Global Logistic Properties, has reportedly shortlisted at least three groups in the bidding for the Singapore-based warehouse operator, according to Bloomberg. The three groups were said to be a management-backed consortium that includes Chinese investment firms Hillhouse Capital Management and Hopu Investment Management, a Warburg Pincus-led investor group, and the Blackstone Group.
GLP, which is backed by Singapore’s sovereign wealth fund GIC, did not confirm the names of the companies but said, in a Singapore exchange filing, that a special committee of independent directors was in discussions with “several parties” that will be invited to conduct due diligence.
The industrial property developer, a leading provider of modern logistics facilities in China, Japan, U.S. and Brazil, has an estimated market value of US$8.9 billion, according to its annual report 2016. The group’s China’s assets make up 57 percent of the value with Japan accounting for 25 percent and the U.S. and Brazil a combined 12 percent. The company is also a real estate fund manager, with assets under management of about US$38 billion.
“The potential transaction won’t have a material impact on the logistics market landscape. However, the successful bidder will inherit a diverse portfolio of logistics assets with good growth prospects,” commented Michael Fenton Head of Industrial at JLL Australia.
GLP is a clear leader in the logistics market in China. With total assets worth US$12.2 billion, its network covers 90 percent of China’s economy, based on information from its annual report. Demand for modern logistics facilities in China, driven by domestic consumption, has continued to expand despite slower GDP growth.
“The logistics sector continues to offer exceptional long-term opportunities as China builds its supply chain infrastructure,” said Stuart Ross, Head of Industrial for JLL China. “China remains undersupplied relative to its economic size, and e-commerce continues to develop at a rapid pace.”
China’s growth potential
According to JLL’s China60 report, China’s Grade A warehouse stock stands at about 29 million square metres (sqm). This compares to the combined equivalent share of major markets in the U.S., which is close to 155 million sqm. With a land mass that is marginally smaller than the U.S. but a population that is four times bigger, the business of storing and moving goods holds great potential.
The current warehouse stock per capita in China standing at just 1/13th of that in the United States, according to GLP.
With most of the existing supply becoming obsolete and unable to meet customer requirements, the long-term opportunity remains very attractive, said GLP in its annual report, adding that the company sees continued strong leasing demand from the retail, fast-moving consumer goods, auto parts and pharmaceutical sectors.
Driven by China’s booming online sales, expansion of its China e-commerce business has outpaced the rest of its portfolio. E-commerce as a percentage of GLP’s total leased area in China increased from four percent in Financial Year 2010 to 26 percent today, despite the overall portfolio tripling in size, the company said in its annual report.
Japan’s logistics market also holds promise. Vacancy rates remain low in Greater Tokyo and Osaka, where GLP’s portfolio is concentrated, said GLP. According to JLL’s Tokyo Logistics Market Summary 2016 Q4 report, vacancy dropped significantly in 2016 as occupancy rose in buildings that were completed. New supply is expected to reach 722,000 sqm in 2017, equivalent to about 110 percent of the past 10-year annual average.
“In the Japanese investment market, strong investor interest is expected to persist, and this could place downward pressure on cap rates and underpin capital value growth,’ says Pelham Higgins, Head of Industrial in Japan and Korea at JLL. “Cap rates in the country’s logistics sector are now at all-time lows which is making acquisitions challenging, particularly for first time investors.”
‘If the new GLP decides to siphon off the core stabilized assets and focus on their core development business, there may be implications for Japan where the current GLP J-REIT has a ‘right of first look’ over all assets which GLP Japan sells.” This has generated a secure pipeline for GLP J-REIT which may look different after the sale,” he says.
In the U.S., vacancy set a new record-low of 5.6 percent in 2016, based on JLL’s Industrial Investment Outlook report. “As U.S. demand continues to rise and land values soar, major urban areas are running low on options for Class A warehouse space, driving annualised rental growth increases in the vast majority of JLL-tracked markets,” said the report.
GLP’s diverse portfolio in the key markets including the U.S., China and Japan, will continue to benefit from the growth in demand for warehousing facilities and limited modern logistics supply.