DBS Group Research 2015-07-30: Global Logistic Properties - Deepens presence in US. Maintain BUY.

Deepens presence in US 

 Deploying capital into US; GLP to take an eventual 10% equity stake of US$190m by Apr’16.  
 Returns accelerated from its fund management. 
Maintain BUY and TP of S$3.17. 

Deploying further capital to the US; GLP to take an eventual 10% equity stake of US$190m by Apr’16. 

  • GLP entered into a definitive agreement to acquire a US$4.55bn US logistics portfolio from Industrial Income Trust (IIT). 
  • GLP expects to own 100% of the portfolio upon closing by 16th Nov’15 (estimated equity of US$1.9bn) but will look to pare down its stake to 10% by 1Q16 (eventual equity stake of US$190m). 
  • Like GLP’s first foray into the US through GLP Income Partners 1, GLP is seeing strong indicative demand from 3rd party capital partners to co- invest with them in this new venture and thus expect the group to execute on track in paring down its stake to 10% in the medium term. 
  • In the interim, GLP has sufficient cash and facilities to fund the US$1.9bn initial investment. 

High quality portfolio. 

  • The portfolio deepens the group’s position in the US and consists of 287 buildings spanning over 58m sft (implying US$78psf valuation). 
  • The properties are complementary to the group’s operating markets, spanning cities such as Los Angeles, Metro D.C. and Pennsylvania. 
  • The initial yield is estimated to be c.5.6%, based on current in-place rents which are understood to be c.5-10% below current market levels and an occupancy rate of 93%. 
  • The weighted average lease expiry (WALE) of 5.5 years offers stable returns. 

Upside driven from fund management business. 

  • We estimate GLP to extract returns of >10% from its share of profits (10% stake) and management fees. 
  • Once again, we see the group tapping 3rd party capital through its established fund management platform to scale up operationally and at the same time deepening its exposures in its key markets. 
  • We see incremental growth coming from fee income growth on the back of this new venture and the recently launched US$7bn Logistics Fund 2 in China. 

Maintain BUY, TP S$3.17. 

  • We continue to see a turnaround in earnings growth for the group over FY16F- 17F. 
  • Core earnings (ex revals) are projected to grow by 30% over the next 2 years. 
  • Maintain BUY, and TP of S$3.17 based on a 10% discount to RNAV.

(Derek TAN; Mervin SONG CFA)

Source: http://www.dbsvickers.com/