MENU

Why Global Logistic Properties Ltd Is Unfazed By Global Economic Worries

The price of oil is falling, Bond King Bill Gross just warned the investing world that the good times are over, and Europe seems to be in one big mess. All these headlines are scary and may paint a picture that it’s hard for any business to grow. But, that may not be true for all businesses.

For modern logistics facilities provider Global Logistic Properties Ltd (SGX: MC0), it seems to be a case of business as usual. In fact, the company had even made recent announcements about the strong progress of its business in China and Japan. These two countries are important for Global Logistic Properties as they accounted for nearly 99% of the firm’s total revenue for the financial year ended 31 March 2014 (FY2014).

Japan – The Land of the Rising Sun

On Wednesday, Global Logistic Properties announced that it had signed four new leases with two new customers and two existing customers (SENKO Co. Ltd and H&M Hennes & Mauritz Japan Co. Ltd) for a collective 70,000 square meters of logistics space.

In a recent analyst presentation deck that was just released on Monday, the company commented that it is seeing “accelerated growth supported by sustained leasing demand” in Japan. The company has already started work on three development projects in the country in the second quarter of FY2015 that are worth a combined US$314 million.

All told, Global Logistic Properties seems bullish about its prospects in Japan and a 99% occupancy rate for the firm’s Japanese portfolio of logistics real estate would only lend credence to its view.

But that said, the firm’s not looking at things purely through rose-tinted lenses. In the aforementioned presentation, Global Logistic Properties also cautioned that it’s seeing “rising development costs, constrained land supply and new entrants coming in to the market.” As a result of these dynamics, the firm reiterated its commitment to “[r]emain disciplined.”

China – The Middle Kingdom

On Tuesday, Global Logistic Properties reported that it had signed new lease agreements for 84,000 sqm with six third-party logistics providers in China.

The trend of leasing logistics spaces in China is going strong. In the analyst presentation mentioned above, Global Logistic Properties saw new & expansion leases signed increase by 74% to 1.3 million square metres for the first half of FY2015. The company’s also busy developing new real estate, with development starts in the first half of FY2015 growing by 80% to US$846 million compared to a year ago.

As for the firm’s existing logistics facilities in China, there was a 6.5% year-on-year increase in Same-property net operating income (NOI) for the first half of FY2015.

There also seems to be plenty of headroom for growth in the number of modern logistics facilities in China. Currently, less than 25% of China’s warehouses can meet modern logistics requirements and these legacy facilities face demolition as the urbanization of China continues. Furthermore, the current supply of warehouses on a per capita basis in China is only 8.3% that of the U.S. – there’s a lot of room for catching up. If China continues growing its economy, it’s only logical to see the demand for modern logistic facilities growing alongside.

These dynamics already provide a strong tailwind for Global Logistic Properties given that its bread and butter is in the provision of modern logistics facilities. But to make full use of the potential tailwinds, the company is still growing its land acquisitions and plowing ahead with its development plans to build more modern logistic facilities in the country.

Foolish Summary

There are many things to worry about at the moment with the global economy – for one, there’s no telling what kind of damage the slump in oil prices might do to major oil exporting countries. But for some companies, they are still able to plod along with business as usual. Judging from Global Logistic Properties’ latest developments, it seems to be the case with the company.

Read more about investing and get more investing tips and tricks, FREESign up here to The Motley Fool Singapore's weekly investing newsletter, Take Stock Singapore.

Like us on Facebook to follow our latest hot articles.

The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.