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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
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that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
24 August 2016
600
500
400
300 ? 600
? 550
200
+85%
100
13 24 120
0
Major providers Modern logistics facilities Total market supply of logistics
facilities
FY13 FY16
Source: China Association of Warehouses and Storage, GLP estimates, Credit Suisse Notes: (1) Completed GFA as at Dec-2015. (2) GFA under development expected to
estimates complete in 2016. (3) Total GFA by Dec-2016. (4) Based on 2016 GFA. (5) Total potential
pipeline as at Dec-2015, including land (6) vs GFA as at Dec-2015.
Source: China Logistics Property Prospectus, Company data, Credit Suisse estimates
Figure 3: GLP's competitors have grown supply at Figure 4: GLP's share of e-commerce as % of leased
the same pace, despite low availability of land area in China flat since FY14, despite strong growth
(mn sqm)
100%
30.0
GLP: 29% CAGR 90%
25.6
Major players ex-GLP: 27% CAGR 80%
25.0
70%
20.0 10.7 75% 76% 74%
16.7 60% 80%
85%
96% 91%
50%
15.0 12.7
6.8 40%
9.3
10.0 7.5 5.1 30%
6.6
5.8 3.6 14.9
2.9 20%
5.0 2.6 9.9
2.6 7.6 25% 24% 26%
5.7 10% 20%
3.2 4.0 4.6 15%
4% 9%
0.0 0%
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 5: GLP only 12% of JD.com's logistics area— Figure 6: Expect rents and lease ratios in China to
network effect not an exclusive competitive edge continue facing downward pressure…
100.0% 1.2 92%
90.0% 91%
1.1
80.0% 90%
1.0
70.0% 89%
60.0% 79.4% 79.2% 0.9 88%
93.3%
50.0% 0.8 87%
40.0% 86%
0.7
30.0% 85%
20.0% 0.6
84%
16.1% 12.4%
10.0% 0.5 83%
6.7% 8.4%
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
0.0% 4.5%
CY2013 CY2014 CY2015
JD.com owned GLP Other lessors Effective Rents (RMB/sqm/day) Lease ratio - RHS
Source: Company data, Credit Suisse estimates Note: change in basis of disclosing effective rents from 2QFY15, while 1QFY17 rents impacted
by VAT reform (flat QoQ otherwise). Source: Company data, Credit Suisse estimates.
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
No respite in sight
Explosive supply a near-term concern
Aggressive supply While the long-term case for consumption-led growth in China's logistics facilities market is
expansion (>40% in well flagged, we see downside risks from a broader macro slowdown in the near term.
2016) at a time of Further, while modern logistics facilities only amounted to 2% of supply in FY13, this has
moderating demand is a since been assessed to be 120 mn sq m or 20% of total as at FY16. Hence, we believe
cause for concern the degree of undersupply could be overestimated. Based on our analysis, we expect
ample supply from just major players alone, with over 40% supply growth in 2016, bringing
total GFA to 30 mn sq m.
Figure 10: While "modern" logistics facilities are Figure 11: …availability of supply is a subjective
still significantly underpenetrated in China… issue, in our view
Warehouse stock: total area (sqm) per capita (mn sqm)
700 +9%
6.0
5.5
600
5.0
500
4.0 400
13x
300 ? 600
3.0 ? 550
200
2.0
+85%
100
13 24 120
1.0
0.4 0
Major providers Modern logistics facilities Total market supply of
0.0 logistics facilities
China US FY13 FY16
Source: Company data, CBRE estimates Source: China Association of Warehouses and Storage, GLP estimates, Credit Suisse
estimates
Figure 12: Rapid expansion of Grade A logistics Figure 13: With new supply growth constantly
stocks, based on JLL estimates outpacing demand growth
(mn sqm)
Foshan 4.0 30.0%
Hefei
Dalian
Nanjing
Xi'an 3.0
Qingdao 20.0%
Wuhan
Shenyang
Dongguan 2.0
Chongqing
Suzhou
Beijing 10.0%
Chengdu 1.0
Guangzh…
Shenzhen
Tianjin
Shanghai 0.0 0.0%
0 1 2 3 4 5 6 2009 2010 2011 2012 2013 2014 2015 1H16
2011 2014 2015 (mn sqm) New supply Net Absorption Vacancy rates (RHS)
Looking forward, new supply for 2016 relative to existing stock as at 2015 will be greatest
in Chengdu, Wuhan, Chongqing, Shenyang, Dalian, Nanjing and Wuxi. Wuhan,
Global Logistic Properties
(GLPL.SI / GLP SP) 6
24 August 2016
Chongqing and Shenyang, in particular, are likely to see incoming supply growth of more
than 50% relative to existing supply. On an absolute basis, supply additions will mainly be
in Shanghai, Chengdu, Wuhan and Chongqing.
5 60%
50%
4
40%
3
30%
2
20%
1 10%
0 0%
Shanghai Suzhou Shenzhen Tianjin Chengdu Beijing Wuhan GuangzhouChongqing Shenyang Dalian Nanjing Qingdao Wuxi Ningbo Hangzhou
Source: CBRE
Based on publicly available data, we have aggregated the current supply of modern
logistics facilities in China from major players and an estimate of pipeline supply under
development. Based on estimates of GFA under development expected to complete in
2016, supply is likely to exceed 40% in 2016, bringing total GFA from 21 mn sq m to 30
Global Logistic Properties
(GLPL.SI / GLP SP) 7
24 August 2016
mn sq m in 2016. Including the potential pipeline comprising land bank and land reserves,
we estimate supply from major players alone can more than double to over 47 mn sq m.
In addition, several new entrants have significantly expanded their portfolio within a very
short period. For instance, China Vanke opened its first two logistics facilities with over
175,000 sq m in June 2015, and since then has grown its total portfolio to over 1.25 mn sq
m within the span of a year. We caution that our analysis likely underestimates the extent
of incoming supply given the lack of disclosures; but would nevertheless be indicative of
the mounting risks of oversupply near term.
