GLP to splurge US$1.4b on 34 completed logistics properties

Is the price worth it?

According to CIMB, Global Logistic Properties announced that it plans to buy 34 completed logistics properties in Brazil from BR Properties for US$1.4bn.

Here's more:

The pricing looks reasonable for the portfolio that has attracted other buyers in the past. We understand that the vendor needs to reduce its high debt obligations.

While we would have preferred for this deal to be in China, we believe that part of the Brazil assets will eventually be divested into private funds, with the ultimate goal of enlarging its AUM fee platform. We believe that GLP’s China targets remain intact.

We keep our FY14-16 EPS estimates due to the limited details on the deal. We maintain our Add rating and target price, still based on RNAV.

We understand that BRPR is a motivated seller, with plans to reduce its high debt obligations through this sale. This portfolio was initially to be sold to WTGoodman, a JV between Goodman Group and WTorre (Brazil-based developer) for the same BRL3.18bn price.

We understand that the exclusivity agreement has expired and BRPR has chosen to enter into the transaction with GLP instead. We are unsure of the reasons that the sale to WTGoodman fell through.

The sale price implies a 5% discount to its Nov 2013 appraised value (reflected in BRPR’s latest 4Q13 results) or at a c.9% cap rate, which looks reasonable. We understand that the leases are structured on a triple net basis (NOI margins of 95-97%), with yearly inflation-linked step-ups that will provide surety of cash flows.

Strategically, we would prefer GLP to deploy its excess capital to China, a region with clearer growth trends. That said, we expect GLP to inject a portion of the Brazil assets into its existing fund platform (or create new funds), with the ultimate goal of growing its AUM fee income.

GLP guides that its optimal target for Brazil remains below 10% of total assets. China will remain its core market, with GLP still having the firepower to increase its China investments by 40% yoy in FY15.