• Buys US$1.1b US portfolio
• Going-in cap rate of 5.7%
• Solidifies position as 2nd largest US player

Acquiring US$1.1b US logistics portfolio

GLP announced yesterday that it has agreed to acquire a US$1.1b logistics portfolio in the US from Hillwood Development Company, LLC. This acquisition has two parts: a US$700m portfolio to be acquired in Dec 2016, and a US$400m development portfolio to be acquired in phases upon completion and full lease-up.

Like GLP’s previous US acquisitions, this transaction will come under the group’s fund management platform and management expects to retain a ~10% stake post-syndication as the asset manager.

GLP indicates that they see strong investor demand for syndication and expects to sign with capital partners by initial closing in Dec 2016. The transaction will be funded by US$470m equity and US$635m debt, and the group’s 10% equity stake (US$47m) is expected to have a 13% ROE (including fees) in the first year. GLP will fund its equity commitment with cash and existing credit facilities, and has also secured long-term debt at a fixed rate.

Will grow to become 2nd largest player in US

The 15m sq ft portfolio being acquired has a strong concentration in locations expected to benefit from the growth in e-commerce. The initial US$700m closing portfolio is 100% leased with a WALE of 9 years and in-place rent of US$4.19 psf per year, and the acquisition structure for the US$400 development portfolio will have stringent lease-up metrics which lock in long term tenants and eliminate lease-up risk.

The acquisition cap-rate of 5.7% is reasonable, in our view, given the quality of the portfolio and its leases. This acquisition will grow the group’s foot print in the US to 187m sq ft and solidifies GLP’s position as the second largest owner and operator of logistics facilities in the US.

The larger scale of operations will enhance the group’s network effect in the US, which will allow for flexible customer expansion, optimize distribution networks and drive efficiency. Pending the completion of the acquisition, our fair value estimate remains unchanged at S$2.37. Maintain BUY.  

Source: OCBC Research - 14 Sept 2016