Figure 16: Domestic consumption as % of GDP still Figure 17: CS forecasts suggest domestic
low for China consumption as % of GDP for China will increase
(%)
8.5
90
8.16
85 8.0
82.7 7.68 7.82
80
79.0 7.5
75
73.4 6.9
7.0
70
6.5 6.5
65 6.5
60 6.0
55
51.1 5.5
50
5.0
45 2015E 2016E 2017E
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
CH Growth in Real Private Consumption (YoY%)
China Japan United States Germany CH Real GDP Growth (YoY%)
Figure 18: China’s logistics penetration is still fairly Figure 19: China’s urbanisation rate
low
Logistics space: GFA (sqm) per capita Mn
1,400 60%
6
5.5 56%
1,200
50%
5
4.5 1,000
600 30%
3
400
20%
2 200
0 10%
1
0.4 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
0.3
Total population Urban population
0
Brazil China Japan HK US % of urban population (RHS)
Figure 20: Slowdown in GDP growth and private Figure 21: …with similar trends in nominal wage
consumption demand growth
(%) (%)
14 16
12 14
10 12
8 10
6 8
4 6
2 4
2
0
2010 2011 2012 2013 2014 2015 2016E 2017E 0
China Real GDP Growth (YoY%) 2010 2011 2012 2013 2014 2015 2016E 2017E
China Growth in Real Private Consumption (%) China Nominal Wage Growth (YoY)
Figure 22: GMV of China online shopping market Figure 23: Online retail sales penetration in China
2011-2018
RMB (bn) 18% 17.1%
9,000 70% 16.5% 16.8%
16% 15.4%
8,000
60%
14% 13.3%
7,000
50%
6,000 12% 10.7%
5,000 40%
10%
4,000 8.0%
30% 8%
3,000
20% 5.6%
6%
2,000 4.3%
10% 4% 3.2%
1,000
0 0% 2%
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E
0%
GMV % YoY - RHS 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E
Source: iResearch Source: DTZ, Cushman & Wakefield, National Statistics Bureau
Figure 24: Projected revenue of 3PLs in China Figure 25: Expenditure on 3PLs as % of total
logistics expenditure
RMB (bn) (%)
250 14% 12
10.9
10.5 10.5
12% 10
200
8
10%
8
150 8%
6
100 6%
4
4%
50 2
2%
0 0% 0
2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E China US Europe Japan
Source: The Statistics Portal, DTZ, Cushman & Wakefield Source: Armstrong & Associates
Figure 26: Value of land use rights on customers' balance sheet rapidly rising
(Rmb mn) Dec-13 Dec-14 Dec-15 Jun-16
Vipshop 0.0 82.0 197.5 2,244.9
JD.com 598.9 1,067.3 1,928.2 2,206.9
Source: Company data
Large e-commerce firms Similarly, JD.com, as at Dec-2015, owns land use rights in 12 cities, including Beijing,
are increasingly Shanghai, Guangzhou, Wuhan, Shenyang, Kunshan, Chongqing, and Tianjin, to build its
expanding by building own warehouses, having paid an aggregate of c.Rmb3.2 bn (US$0.5 bn) for the
their own facilities, which acquisition of land use rights, building of warehouses and purchasing equipment. Since
could impact demand launching 100,000 sq m of warehouse space in Shanghai in October 2014, JD.com has
from warehouse gone on to launch an aggregate 250,000 sq m of warehouse space across Guangzhou,
providers Wuhan, Guiyang and Shenyang, with further plans to expand such self-owned
warehouses across various cities.
Other anecdotes include Tmall.com, China's largest B2C website spun off from Taobao,
which is securing a warehouse in Nansha, while Yhd.com (majority owned by Walmart)
has relocated from a Prologis facility to its newly-constructed warehouse in Dongguan in
4Q15. Given the increasing trend of e-commerce companies moving upstream, we believe
this could pose continued risks to demand for conventional logistics facilities lessors.
Cost sensitive e-commerce players could taper rental growth
With e-commerce players representing the demand driver for modern logistics facilities,
low margins at these companies could taper future rental growth prospects for logistics
facilities. Retention ratios for GLP are c.60% in China for example, perhaps reflective of
the cost sensitive nature of its customers. Looking at Vipshop, we see that its EBIT and
core net profit margins are at the c. 5% levels, slightly negative for JD.com historically.
This could thus hinder the ability of warehouse providers to raise rents meaningfully.
Figure 27: Low margins of e-commerce players could limit the ability of warehouse
providers to raise rents
(Rmb mn) 2014 2015 2016E 2017E 2018E
JD.com EBIT -4,949 -9,319 -1,740 1,249 4,840
Adj net profit -12,954 -9,388 -2,203 566 3,259
Revenue 115,002 181,287 257,593 348,867 459,324
EBIT margin (%) -4% -5% -1% 0% 1%
Adj NP margin (%) -11% -5% -1% 0% 1%
Vipshop EBIT 834 2,071 2,652 3,607 4,225
Adj net profit 1,234 2,247 2,724 3,462 3,992
Revenue 23,129 40,203 55,615 69,578 81,557
EBIT margin (%) 4% 5% 5% 5% 5%
Adj NP margin (%) 5% 6% 5% 5% 5%
Source: Company data, Credit Suisse estimates
Global Logistic Properties
(GLPL.SI / GLP SP) 11
24 August 2016
Figure 28: CBRE expects only moderate growth in Figure 29: …with most cities continuing to see
the next six months… slowing rental growth
Rental growth 1Q16 (QoQ) 2Q16 (QoQ) Next 6 months
Guangzhou 2.6% 0.8% 1-3%
Rental decline Rental decline Rental growth Rental growth slowing
Shenzhen 0.7% 2.8% 1-2% accelerating slowing accelerating
Beijing 2.3% 0.0% 0-1%
Chengdu Dalian
Dalian 0.0% 0.3% 0-1% Chongqing
Hangzhou 5.2% 5.0% 0-1%
Beijing Shenyang
Nanjing 3.6% 5.0% 0-1% Tianjin
Ningbo 4.6% 5.0% 0-1% Qingdao
Wuhan
Qingdao 0.6% -0.2% 0-1%
Shanghai
Shanghai 3.5% 5.0% 0-1%
Ningbo
Shenyang 0.0% 2.5% 0-1%
Tianjin 0.2% 0.0% 0-1% Shenzhen Nanjing
Chengdu -0.5% -0.8% -1-0% Hangzhou
Chongqing 0.3% 0.0% -1-0% Guangzhou
Wuhan -1.9% -0.6% -1-0%
Source: CBRE estimates Source: CBRE estimates
GLP is one of the largest global providers of modern logistics facilities, where the company
owns and operates a 52 mn sq m (on a 100% basis) network of facilities across its key
markets of China, Japan, Brazil and the United States. This comprises 37.9 mn sq m of
Figure 31: Steady growth in completed GFA (100% Figure 32: FY16 pro-rata investment properties'
basis) valuation
(mn sqm)
40.0 37.9
Japan: FY04-FY16 CAGR of 30% Total pro-rata portfolio valuation: US$11.486 bn*
35.0 China: FY05-FY16 CAGR of 58% Land, $511
Brazil: FY13-FY16 CAGR of 36% , 5%
Total: FY04-FY16 CAGR of 55% 28.9 Other
30.0 16.0 facilities,
Brazil,
Under $723 ,
$65 , 1% development 6%
25.0 , $1,074 , US, $1,311
10.7 9% , 12%
Completed
20.0 2.5 & pre-
stabilized,
14.8 2.4 $1,076 , 9%
15.0 12.2 1.4 China,
10.0 1.0 $6,081 ,
14.9 53%
10.0 6.8 11.8 Japan,
5.4 6.0 9.5 $3,371 ,
3.8 6.4 7.6 Completed
& stabilized,
29%
5.0 2.4 2.6 3.2 4.0
0.2 0.6 1.3 0.8 1.4 $8,760 ,
0.1 0.3
1.0 1.6 2.42.8 2.8 2.8 3.6 3.6 3.9 4.0 4.5 76%
0.0 0.2 0.5
FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
■ Operations: Qwnership, management and leasing out of logistics facilities across its
network. 4,000 plus customers at present including a mix of manufacturers, retailers
and third-party logistics companies.
