GLP

GLP: Announced that it has entered into a 50:50 JV with China Investment Corp, to acquire 15 modern logistics facilities in Japan from LaSalle Investment Mgt for US$1.6b. Entity will see equity injection by each party at US$272.9m, which GLP will fund via internal resources. Remainder funded by bank borrowings of US$1.04b, at a 1.5% interest rate for 5 yrs. GLP will be asset manager of acquired properties.

The 15 properties have GFA of 770,989 sqm with more than 90% located in Tokyo and Osaka. Occupancy of the properties is 98.3% with a WALE expiry of 5.6 yrs. After acquisition, GLP’s Jap portfolio will grow 30% to 3.6m sqm, 40% larger than the 2nd largest competitor (Prologis).

Assuming transaction was completed on 1Apr10, acquisition would have lifted FY11 Net Profit by US$38m, while equity portion of transaction represents less than one yr of GLP’s operating cash flow created by its Jap operations. GLP’s current Leverage Ratio stands at 23%, with a cash balance of US$1.7b suggesting ease of funding the transaction.

We note that acquisition is GLP’s first collaboration with CIC and not only prevents GLP from overstretching its balance sheet, but also represents future collaborations with CIC within China. Mgt has further cited that as GLP continues to grow its fund management platform in Jap, it will look towards the monetization of its assets.

Note however that analysts are not seeing the acquisition as a big positive, just a marginal one, given pricing is fair, but all agree that the partnership with CIC is positive. Orderbook quotes suggest it may open around $1.65; the psychological $1.70 mark may offer resistance.