Thursday, July 30, 2015

Global Logistic Properties - Planting a bigger footprint in US

What Happened 
GLP announced that it has entered into an agreement to acquire a US$4.55bn US logistics portfolio from Industrial Income Trust at a 5.6% cap rate. This portfolio comprises 58msf of in-fill logistics assets spread across 20 major markets including Los Angeles, Metro D.C. and Pennsylvania. The portfolio has a weighted average lease expiry of 5.5 years and is 93% leased currently to about 600 tenants including notable names such as Amazon, Home Depot, CEVA Logistics and HanesBrands. Based on a 60% LTV, the initial financing structure will comprise US$1.9bn equity and US$2.9bn debt. GLP will initially hold a 100% stake when the deal is completed in Nov 2015 (to be funded with existing cash resources and credit facilities) and intends to pare down its share to 10% by Apr 2016. GLP's share of equity equates to US$190m, based on a 10% stake. 

What We Think
This will be GLP’s second purchase in the US and will expand its US footprint to 173msf, making the group the second largest property owner and operator in the country. Post transaction, the US will account for 6% of GLP's NAV. This purchase is expected to be both earnings- and RNAV-accretive. Apart from its share of rental income from the portfolio, GLP will also be able to grow its fee income base as total AUM will expand to US$33bn. In terms of impact, this purchase, including fee income, could raise net profit by c.US$28m or about 10% of bottomline. Furthermore, the combined portfolio is expected to generate more synergies through economies of scale with minimal additional G&A expenses and upside potential from increasing occupancy and rents in the medium term. 

What You Should Do
We raise our FY17/18 earnings forecasts by 3.9%/3.3% and lift our RNAV estimate to S$3.34 to factor in this transaction. We continue to like GLP for its value creation in China and expansion of its fee income platform, which should enhance ROE in the longer run. We retain our Add call with a higher target price of S$3.34, based on parity with RNAV.

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