Figure 33: Development—25% value creation Figure 34: Funds platform—steady growth in fee
margin income
(US$ mn, GLP (AUM - US$ bn) (Fees - US$ mn)
share)
1600 40% 40 160
35
$1,350
1400 35% 35 140
2.5
$250 $1,155
1200 30% 30 120
Figure 35: GLP—a clear market leader in China Figure 36: Strategic rationale for the sale of stake in
based on completed area China Holdco to consortium partners in 2014
(mn sqm)
16 14.9
14
GLP stake 19.9%
12
10
4
1.9 1.5
2 1.3 1.1 1.0 0.8 0.8 0.8 0.6
0
GLP
Goodman
Blogis
Redwood
Yupei
Mapletree
Prologis
Cainiao
Boxway
Vipshop
E-Shang/
Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.
Figure 37: China portfolio by area (100% basis) Figure 38: China portfolio by valuation (100% basis)
(mn sqm) (US$ bn)
30.0 14.0
26.7 12.2
25.0 12.0 1.1
21.8 6.4 10.2
10.0 1.4
20.0 18.7 1.0 0.2
5.4 8.2 1.4
5.3 1.2
15.0 8.0 6.8 1.2 0.2
15.0 5.7 0.8
4.6 0.7 0.8
10.7 4.2 2.5 6.0 5.4 1.1 0.2
3.6 0.7 0.9 0.9
10.0 8.0 1.5 3.9 0.9 0.2
2.1 3.1 0.8 0.6 0.4
1.3 4.0 0.2 8.1
2.1 0.8 0.9 0.2 7.0
2.4 0.8 0.7 0.5
5.0 0.3 11.7 0.0 5.1
1.6
0.0 9.6 2.0 0.7 4.1
0.6 6.2 7.4 3.5
5.4 1.9
3.4
0.0 0.0
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
Completed Completed & pre-stabilized Completed Completed & pre-stabilized
Other facilities Under development/repositioning Other facilities Under development/repositioning
Land held for future development Land held for future development
equity investment, with income from the investment properties not recognised in GLP's
income statement.
Figure 39: GLP—largest modern logistics player in Figure 40: Stable rents and occupancies in Japan
Japan
(mn sqm) 1,200 120%
1,077 1,077 1,083 1,087 1,098 1,109
5.0
4.5
4.5 1,000 100%
4.0 99% 99% 99% 99% 99% 99%
3.5 800 80%
3.0 2.6
2.3 600 60%
2.5
2.0
400 40%
1.5 1.1 1.0
1.0 0.8 0.8 0.8 0.7 0.7 200 20%
0.5
0.0 - 0%
FY11 FY12 FY13 FY14 FY15 FY16
JLF
House
GLP
Prologis
Lasalle
Goodman
Mapletree
Mitsubishi
Nomura RE
Mitsui RE
Daiwa
Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.
Figure 41: Japan portfolio by area (100% basis) Figure 42: Japan portfolio by valuation (100% basis)
(mn sqm) (US$ bn)
6.0 5.6 10.0
9.1
4.9 9.0 8.1 0.5
5.0 1.0 7.5 7.7 0.7
4.4 8.0 0.2 7.3
4.0 0.9 0.4 0.2
3.8 0.4 7.0 0.1 0.4 0.5
4.0 0.5 6.2
0.2 0.4 0.2
0.1 6.0
2.8
3.0 5.0
4.0 7.9 7.9
2.0 4.0 4.1 7.0 7.0 6.8
3.6 3.5 3.7 3.0 6.2
2.8
2.0
1.0
1.0
0.0 0.0
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
Completed Completed & pre-stabilized Completed Completed & pre-stabilized
Under development/repositioning Land held for future development Under development/repositioning Land held for future development
Figure 43: Brazil—fragmented market with limited Figure 44: Decline in lease ratios with completions
large players
(mn sqm) 30.0 100%
3.0 98%
2.5 25.0 97% 98%
2.5 21.9
96% 20.4
20.0 17.8 96%
2.0 16.8
15.0 94%
1.5
92%
10.0 92%
1.0
0.7
0.6 0.6
0.5 0.5 0.5 5.0 90%
0.5 0.4
0.3
0.2
- 88%
0.0
FY13 FY14 FY15 FY16
Sanca
MRV Log
Marabraz
GLP
Goodman
Armazens
DVR
Prologis
Logbras
Hines
GB
Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.
