200 million in development profit for the whole of FY2017.

During the quarter, Global Logistic Properties earned US$42 million in fund management fees, up 17% from a year ago. The company’s assets under management has grown by 86% per year from US$2.6 billion in FY2012 to US$36.5 billion in the first-quarter of FY2017.

As a property operator, Global Logistic Properties managed to negotiate higher rentals on lease renewals in China, Japan, and the US. The company’s Brazilian properties saw a decline in rental rates.

On a core earnings basis, Global Logistic Properties managed to display 7% growth. But on a total PATMI basis, it is down 24% from US$268 million in the first-quarter of FY2016 to US$203 million. The reasons for its overall earnings weakness are unfavourable currency movements and revaluation losses.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.