Wednesday, December 10, 2014

MER on GLP’s entry into the US logistics sector

Global Logistic Properties (GLP) will co-invest with GIC to acquire one of the largest logistics real estate portfolios in the US for US$8.1 billion. GLP will initially hold a 55% stake in the GLP US Income Partners I and GIC 45%. GLP intends to reduce its stake to 10% by August 2015 and has already received strong interest from capital partners.

US transaction details. The US$8.1bn portfolio is acquired at a significant discount to replacement cost. The in-place cap rate is 6.0% and in-place rent is US$4.83 per square feet per year. In-place rents are about 7% below market. The portfolio is 90% leased with a near-term target to reach 95%. This will put GLP as the third largest player in the US logistics space by lease area with 117m sq ft of space, after Prologis and Duke Realty. The portfolio is spread across 36 sub-markets in the US and has 3,500 plus customers with the top 10 accounting for 9% of lease area.

Sell-down from 55% to 10% by August 2015. GLP’s initial equity commitment will be funded by cash on hand and a short-term credit facility. The group’s final 10% stake represents US$330m of equity or approximately 4% of GLP’s net asset value.

Assets under management +61% to US$21.3bn. GLP expects this investment to generate a pre-tax cash-on-cash yield of 9% in the first year, comprising share of operating results and fund management fees.

Price catalyst
12-month price target: S$3.26 based on a Sum of Parts methodology.
Catalyst: Faster pace of development starts in China; positive leasing momentum; successful sell-down of GLP US Income Partners I before August 2015.

MER’s action and recommendation
GLP offers a direct proxy to China’s (65% of NAV) growing logistics sector, which is well-supported by a rising urbanisation rate and resilient domestic consumption. MER believes the entry into the US logistics market is positive given the 9% cash-on-cash pre-tax yield in the first year. MER maintains an Outperform rating on GLP.

Wednesday, December 03, 2014

OUEHT’s $495m Acquisition To Boost Yields?

Last week, OUE Hospitality Trust (OUEHT) announced its decision to acquire Crowne Plaza Changi Airport (CPCA) and its extension (CPEX) from OUE. OUE is also OUEHT’s vendor and sponsor. 

The properties will be purchased for a consideration of $290 million and $205 million respectively. InterContinental Hotels Group will continue to be the manager of the hotel after the acquisition. 

CPCA which is located beside Changi Airport Terminal 3 has 320 rooms and has been in operations since 2008. 

CPEX will be located beside CPCA and connected through a link bridge will add 243 rooms to the airport hotel bringing it to a total of 563 rooms. The extension is expected to be completed by end of 2015. 

This acquisition will be split into two phases with CPCA first, followed by CPEX after it has obtained its temporary occupation permit. To have a better projection of the hotel operations after expansion, the acquisition of CPEX will be priced now. 

OUEHT expects CPCA to have an annualized yield of 4.5 percent and a combined yield of 4.6 percent post expansion. The acquisition will be funded through debt and/or equity, with the decision for which funding to pursue decided during the upcoming AGM of OUEHT. 

Like its other hotel, OUEHT will lease the airport hotel back to its vendor under a Master Lease agreement composing of a fixed and variable rent based on performance of the property. 

CPCA will have a fixed rent of $12.5 million while the post expansion hotel will have a fixed rent of $22.5 million. This agreement will expire in May 2028 with the vendor having an option to renew the lease for an additional two consecutive five years term. 

In view of this development, analysts from OSK-DMG Research upgraded OUEHT to a “Buy” call with a higher target price of $0.97. They cited the yield accretion and the opportunity for the trust to own a global brand name hotel asset as the main reasons for rerating.