Figure 45: GLP now the second largest player in the Figure 46: …with two acquisitions in quick
US… succession
(mn sq ft) (mn sqm)
400 20
358
18
350 16.1 16.0
16
300 14
5.4 5.4
250 12 10.7 10.7 10.7
10
200 172
8
150 123
6
87 85 85 10.7 10.7 10.7 10.7 10.6
100 70 4
64 63 60
50 2
0
0
4QFY15 1QFY16 2QFY16 3QFY16 4QFY16
Liberty
DCT
Industrial
Prologis
GLP
Exeter
Majestic
Duke
Partners
USAA
Clarion
Note: Based on completed area for modern logistics for lease as of May 2016. Source: Company data
Source: Company data, CBRE, Credit Suisse estimates.
■ Access to land.
■ Access to funding.
GLP's land sourcing capabilities, a key benefit at a time when limited supply of land is
becoming a constraint.
Significant land bank could provide future growth opportunities…
GLP has historically been able to acquire land for development in China at a pace faster
than its development starts, hence allowing the company to build up a sizeable land bank
today. Based on current management guidance on development starts of 2.6 mn sq m on
a 100% basis, GLP's existing land held for future development would be sufficient for 2.5
years' worth of development starts.
If we further assume that the land reserves of 12.1 mn are fully available to GLP for
conversion, GLP would have sufficient land for 7.1 years' worth of development starts,
putting the company in a comfortable position in terms of future growth opportunities.
Figure 47: Significant buildup of land bank in China, Figure 48: Sufficient land bank for 7.1 years, but
although growth has been largely flat since FY14 GLP's pro-rata share has declined post the China
HoldCo sale
(GFA mn sqm) (GFA mn sqm)
20.0 18 19 19 20.0
17 18 18 18 17 18 18 18
18.0 18.0
16 16
16.0 15 16.0
13
14.0 12 14.0
11
12.0 11 11 11 12.1
12.0 12.8
9 12.1
10.0
8 9 8 10.0
8.0 7 10.5
8.0 9.4
6.0 9.1
6.0 8.8 6.9
4.0 5.7 8.1 6.3
2.0 4.0 5.1
5.7 5.4 6.4
0.0 2.0 4.2 3.2 3.9
2.4 1.6 2.1 1.5 2.5 2.9
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
-
FY11 FY12 FY13 FY14 FY15 FY16
Land held for future development Land reserve Land reserves (pro-rata) Land reserves (100%)
Land held (pro-rata) Land held (100%)
Note: 100% basis. Source: Company data, Credit Suisse estimates. Source: Company data, Credit Suisse estimates
Figure 49: Proportion of land held for future Figure 50: …which is reflected in the halving of $/sq
development in tier 1 cities has been on a decline… m valuation of its land held for future development
(% by GFA) (US$ psm GFA)
100% 450
11% 16% 13% 12%
90% 18% 19% 400
80% 15% 350
26% 20%
20% 15% 16% 300
70%
60% 6% 250
13%
42% 200
50%
44% 43% 150
40% 49%
100
30% 58%
52% 50
20%
31% 0
10% 24% 24%
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
16%
0%
FY11 FY12 FY13 FY14 FY15 FY16
psm value of land held for future development (100%)
Tier 1 Tier 1.5 Tier 2 Tier 3 psm value of land held for future development (pro-rata)
Source: Company data, JLL, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 51: Breakdown of major players' completed Figure 52: GLP's competitors have been able to
GFA grow supply at the same pace
(mn sq m) FY10 FY11 FY12 FY13 FY14 FY15 FY16 (mn sqm)
GLP 3.2 4.03 4.6 5.7 7.6 9.9 14.9 30.0
GLP: 29% CAGR
Goodman 0.3 0.3 0.5 0.6 1 1.5 1.9 25.6
Major players ex-GLP: 27% CAGR
Blogis 0.7 0.6 0.7 0.9 1.1 1.5 1.5 25.0
Prologis 0.3 0.4 0.4 0.5 0.7 0.9 1.3
20.0 10.7
CNLP (Yupei) 0.3 0.3 0.2 0.3 0.4 0.6 1.1 16.7
E-Shang Redwood 0.4 0.6 1
15.0 12.7
Mapletree 0.6 0.6 0.6 0.8 0.8 0.8 0.8 6.8
Vipshop 0.8 9.3
10.0 7.5 5.1
Boxway 0.8 6.6
5.8 3.6 14.9
Cainiao 0.6 2.6 2.9
5.0 2.6 9.9
7.6
ACL 0.3 0.3 0.3 0.3 0.4 0.5 0.5 4.6 5.7
3.2 4.0
Beijing Properties 0.2 0.2 0.2 0.0
FY10 FY11 FY12 FY13 FY14 FY15 FY16
Vailog 0.1 0.1 0.2 0.2 0.1 0.2 0.2
Total 5.8 6.6 7.5 9.3 12.7 16.7 25.6 GLP ex-GLP
Source: Company data, GLP estimates, CBRE estimates Source: Company data, Credit Suisse estimates
Low cost of funding and scale of funds platform provides capital for
growth…
GLP's investment grade credit rating (Moody's: Baa2, Fitch BBB+) and relatively low
gearing (current net debt: total assets of 19.5% as at FY16 vs 40% target) has enabled the
company to secure attractive funding costs to finance its development build-out. The scale
of its funds platform too provides significant uncalled capital to fund growth opportunities,
with US$11.6 bn of uncalled capital, largely focused on China.
A recent example is that of GLP's Rmb1.5 bn issuance of RMB-denominated bonds in July
2016, which we understand to be more than three times oversubscribed. The issuance
comprises three-year tenor bonds priced at 3.12% p.a. and five-year tenor bonds priced at
3.58% p.a.; a sizeable discount to its 5.4% weighted average interest costs in China
(weighted average maturity of 4.1 years) as at FY16.
