GLP_Soja_JapanGlobal Logistics Properties' acquisition of one of the largest industrial portfolios in the US follows the lack of construction there in the past 5 years coupled by rapid growth of online retail sales. Above: GLP Soja, Japan. Photo from company

Excerpts from analysts' report

DBS Vickers analysts: Derek Tan and Mervin Song

Acquires stake in US logistics portfolio
Global Logistics Properties (GLP) announced that it will co-invest with GIC (Singapore Government Investment Corporation) to acquire a US$8.1bn US logistics portfolio from Blackstone. The portfolio consists of 117m sqft of space across 36 major US submarkets.
 
Lim_Chow_Kiat_thumbGIC CIO Lim Chow Kiat, 44, is co-investing the sovereign wealth fund in US industrial real estate with GLP.
Photo from GIC
Post-acquisition, together with GIC, the group will be the 3rd largest logistics owner in the US (after Prologis and Duke Realty).
 
GLP plans to own 55% of the syndicate (GLP Income Partners I) at the point of acquisition (1Q15) but intends to pare down to 10% or an equity value of S$330m by Aug’15 as it has received strong indicative interest from other capital partners.
 
GLP intends to fund the initial stake through cash and short-term liabilities.

Acquisition driven by diversity; uplift in steady returns.
While this investment into the US might be deemed negative on the onset as it represents a departure from the group's focus on its core markets of China, Japan and Brazil.
 
However, while the US is a relatively new market to the group, we believe that the main driver for this deal is one of diversity as the target portfolio is forecasted to deliver stable returns (c.9% cash yield on the group's 10% stake of US$330m), thus further increasing its recurring income base while its development starts in China/Brazil ramps up over the coming quarters.
 
GLP_NAV_breakdown_12.14Assumption: GLP holds ultimate stake of 10% in GLP US Income Partners I. Chart from companyOperational risk is mitigated by

(i) having an experienced management team already onboard to run the business

(ii) a final 10% equity stake which minimizes its exposure to c.4% of NAV

(iii) expected positive operational performance from
(a) higher rental reversions as in-place rents are c.7% below market
(b) expected occupancy uplifts from the current c.90% to 95% in the medium term.
 
Maintain BUY
Our earnings forecasts are hiked up by c.2% as we price in this acquisition.

We remain positive on GLP, driven by its value creation from development projects in China and fee income business.

Our BUY call and target price of S$3.42 are based on parity to RNAV. 

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