Global Logistics Properties (GLP) (SGX: MC0) (MC0 2.88 0.00 0.00%) is listed on the Singapore Exchange and is part of the 30 companies that make up the Straits Times Index (STI). It is a leading provider of modern logistics facilities in four countries, namely China, Japan, US and Brazil. Its property footprint spans 54.92 million square meters (591million square feet) covering 116 cities.
With the boom in e-commerce, the need for logistic facilities is on the rise as well. Is Global Logistics Properties a great investment then? What are the risks and opportunities that lie ahead for the company? Here are 7 things you need to know about GLP.
TICKER SYMBOL: SGX:MC0
MARKET CAP: S$14.2 billion (May 2017)
INDUSTRY: Real Estate
GLP is a leading global provider of modern logistics facilities, it has a presence in four countries; China, Japan, US and Brazil. Its portfolio value stands at US$38 billion and encompasses 55 million square meters of logistics facilities.
GLP uses a three-pronged business model which consists of operations, development and fund management as per the diagram below. GLP deemed that such a business model allows it to benefit from a “network effect”.
Under its operation segment, Global Logistics Properties owns and manages logistics facilities in the four markets stated above. Its key role in managing these properties is to rent them out. On this front the group has been doing well, at the end of fiscal year 16/17, GLP had a lease ratio of 91% for its entire portfolio. Also, by managing the properties well, it allows GLP to command a premium rent on the property and helps to ensure good customer retention.
Moving on to its development business, under this segment GLP is responsible for overseeing the development of new logistics facilities. Funds for the development of these projects can come from GLP directly or from third party investors. For fiscal year 17/18, GLP has a development starts target of US$2.2 billion, of this amount GLP itself will invest US$1 billion. As for the developments that will be completed in the same fiscal year this stands at US$1.7 billion with GLP’s share at U$825 million. The development business contributed US$266 million in profits for GLP in the fiscal year 16/17.
Lastly, under the fund management business, GLP partners with third party investors to grow its network. This allows GLP to grow its network of properties faster with additional funds from outside investors. As such the fund management business helps GLP to ensure that it can cement its place as one of the largest logistics facilities owners globally. Under this business, GLP has assets under management (AUM) amounting to US$39 billion, with US$27 billion invested and US$12 billion waiting to be invested. This segment contributed US$181 million in profits for GLP in the fiscal year 16/17.
The two diagrams attached show how GLP fund management business accelerates its growth.
As seen from the two diagrams, GLP completed area of properties under management has grown at a 51% compound annual rate since 2004 while its fund management business has grown at a 76% compound annual rate since 2012.
Overall, for the fiscal year 16/17 GLP achieved a revenue of US$880 million and a profit of US$625 million. Over the last five years, GLP has seen revenue grow at a positive clip of 10.41% per annum while profit has grown at 0.37% per annum.
Growth in E-Commerce
The markets that GLP operates in have attractive supply and demand fundamentals for logistics facilities in the medium to long term, this is mostly due to the rise of the e-commerce industry. This is especially clear in markets like China when we look at the growing revenue of its key player, the Alibaba Group. It has been predicted by eMarketer that e-commerce sales could double from US$2.3 trillion to US$4.06 trillion worldwide between 2017 and 2020. In Asia Pacific, e-commerce sales are expected to grow from US$1 trillion in 2016 to US$2.7 trillion on 2020 and the bulk of this is expected to come from China, which is one of GLP’s key markets. This growth in the coming years means there will be an increase in demand for logistics facilities around the world and especially in China.
Three-pronged business model
GLP’s 3-pronged business model, puts it in a unique position to extract value from each step of the logistics business. Being a developer, it allows GLP to ensure that it picks out the correct locations to build properties and to meet customer requirements in that area by building suitable facilities. Having built the property, GLP manages the rental of the property making sure that the properties are well maintained. This allows it to collect a premium on rent and helps it retain customers for extended periods of time.
With its fund management business, GLP taps into the financial markets to raise capital from investors to quickly capitalize on available opportunities before a competitor can enter the market. This allows it to expand its network of properties at a heightened pace, enabling it to grow much faster than its competitors.
Oversupply of logistics facilities
While at the moment, it is reported that there is a lack of logistics space and demand is increasing very quickly, the oversupply of logistics facilities could be one of the key risks in the future. The sector might look rosy now, but if competitors were to over build facilities aggressively, it would negatively impact GLP’s rental business.
This could result in a higher vacancy rate for Global Logistics Properties or that it must reduce its rental rates to hold on to customers. Both scenarios can affect the revenue and profits for the company negatively. It will also put a halt on GLP’s development business and fund management business. This business might slow down as interest to invest in the sector decline.
Property Concentration Risk
Being heavily invested in China and the US, GLP’s revenue growth would suffer should there be a slowdown in the Chinese or US domestic consumption. While these are hard to predict, it is a known fact that GDP growth rate in China has slowed down in recent years and the US is hardly seeing any growth.
Apart from domestic consumption, GLP is also exposed to foreign currency risks. The volatility in the Renminbi, Brazilian Real as well as Japanese Yen could affect revenue and profits in the near term.
Global Logistics Properties currently trades at a Price to Earnings (PE) ratio of 15.38 and provides a 2.05% dividend yield for its investors. That is comparable to its average valuation for the past 5 years, where average P/E stood at around 15.6 times while dividend yield was at 1.9%.
Investor Relation Material:
For Investor Enquiries
Ambika Goel, CFA
SVP – Capital Markets and Investor Relations
Phone: +65 6643 6372
Top Shareholders (1st June 2016)
- GIC Private Limited 36.57%
- Hillhouse Capital Group 8.14%
- BlackRock Inc 6.99%
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The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Ketz’s personal capacity. It does not in any way represent those of his employer and other related entities. Ketz does not own any companies mentioned.