Figure 53: Attractive cost of funds for GLP Figure 54: Scale of asset base also supportive of
growth
Weighted average interest costs (US$ mn)
25,000 25.0%
7.0%
6.2%
20,240
6.0% 5.4% 20,000 20.0%
5.3% 17,462
4.9% 4.9%
5.0%
15,000 13,580 13,248 13,947 15.0%
4.0% 3.4%
3.0% 2.9% 10,000 10.0%
3.0% 2.7% 2.7%
4,175 4,770
2.0% 5,000 2,882 2,848 5.0%
2,592
1.0%
0 0.0%
FY12 FY13 FY14 FY15 FY16
0.0%
FY12 FY13 FY14 FY15 FY16 Total assets Total loans & borrowings
Group China
Total debt to assets - RHS Net debt to assets - RHS
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 57: Logistics, the second most popular Figure 58: Within China, investor interest in
sector for APAC real estate investors logistics assets remains high
Industrial 40% 38%
5% 35%
35%
Retail
30%
8%
25% 25%
Office 25%
Shopping 33%
20%
centres 20%
9% 16%
15% 12%
Residential 10%
10% 8%
12%
5%
0%
Hotels/Resorts Logistics 0%
15% 18% Office Logistics Residential Retail Hotels
2015 2016
Note: As at March 2016. Source: CBRE, Credit Suisse research Source: CBRE, Credit Suisse research
While an inexhaustive list, we have observed a clear trend of significant inflow of capital
seeking exposure into the Chinese logistics space, as seen in Figure 60. CPPIB, for
example, has committed US$2.6 bn to-date to its China Logistics Partnership with
Goodman Group, which has now invested in 45 logistics projects in 16 Chinese markets.
The breadth of "blue chip" institutional investors and sovereign wealth funds may affirm
the longer-term prospects and attractiveness of the industry; however, the fact that a
broad spectrum of developers outside of GLP too managed to secure investment funding,
likely after rounds of investor due diligence, also signifies investor confidence in the
execution capabilities of these "lesser" developers, in our view.
Given the relatively generic nature of logistics facilities as an asset class, with the
availability of funding in place, smaller developers too will be able to rapidly build out their
supply of logistics facilities.
Figure 59: Major entity-level transactions (JVs) since 2013
Date Investor Developer Amount (US$ mn)
Aug-2016 Ivanhoé Cambridge & CBRE Global Investment Partners LOGOS China Investments 400
Feb-2016 PGGM Redwood 160
Dec-2015 CPPIB Goodman Group 1,000
Aug-2015 APG E-Shang 285
Jul-2015 Seven leading global institutions GLP 1,613
Jun-2015 Ivanhoé Cambridge & CBRE Global Investment Partners LOGOS China Investments 400
Jun-2015 RRJ Capital, Seatown holdings & others CNLP 250
Nov-2014 CPPIB Goodman Group 400
Sep-2014 Ping An Real Estate, PAG Wuzhou International 343
Jul-2014 PGGM Redwood 144
Jul-2014 Mitsui, Mitsubishi Beijing Properties Holdings 146
May-2014 APG E-Shang 650
Apr-2014 RRJ Capital, Temasek Yupei 250
Feb-2014 BOCGI, Hopu Funds, China Life GLP 2,500
Dec-2013 Goldman Sachs E-Shang 120
Nov-2013 Six leading global institutions GLP 662
Aug-2013 Carlyle, Townsend Group Yupei 200
Jul-2013 HIP China (ADIA) Prologis 500
Jul-2013 CPPIB Goodman Group 400
Source: Company data, JLL, Credit Suisse estimates
Global Logistic Properties
(GLPL.SI / GLP SP) 23
24 August 2016
300,000 8
517,000
6
200,000 4 4
358,000
4
100,000 1 2
27,000 62,000 89,000
- -
FY12 FY13 FY14 FY15 FY16
Whilst JD.com has tripled The rapid growth of JD.com has no doubt translated into strong leasing demand for its
its warehouse GFA from fulfilment and distribution centres, and hence demand for GLP's logistics facilities in China.
1.3 mn sq m in 2013 to 4 Based on filings by JD.com, aggregate GFA of its warehouses has tripled from 1.3 mn sq
mn sq m in 2015, we m in 2013 to 4 mn sq m in 2015. Critically, however, we estimate that GLP only
estimate that GLP is only represented c.12% of total facilities area of JD.com, with close to 80% of JD.com's
c.12% of total area requirements leased from other lessors. This is despite GLP's far larger scale of
operations in China, as seen in Figure 62.
With JD.com in the process of constructing more of its owned, custom-designed
warehouses on land where it has obtained land use rights, we believe there could be rising
risks of portfolio vacancy on the part of third-party lessors such as GLP.
Figure 61: Robust growth in total GFA of JD.com Figure 62: …but GLP only c.12% of total area, with
logistics network of warehouses… JD.com's % of owned warehouses to continue
increasing
(sqm)
100.0%
4,500,000 250
90.0%
213
4,000,000
80.0%
3,500,000 200
70.0%
3,000,000 60.0% 79.4% 79.2%
150 93.3%
2,500,000 123
50.0%
2,000,000 4,170,610 40.0%
82 100
1,500,000 30.0%
1,000,000 2,220,928 20.0%
50
1,322,845 16.1% 12.4%
500,000 10.0%
6.7% 4.5% 8.4%
0 0 0.0%
CY2013 CY2014 CY2015 CY2013 CY2014 CY2015
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 63: Strong growth in Vipshop's logistics Figure 64: …but GLP as % of total on a decline
facilities…
(sqm) 100%
1,800,000 90%
1,561,555 32%
1,600,000 80%
1,400,000 70%
1,200,000 1,105,406 60%
85% 83%
1,000,000 50%
800,000 40%
68%
600,000 30%
313,323 20%
400,000
222,459
117,810 10% 17%
200,000 15%
0%
0 CY2013 CY2014 CY2015
CY2011 CY2012 CY2013 CY2014 CY2015
Owned Leased GLP Other lessors + owned
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 65: Share of e-commerce as % of leased area Figure 66: Lease profile by end-user industry in
in China has stabilised at c.25% since FY14 China—not immune to slowdown in the broader
economy
100% Others Machinery
Pharmaceuticals 4% 1%
/Medical
90%
3%
80%
70%
Auto & Parts
75% 76% 74% 8%
60% 80%
85% Retail/Fast
96% 91%
50% Food Chain
Electronics/Hig 32%
40% h-Tech
30% 13%
20% General
25% 24% 26% Logistics
10% 20% Services
15%
4% 9% FMCG
0% 18%
21%
FY10 FY11 FY12 FY13 FY14 FY15 FY16
e-commerce Others
Source: Company data, Credit Suisse estimates Note: As at FY16. Source: Company data, Credit Suisse estimates
Figure 67: Rental growth in China on a downtrend… Figure 68: …with FY16 effective rents similar to
FY12 levels
1.2 8% 1.2 20%
1 1.0 10%
4%
0.9 0.9 5%
2%
0.8 0.8 0%
0%
0.7 0.7 -5%
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
Rents (RMB/sqm/day) % YoY - RHS Effective Rents (RMB/sqm/day) % YoY - RHS
Note: 1Q FY17 rent restated due to VAT. Source: Company data, Credit Suisse estimates. Note: change in basis of disclosing effective rents from 2Q FY15, while 1Q FY17 rent
impacted by VAT reform (flat QoQ otherwise). Source: Company data, Credit Suisse
estimates.
