Planting a bigger footprint in US
- GLP’s proposed purchase of Industrial Income Trust’s US$4.55bn logistics portfolio in the US will propel it into the second largest logistics property owner and operator in the country.
- In addition to long-term synergies derived from its combined portfolio, the purchase will also expand its total AUM to US$33bn and increase its fee income base.
- We raise our FY17-18 earnings by 3.3-3.9% and increase our RNAV-backed target price to S$3.34 and maintain our Add rating.
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.
(LOCK Mun Yee, TAN Xuan, CFA)
Source: http://research.itradecimb.com/
