GLP buys US logistics portfolio and sets up $7bn fund for modern warehousing to meet e-commerce growth in China
July 30, 2015
Shanghai-based Global Logistics Properties (GLP) has established what it claims is the largest China-focused logistics infrastructure fund, CLF II. Seven leading global institutions, including some of the world’s largest national pension and sovereign wealth funds, are investing alongside GLP to develop modern logistics facilities in China.
The company has also has entered into a definitive agreement to acquire a US$4.55bn US logistics portfolio from Industrial Income Trust (IIT). GLP intends to inject the portfolio into its fund management platform.
About US$3.7bn of equity has been committed to the fund by GLP and investors, with leverage allowing for an investment capacity of US$7bn to develop 13 million square meters over four years. GLP China is the manager and holds a 56 per cent stake in CLF II.
China is GLP’s primary market for development with development starts growing at 30 per cent a year. CLF II is more than double the size of CLF I (US$3bn) given the size of the market opportunity and strong demand from investors. The offering was significantly oversubscribed and provides long-term capital that enables GLP to strengthen its network effect, better serve customers and de-risk its development pipeline.
“Building on the strong performance of CLF I, the successful closing of CLF II reflects the confidence of institutional investors in GLP’s proven track record as an operator, developer and fund manager,” said Ming Mei, chief executive officer of GLP. “China remains our primary market for development. The fund management platform is an important source of capital for GLP and we remain focused on leveraging it to scale our business effectively while driving higher risk-adjusted returns.”
CLF II will be GLP’s exclusive vehicle for new, wholly owned logistics development projects in China. The fund expects to start acquiring land later this year and commence construction of new developments in April 2016. It carries a similar investment mandate as CLF I, GLP’s first China development fund which was launched in November 2013 and has reached its investment capacity.
Both CLF I and CLF II seek to capture the significant opportunities arising from the shortage of modern logistics infrastructure in China. Demand for modern warehouse facilities is driven by growing domestic consumption, urbanisation and the growth in e-commerce.
GLP has a strong track record of developing in China. Its portfolio has grown at a 61 per cent compound annual growth rate over the past decade, and today encompasses 11.8 million square metres of completed facilities.
With CLF II, GLP’s fund management platform expands 36 per cent to US$27.1bn. Five of the fund investors are from Asia, one from North America and one from the Middle East. Of the seven, four investors are partners in CLF I and two are new to GLP’s fund management platform. GLP’s fund management platform is scalable and has grown at an annual rate of 95 per cent since FY12.
M3 Capital Partners served as exclusive financial advisor to GLP in connection with the formation of the fund.
As of March 2015, GLP’s US$28bn property portfolio encompasses 41 million square meters of logistics facilities across China, Japan, Brazil and the USA.
GLP expects to own 100 per cent of the IIT portfolio upon closing by 16 November 2015 and pare down its stake to 10 per cent by April 2016. Demand from major institutional investors to invest with GLP in US logistics real estate is strong, with GLP in negotiations with several new and existing capital partners.
The portfolio is to be acquired at a 5.6 per cent cap rate. GLP's target 10 per cent equity stake of $190m is expected to generate compelling returns within the first year of investment. This includes GLP's share of operating results and fund management fees.
"This is an accretive opportunity for GLP that allows us to strengthen our US market presence and growth prospects with minimal incremental overhead,” said Mei. “The fund management platform is one of GLP's main sources of capital to fund our growth. The fund syndication offering for our first US income fund was significantly oversubscribed. Building on the positive momentum, we remain confident of injecting this portfolio into our fund management platform by April 2016."
GLP's initial equity commitment (100 per cent ownership day one) of $1.9bn will be funded by cash on hand and existing credit facilities. The company does not need to issue additional equity to fund this acquisition given it has $2.3bn of existing cash. GLP has approximately $2.9bn of committed long-term financing (about 60 per cent LTV) for the acquisition. Post this transaction, the USA would represent six per cent of GLP's net asset value.
The portfolio, selectively aggregated through more than 100 separate transactions over a period of five years, is one of the highest quality portfolios in the USA. It comprises 5.4 million square meters of in-fill logistics assets spread across 20 major markets. The largest markets include Los Angeles, Metro DC and Pennsylvania. The portfolio was 93 per cent leased as of 30 June 2015, with a weighted average lease expiry of nearly 5.5 years. GLP is focused on increasing the lease ratio to 95 per cent.
This transaction will enlarge GLP's US footprint by 50 per cent to 16.1 million square metres, with GLP becoming the second largest logistics property owner and operator in the USA within a year of market entry. GLP is also the largest provider of modern logistics facilities in China, Japan and Brazil. Subsequent to this transaction, its global portfolio will encompass more than 47 million square metres valued at approximately $33bn.
"This transaction complements our existing portfolio well, expanding GLP's size and scale in the USA,” said Stephen Schutte, chief operating officer of GLP. “We feel particularly good about the quality and location of the facilities, which have an average building age of 15 years and a strong concentration in major distribution markets. We are excited about the synergies the combined portfolio is expected to generate and see upside potential from increasing occupancy and rents."