While GLP continues to report steady same-property rental rate growth of c.5% in recent
years, we highlight that GLP's portfolio constitution is an important driver of overall rental
rate growth. On this note, we believe that in addition to slowing demand, the shift towards
lower-tier cities in China will continue to pose a drag on portfolio rents in both the near
term and longer term.
Figure 70 highlights the steady decline in completed GFA in tier 1 cities from 49% in FY11
to 29% in FY16. With only 20%of projects under development located in tier 1 cities as at
FY16, we believe the prospects for rental growth continue to be constrained in the near
term. This would likely be reflected in the longer term in our view, with a similar decline in
land bank in lower-tier cities as described earlier in Figure 50.
Figure 69: Proportion of completed GFA in tier 1 Figure 70: …and unlikely to reverse given a similar
cities has been on a decline… trend in projects under development
(% by GFA) (% by GFA)
100% 4% 4% 100%
7% 5% 10% 9% 5% 11%
8% 6% 8% 15% 18% 14% 17%
90% 7% 10% 90%
9% 15% 12%
80% 80% 14% 9% 19% 11%
70% 40% 70% 34%
47%
60% 49% 50% 60%
50% 41%
50% 47% 50% 37%
52% 52%
40% 49%
40%
30% 30%
49% 52%
20% 43% 38% 20% 37%
35% 30% 34%
29%
10% 10% 22% 18% 20%
0% 0%
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
T1 T1.5 T2 T3 T1 T1.5 T2 T3
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
GLP provides rental data for its completed and stabilised logistics portfolio in China on a
regional basis rather than on a city basis. We note that the Northern region has a
significant rent premium vs the rest of its portfolio, likely due to its properties located in
Global Logistic Properties
(GLPL.SI / GLP SP) 28
24 August 2016
Beijing. However, given that pro-rata development starts in the North only amount to 12%
of starts in FY16, we believe it is unlikely that portfolio rents will receive a significant boost
near term.
Figure 71: China's portfolio data in FY16—rents likely to remain range bound, given low development starts in the
North
(FY16) East North South Mid-West Total East North South Mid-West Total
Rents for completed & stabilised logistics (RMB/sq m/day) 1.11 1.38 1.08 0.97 1.14
Completed area (mn sq m) 7.8 2.8 1.4 3.0 14.9 52% 18% 9% 20% 100%
Pro-rata completed area (mn sq m) 3.8 1.4 0.7 1.5 7.4 51% 18% 10% 20% 100%
Pro-rata development starts (mn sq m) 1.0 0.2 0.1 0.4 1.7 59% 12% 6% 23% 100%
Pro-rata land acquired for future devt (mn sq m) 1.0 0.2 0.2 0.7 2.1 47% 9% 8% 35% 100%
Source: Company data, Credit Suisse estimates
Figure 72: Lease ratios of stabilised properties Figure 73: …with a sizeable share of pre-stabilised
historically at c.90%, although this has declined of properties likely to come on-stream
late…
92% (GFA mn sqm)
14.0
91%
90% 12.0
89% 10.0
88%
8.0
87%
6.0
86%
85% 4.0
84% 2.0
83%
0.0
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 74: Our FY17E core PATMI estimate is 17% below consensus
(US$ mn)
350.0
320.4
301.7 306.5
300.0 281.5
276.0
250.0 240.9
229.2
200.0
150.0
100.0
FY16 FY17E FY18E FY19E
CS core PATMI Consensus PATMI
We expect only modest rental growth rate of 2% in China, with occupancies expected to
trend lower over the next three years:
Figure 75: CS' rental growth and occupancy estimates
Rent growth Occupancy
FY17E FY18E FY19E FY17E FY18E FY19E
China 2.0% 2.0% 2.0% 85% 83% 82%
Japan 0.8% 0.8% 0.8% 99% 99% 99%
Brazil 0.4% 0.4% 0.4% 89% 89% 89%
US 4.0% 4.0% 4.0% 94% 94% 94%
Source: Company data, Credit Suisse estimates
Figure 76: China development starts (100% basis) Figure 77: China development completions (100%
basis)
3.5 3.3 3.0
3.0
2.5
3.0 2.5 2.4
2.5 2.6 2.2
2.5 2.0
2.0 CS estimates:
2.1 2.4
2.0
1.7 CS estimates:
1.5
2.2 1.2
1.5 1.2 1.0
1.0
1.0
0.6
0.5 0.5
0.0 0.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17F FY11 FY12 FY13 FY14 FY15 FY16 FY17F
China development starts (mn sqm) China development completions (mn sqm)
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Historical PATMI ex-reval and NAV growth flat, though FX has a role to play
We believe a key gripe amongst investors is the lack of earnings growth at GLP. While
management highlighted that GLP's headline PATMI jumped 48% YoY in FY15, FY16
PATMI of US$719 mn remains relatively unchanged from FY11 levels.
Excluding the impact from revaluations, PATMI ex-revals has remained lacklustre, and this
is in part due to the expansion of GLP's funds platform, which has resulted in a dilution of
its stake in Japan through the formation of GLP J-REIT and the dilution in its China
properties through its China consortium stake sale.
Figure 78: Headline PATMI remained relatively Figure 79: …with PATMI ex-revals expected to
unchanged since FY11… remain below FY12-13 levels over the next few years
(US$ mn) (US$ mn)
800 400
706 719 350
684 685
700 350
314 306
606
600 576 300 279 281
541 530
486 247 241
500 250 229
201
400 200
300 150
200 100
100 50
- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
the most relevant in evaluating the results of these segments relative to other entities that
operate within the logistics industry".
On this front, we note that FY16 EBIT ex-revaluation was supported by contribution from
the US, as a result of syndication gains in US Income Partners I and the inclusion of
results of GLP US Income Partners II acquired in November 2015, and share of results of
GLP US Income Partners I for FY16 prior to full syndication. While we believe EBIT ex-
reval will continue to grow given its pipeline of project completions, we are less sanguine
on earnings growth prospects in FY17E.
