Thursday, February 20, 2014

Global Logistic Properties - Tie-up to provide strategic value

What Happened 
GLP has entered into an agreement with a group of China domestic institutions to co-invest in its logistics property business in China. GLP’s China assets will all be held under a China holding company (holdco) in which the consortium, together with a group of GLP employees and management team, will invest c.US$2.36bn. This will result in the two parties owning 30.3% and 3.7% stakes in the holdco respectively, with GLP’s stake reduced from 100% to 66%. The purchase consideration values GLP’s China assets at a c.1% premium to its last NAV. The consortium comprises a large Chinese insurance company, Bank of China Group and a group of China SOEs and investors known as “HOPU". GLP will also place out US$163m of new GLP (GLP listco) shares to HOPU at S$2.755 (1.2x P/BV), representing 1.5% of its outstanding shares. This transaction is subject to regulatory and shareholder approval.   
What We Think 
We think this move is a strategically-positive one, even though there may not be immediate NAV upside. While GLP can arguably fetch better pricing in the open market, we believe tying up with this consortium provides better longer- term strategic value in the form of new relationships, and potentially gaining access to landbank in the future. We believe this deal will position GLP as the undoubted leader in China logistics property and could pave the way for a potential China listing in the longer-term. GLP plans to use the proceeds for reinvestment in China and has already guided for a 40% yoy growth target in FY15. Its recent 3Q14 results suggest that leasing demand for logistics facilities in China remains robust. We estimate that this deal will shave off 7-15% of our FY15-16 core profits, though an acceleration in land acquisitions could eventually more than recover this initial shortfall.

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