Tuesday, July 21, 2015

Global Logistic Properties - Establishing CLF II

What Happened 
GLP announced the setting up of its China Logistics Fund II (CLF II). GLP China will be the manager, and will own a 56% stake with the remaining shares held by seven institutional investors including five from Asia, one from North America and one from the Middle East. CLF II will have committed equity of US$3.7bn and investment capacity of US$7bn. CLF II will develop 13m sq m of GFA in China over the next four years. CLF II will start acquiring land later this year and commence construction in Apr 16. CLF II is GLP's exclusive vehicle for new, wholly-owned logistics development projects in China and does not have a seed portfolio. 

What We Think
This news is not entirely new as GLP had earlier signalled its intention of setting up CLF II, although the US$7bn AUM exceeds the earlier indication of US$6bn due to strong investor interest. We view this move positively as it will expand GLP’s fee income and allow the group to optimise its sources of third party capital as well as boost value creation. As a result of CLF II, total AUM is 36% higher at US$27.1bn. GLP will fund its share of equity with cash (US$1.4bn at end-FY15) and credit facilities. CLF II’s development activities will form part of the group’s targeted development starts growth of 30%, which we have factored into our existing forecast, while the impact of higher fee income on earnings and RNAV should gather pace from FY18 onwards. We reckon that the additional fee income from CLF II could add another 10-13Scts to RNAV when completed, assuming a 15x multiple. 

What You Should Do
We tweak our FY17 and FY18 earnings estimates upwards by 1.4-4.4% to factor in the increased fee income from CLF II. We continue to like GLP for its leadership position in the modern logistics warehouse sector in China, and the accelerated growth momentum of its development activities and fund management business. These activities should move the group closer to its medium-term ROE target of 12%.We retain our Add rating and maintain our existing RNAV and target price (parity to RNAV) at S$3.31.

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