Figure 80: EBIT ex-revaluations (US$ mn) Figure 81: Growth in EBIT and PATMI ex-revals in
FY16 largely due to contributions from the US
(US$ mn) (US$ mn)
700
800.0 597
715 600
700.0 643
500 160
597
600.0 574 391
400
484
500.0 300
423 411 241
391 201
400.0 367 200 395 436 89
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
We believe that as profitability has been slow to come through historically, investors will
look towards NAV growth as an indication of the value creation potential of a company. On
this front however, NAV has been flat at the c.US$1.80-1.90 level since FY13.
GLP's NAV has been flat Negative currency translation impact does have a significant role to play; excluding the impact
at the c.US$1.80-1.90 of currency translation, NAV per share as at FY16 would have increased to US$2.10 vs
levels since FY13 US$1.87. However, given GLP's eponymous global exposure, we believe currency risks are
part and parcel of the risks and rewards of investing in overseas jurisdictions.
Figure 82: NAV/share has been flattish since FY13 Figure 83: Although currency does have a certain
degree of impact
(US$) 2.50
2.00
2.10
1.80 1.98
1.94
1.60 2.00 1.84 1.84 1.81 1.87
1.77
1.691.68
1.40
1.20 1.441.44
1.50
1.00
0.80
0.60 1.00
0.40
0.20
0.50
0.00
4QFY11
1QFY12
2QFY12
3QFY12
4QFY12
1QFY13
2QFY13
3QFY13
4QFY13
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
0.00
FY11 FY12 FY13 FY14 FY15 FY16
FY11 FY12 FY13 FY14 FY15 FY16 FY17
NAV per share (USD) BVPS BVPS adj. for exchange differences
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
In FY16, China, Japan and Brazil accounted for 47%, 54% and 4% of PATMI ex-reval
(does not sum to 100% due to the "corporate" segment) and 57%, 25% and 5% of
reported NAV (assuming GLP's 10% equity stake in GLP US Income Partners II),
respectively.
While GLP will likely benefit from the significant appreciation of the Yen in recent months,
we expect the continued depreciation of the Yuan to pose continued headwinds for the
group's key geographic region of China.
Further depreciation of Figure 84: CS exchange rate expectations
the Yuan to pose 2010 2011 2012 2013 2014 2015 2016E 2017E
continued headwinds for USD/CNY 6.6 6.3 6.2 6.1 6.2 6.5 6.8 7.1
China USD/JPY 81.1 76.9 86.8 105.3 119.8 120.2 98.3 95.0
USD/BRL 1.7 1.9 2.0 2.3 2.7 3.9 3.4 4.0
Note: Exchange rates as at end of year.
Source: Company data, Bloomberg, Credit Suisse estimates.
believe the derating of GLP is partly a structural issue as well, which will likely persist in
the near term owing to much uncertainty on the future direction of the company.
Figure 85: Negative share price performance following entry into new markets
104.0
102.0
100.0
98.0
96.0
94.0
92.0
90.0
88.0
86.0
84.0
T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T+8 T+9 T+10 T+11 T+12 T+13 T+14
1st entry into Brazil Acquisition of 2nd Brazil portfolio
1st entry into US Acquisition of 2nd US portfolio
Source: Company data, Credit Suisse estimates. Note: T = date of first announcement
We believe the closest comparable companies of GLP will be US-listed Prologis Inc (PLD)
and Australian-based Goodman Group (GMG), given the integrated nature of these
companies in the ownership, development and management of logistics facilities globally.
Figure 87: GLP lagged its peers in headline Figure 88: Clear trend of NAV growth for GMG, with
earnings growth over the past five years GLP and PLD NAV little changed
350.0 180.0
312.2 170.0
300.0 166.1
285.5 160.0
250.0 150.0
140.0
200.0
130.0
150.0 120.0
133.0
114.1
100.0 110.0
107.4
100.0
50.0
90.0
0.0 80.0
T-4 T-3 T-2 T-1 T T-4 T-3 T-2 T-1 T
Source: Company data, Credit Suisse estimates. Note: PLD earnings represented by FFO Source: Company data, Credit Suisse estimates
While valuations for GLP are undemanding at 21% discount to RNAV and 0.73x P/B, we
believe it will take time for GLP to be vindicated, unless management is able to deliver on
sustainable earnings and NAV growth going forward. Our TP implies 26x P/E, in line with
historical averages; this is a result of the derating in ROEs of the company.
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Feb-13 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16
GLP Prem/(disc) to RNAV Mean - (19.3)% ± 1 std GLP P/B Average: 1.0x + 1 std: 1.2x
- 1 std: 0.8x +2 std: 1.4x -2 std: 0.7x
Source: Company data, Thomson Reuters, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates
27 0.9 3.5
0.8
23 3.0
0.7
19 2.5
0.6
15
0.5 2.0
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
GLP P/E Average: 26.5x + 1 std: 32.7x
- 1 std: 20.2x +2 std: 38.9x -2 std: 14.0x GLP P/B ROE (RHS)
Source: Company data, Thomson Reuters, Credit Suisse estimates Source: Company data, Thomson Reuters, Credit Suisse estimates
Figure 93: Cumulative share buy-backs by GLP thus Figure 94: Limited share price support from buy-
far backs
No. of shares (mn) Average price (S$) Value of shares (S$
2.9
mn) Buy-backs: Buy-backs:
Jul 2016 12.7 1.85 23.5 Aug-Oct 15' May-Jul 16'
2.7
Jun 2016 32.1 1.80 57.7
May 2016 19.4 1.80 34.8 2.5
1.5
Jul-15
Jul-16
Jan-15
Feb-15
Mar-15
Apr-15
Jun-15
Oct-15
Nov-15
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
Jun-16
May-15
Aug-15
Sep-15
May-16
Aug-16
Source: Company data, Bloomberg, Credit Suisse estimates Source: Company data, Bloomberg, Credit Suisse estimates
In addition to management fees, GLP also has the potential to enhance its returns from its
fund management platform through promotes. Based on GLP's FY15 annual report (not
provided in FY16), the NPV of estimated promotes amount to US$400 mn, assuming all
requisite triggers are satisfied. However, we highlight that the earliest promotes are only
expected in FY22, and are not expected to be a near-term catalyst for the company.
