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Global Logistic Properties Strengthens Position In Its Core Markets

Contributed by Shares Investment

By Ong Qiuying   

In a recent report by Jones Lang LaSalle, the Asian warehousing markets continued to be buoyed by robust economic growth and regional trade flows. Generally, rents grew steadily in 2Q11 with demand for logistics and warehousing space in mainland China remaining healthy. Global Logistic Properties (GLP), a major player in the Asian modern logistics space with 337 completed properties in 127 logistics parks across major cities in China and Japan, looks set to benefit from these buoyant trends with its continuous expansion strategy.

Developing A New Growth Wing

Coming to a year since its listing on the SGX Mainboard at $1.96 last October, GLP traded under the water in the recent month as news of credit ratings downgrades and strings of poor data sent global markets into the red.

Even as the benchmark Straits Times Index traded down by 3.5% on 2 September, shares of GLP leaped as much as 2.9% to an intra-day high of $1.79, extending its rally to 7.9% over four sessions of trading from 29 August. This was following news that it has formed a joint venture with Canada Pension Plan Investment Board to set up Japan Development Fund to develop and hold modern logistics facilities in Japan. The joint venture involves an equity commitment of US$500 million, where each party will put in US$250 million over three years. In a press release, Deputy Chairman of GLP, Jeffrey Schwartz expressed that this fund will be GLP’s exclusive vehicle for logistics development in Japan.

DBS Group Research is positive on this advancement as GLP will be able to generate asset management and development fees as well as potential incentive fees, in addition to development margins and property cash flows. With a potential site already identified for development in Tokyo, this fund will help GLP to establish a new and recurring income source while capitalising on the inadequacy of modern logistics facilities in Japan.

According to CB Richard Ellis Group, the vacancy rate for warehouses in Tokyo fell to around 7% in June 2011 from a peak of 20% in September 2009. Furthermore, there has been a growing need for such newer facilities since users of logistics facilities which were damaged in the earthquake and tsunami on 11 March had to find new logistics space to continue operations. The lack of supply of newer storage and distribution facilities could see GLP raising rents in Japan by about 5% to 10%, spelling more good news to GLP’s Japan portfolio, which is already 99% leased.

Expanding Footprints In China

The completion of new properties and stabilisation of GLP’s projects in China saw its new and expansion leased area increasing 513,200 square metres, up 60.5% year-on-year. This contributed to a 68.9% year-on-year increase in revenue contribution from its China operations in 1Q12 ended 30 June 2011.

Nevertheless, GLP has been continuously stepping up growth initiatives in China to tap on the robust demand as the logistics market in China has grown at a compounded annual growth rate (CAGR) of 16% from 2005 to 2010, according to the National Development and Reform Commission.

The company recently announced that it had commenced construction of new logistics facilities, with a combined floor area of 128,000 square metres, to be built at the GLP Park Beijing Capital Airport to serve as a logistics hub for non-bonded air cargo handling and logistics operations at the Beijing Capital International Airport. Thus far, 90% of this development has received strong interest from customers while its stabilised properties in the same area are already fully leased.

Further consolidating its position in the China market, GLP acquired 49%-stake in Shanghai Yupei Group Company (Yupei) for US$53.6 million. Yupei is a leading logistics properties provider with a track record in project management and construction cost control and has a portfolio comprising of four logistics parks located in major cities of China. This synergistic acquisition will also allow GLP to gain access to Yupei’s asset portfolio in strategic locations within the Yangtze River Delta region as well as all of the latter’s projects in the pipeline.

Stronger Currencies Contribute To Financial Performance

Notably, GLP’s FY11 returned to the black, posting a PATMI (profits after tax and minority interests) of US$706.1 million on the back of a 14.6% increase in revenue to US$473.9 million. Losses in FY10 resulted from changes in fair value of investment properties and financial derivatives and the disposal of its non-core subsidiary.

Excluding this revaluation, FY11 PATMI saw a 56.3% increase to US$279 million from US$178.6 million a year ago. PATMI (excluding revaluation) also improved 2.3% year-on-year to US$73.3 million for 1Q12. In addition, GLP’s 1Q12 turnover was up 15.2%, with revenue increasing to US$129.1 million.

Having a strong portfolio in China and Japan, GLP will be able to ride on the potential revaluation of the Chinese Yuan and the weakening of the US Dollar against the Japanese Yen with its revenues largely dominated in these currencies despite the volatile outlook.

Meanwhile, both DBS Group Research and Citigroup have maintained their ‘Buy’ call on GLP with a target price of $2.80 and $2.62 respectively as GLP remains well placed to further tap on new opportunities with its strong balance sheet, especially after its recent bond issue in China.