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Has Global Logistic Properties Ltd Found Its Next Big Growth Market?

Global Logistic Properties Ltd (SGX: MC0) is the largest provider of modern logistics facilities in China, Japan, and Brazil.

Earlier today, the company made a giant stride toward becoming a major force in the modern logistics market in the USA too when it announced that it will be acquiring a US$4.55 billion portfolio of logistics properties in the country from the Industrial Income Trust, a Denver, Colorado-based private investment trust.

This acquisition will turn Global Logistic Properties into the second largest modern logistics outfit in the country, second only to Prologis Inc.

The valuation of the properties in the US$4.55 billion portfolio is done based on a cap rate of 5.6% per year; the cap rate is calculated by dividing the properties’ cash net operating income in the first year by their purchase price.

What’s interesting about this deal though is what happens after Global Logistic Properties completes the acquisition.

Although the company will end up with a 100% stake in the US$4.55 billion portfolio when the deal’s closed, the company expects to pare down its stake to just 10% by April 2016. The 90% stake in the portfolio will be sold to institutional investors who have already shown “strong indicative demand.” Global Logistic Properties expects to continue managing the portfolio even after April 2016.

With the new properties, the company will see its logistics footprint in the USA expand by 58 million square feet to 173 million square feet. The properties currently have a lease ratio of 93% and a weighted average lease expiry (WALE) of 5.5 years. The portfolio also has a strong tenant mix, given that its largest customers include huge companies like Amazon, Home Depot, and Samsung.

Global Logistic Properties will be funding the acquisition using internal cash resources of US$1.9 billion and borrowings of US$2.9 billion.

The company believes that the US market represents a good opportunity for future growth given that the rising demand for logistics facilities is outpacing supply and that the rise of e-commerce is still ongoing with e-commerce retail sales in the U.S. having compounded at an annual rate of 13% over the past seven years.

The e-commerce story in particular appears to have lots of room to run given that e-commerce is estimated to make up only 7% of total retail sales in the U.S. in the first-quarter of 2015.

Foolish Summary

All told, Global Logistic Properties’ management is confident about the benefits of the deal and expects to generate “compelling returns within the first year of investment” assuming that the company does manage to pare down its equity stake in the portfolio to just US$190 million (10% of the US$1.9 billion that the company’s paying for the portfolio in cash).

With the acquisition, Global Logistic Properties will now count the USA as one of its major markets alongside China, Japan, and Brazil.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own any companies mentioned above.