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.

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