GLP has been on a downtrend after it hit a high of $3.14 in 2013, since then the shares have been making lower highs and lower lows falling to $2.48 yesterday. The logistics company announced that it agreed to buy more than 200 warehouses from Industrial Income Trust (IIT) for $4.55bil. After the acquisition, the company will be the second-largest owner of US industrial estate after Prologis Inc.
 
According the Chief Executive Officer Ming Wei, the deal will increase GLP’s revenue from fund-management fees by about 50%. Macquarie Equities Research (MER) released a research note yesterday, 29th July 2015, reiterating an ‘Outperform’ rating with a 12-month price target of $3.13. Read on for more excerpts….
 
Event
Before the market opened yesterday, GLP announced the acquisition of a US$4.55bn US logistics portfolio from Industrial Income Trust (“IIT”). The deal is expected to close in November. Reiterate Outperform.
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Impact
Transaction details. Including transaction costs, the entire deal size stands at US$4.8bn (~60% debt funded). GLP expects to initially own 100% of the portfolio and pare down its stake to 10% by April 2016. Post transaction, U.S. would represent 6% of GLP’s Net Asset Value. The initial equity commitment of US$1.9bn will be funded by cash and existing credit facilities.
 
Fair deal at 5.6% cap rate. Transaction cap rate is fair at 5.6% (US$842 psm). The warehouse industry is tight in the U.S., as nationwide demand has outpaced completions over the last 4 years (according to CBRE). MER also notes that back in April, Prologis U.S. Logistic Venture (partnership with Norges) bought KTR industrial assets at ~US$900 psm.
 
MER likes the deal given that post-transaction, GLP will become the second-largest logistics property owner and operator in US (behind Prologis) and extend its weighted average lease expiry (WALE) in U.S. from 3 to 3.8 years. MER also notes that 97% of IIT’s assets are located in submarkets where GLP is currently operating, implying some cost savings.
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MER’s action and recommendation
Reiterate Outperform. GLP trades at 1.1 price per book (P/B) with an improving return on equity (ROE) profile. MER thinks current entry price is attractive.

Source: Macquarie Research - 30 Jul 2015