OCBC Securities 2015-08-12: Global Logistic Properties - Divesting 5 assets to GLP J-REIT. Maintain BUY.


Divesting 5 assets to GLP J-REIT 

 Selling 5 JPN assets for US306m 
 Balance sheet to strengthen further 
 Impact of weaker CNY mixed 

Will divest five Japanese properties to GLP J-REIT for JPY38.1b 

  • GLP announced that it will divest five whollyowned properties in Japan to GLP J-REIT for JPY38.1b (US$306m), which is in line with the properties’ fair market value as of 30 Jun 2015. 
  • The assets have a total gross floor area of 203k sqm and the transaction is expected to complete in Sep 2015. 
  • We like that the group continues to expediently recycle capital for redeployment into future growth and higher ROE. 
  • In particular, GLP J-REIT has been an effective long-term destination for the group’s stabilized assets in Japan and will hold an estimated US$3.4b of assets under management after this transaction. 
  • The divestment will strengthen the group’s balance sheet and its net debt to assets will decrease to an estimated 8.1% post-transaction (versus 9.7% previously). 
  • In addition, the group’s fund management platform will expand to US$27.4b after the transaction. 
  • Note that GLP has also recently reaffirmed its FY16 Japanese development targets of US$980m in development starts (up 48% YoY) and US$720m of completions (12x higher YoY). 

Impact of CNY devaluation likely a mixed bag 

  • The PBOC’s recent decision to devalue the CNY has raised concerns about the group which has significant operations in China. 
  • As at end Jun 2015, 57% of GLP’s NAV was attributed to China, and 67% of the group’s EBIT excluding revaluation for FY15 (ending Mar 2015) was derived from China. Looking forward, while a weaker CNY will likely have a negative forex impact in terms of asset valuations and earnings for GLP, which reports in the US dollar, we believe China’s move to devalue its currency will be a key move to boost moderating exports and support its decelerating economy. 
  • In addition, the concurrent trend of falling interest rates in China generally has had the effect of compressing cap rates and supporting asset valuations. (Note that GLP’s cap rates in China have compressed by 25bps over the last quarter.) 
  • Maintain BUY with an unchanged fair value estimate of S$3.07

Eli Lee | http://www.ocbcresearch.com/ OCBC Investment Research 2015-08-12
BUY Maintain BUY 3.07 Same 3.07