Figure 95: GLP fund management platform
Fund name Vintage Type Fund Investment Fund partners Total equity GLP Co-
management to-date commitment investment
AUM
CLF I Nov-13 Opportunistic US$3.0 bn US$1.8 bn Various US$1.5 bn 55.9%
CLF II Jul-15 Opportunistic US$7.0 bn US$0.0 bn Various US$3.7 bn 56.4%
Total China US$10.0 bn US$1.8 bn US$5.2 bn 56.3%
GLP Japan Development Venture I Sep-11 Opportunistic US$3.1 bn US$2.1 bn CPPIB US$1.3 bn 50.0%
GLP Japan Income Partners I Dec-11 Value-add US$1.2 bn US$1.2 bn CIC, CBRE US$400 mn 33.3%
GLP J-REIT Dec-12 Core US$4.3 bn US$4.3 bn Public US$1.8 bn 15.0%
GLP Japan Development Venture II Feb-16 Opportunistic US$2.3 bn US$100 mn CPPIB US$1.0 bn 50.0%
Total Japan US$10.9 bn US$7.7 bn US$4.5 bn 34.4%
GLP US Income Partners I Feb-15 Core US$8.3 bn US$8.3 bn GIC, CPPIB & Others US$3.2 bn 10.4%
GLP US Income Partners II Nov-15 Core US$4.7 bn US$4.7 bn China Life & Others US$2.0 bn 9.9%
Total US US$13.0 bn US$13.0 bn US$5.2 bn 10.2%
GLP Brazil Development Partners I Nov-12 Opportunistic US$1.0 bn US$600 mn CPPIB, GIC US$800 mn 40.0%
GLP Brazil Income Partners I Nov-12 Value-add US$800 mn US$800 mn CIC, CPPIB, GIC US$400 mn 34.2%
GLP Brazil Income Partners II Oct-14 Value-add US$800 mn US$700 mn CPPIB & Other Investor US$600 mn 40.0%
Total Brazil US$2.6 bn US$2.1 bn US$1.8 bn 38.2%
Total US$36.5 bn US$24.6 bn Various US$16.7 bn 32.0%
Source: Company data
China income fund and IPO of China HoldCo: Further downside risk to earnings?
As part of the terms of the partial divestment of GLP's China HoldCo to the consortium of
Chinese domestic institutions, the parties have agreed to work together to achieve a future
IPO of China Holdco, within three years of completion of the transaction. The transaction
was completed in two tranches, closing on 6 June 2014 and 24 September 2014; as a
We believe an IPO of result, we believe that an IPO of the China HoldCo would be a possibility in the next 12
China Holdco could months.
present further downside
However, while this could potentially bring one-off revaluation gains to GLP, given the cap
risks to GLP's earnings,
given the further dilution rate compression thus far and continued investor interest in the asset class, we believe
of GLP's interests in its this could present further downside risks to GLP's earnings, given the further dilution of
completed and stabilised GLP's interests in its completed and stabilised properties.
properties
Figure 96: Little share price outperformance Figure 97: Lower core earnings with J-REIT IPO and
following the GLP J-REIT IPO subsequent asset divestments
(1 Nov 12 = 100) (US$ mn)
108.0 400
106.0 340
350
104.0
102.0 300
100.0
250
98.0 194
Completion of 200 175
96.0
J-REIT IPO 158 158
94.0 Announcement 138 130
150
92.0 on establishment
of J-REIT
90.0 100
88.0
50
86.0
01/11/12
08/11/12
15/11/12
22/11/12
29/11/12
13/12/12
20/12/12
06/12/12
-
FY13 FY14 FY15 FY16
Source: Company data, Bloomberg, Credit Suisse estimates Source: Company data, Credit Suisse estimates
As seen in the prior episode with the formation of GLP J-REIT, we believe there has not
been a significant rerating of the company post the IPO, with lower core earnings following
subsequent divestment of stabilised assets to J-REIT instead.
Similarly, the formation of a China income fund in response to strong investor demand has
been another catalyst which has been flagged by management; though in its FY16
earnings call, management has highlighted that GLP is balancing its cash requirements for
capital recycling vs the timing of the fund. Given a slower pace of development starts, and
that GLP's net debt to assets of 24% remains comfortably below its target of 40%, we
believe a China income fund is unlikely to materialise in the near term. Similar to a
potential IPO of the China HoldCo, we believe the dilution impact to core earnings would
be an important implication for GLP.
Figure 98: NCI share of total net profits increased Figure 99: …with NCI now 30% of total net profits on
post China HoldCo stake sale… average
(US$ mn)
100%
400
90%
350 80%
300 70%
250 60%
50%
200
40%
150
30%
100
20%
50 10%
0 0%
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
1QFY14
2QFY14
3QFY14
4QFY14
1QFY15
2QFY15
3QFY15
4QFY15
1QFY16
2QFY16
3QFY16
4QFY16
1QFY17
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
■ Properties under development and land held for future development: book value.
■ Development pipeline: based on 25% value creation margins, with discount rates of
11.5% (China), 7% (Japan) and 14% (Brazil).
■ Management fee business and corporate costs: based on a 12x earnings multiple
for management fee income vs 10x multiple for corporate costs, to reflect the scalability
of GLP's overheads.
■ 10% appreciation of GLP's operating currencies of CNY, JPY and BRL against USD.
■ GLP managing 25% higher completions than our base case estimates.
■ 10% depreciation of GLP's operating currencies of CNY, JPY and BRL against USD.
■ GLP managing 25% less completions than our base case estimates.
■ In such a scenario, we assume GLP derates to its trough discount to RNAV of 45%.
A sensitivity of our TP to changes in asset valuation and currency expectations are as
follows:
Figure 101: Sensitivity of our TP to changes in asset Figure 102: Sensitivity of our TP to changes in FX
values
Appreciation/(depreciation) of USD vs. operating currencies
Increase/(decrease) in asset valuations in China
CNY, JPY & BRL
-15% -10% -5% 0% 5% 10% 15% -15% -10% -5% 0% 5% 10% 15%
-15% 1.31 1.38 1.45 1.52 1.59 1.66 1.73 -15% 1.67 1.57 1.48 1.40 1.33 1.27 1.21
Increase / (decrease) in
(depreciation) of USD
-10% 1.35 1.42 1.49 1.56 1.63 1.70 1.78
asset valuations in
Appreciation /
-5% 1.40 1.47 1.54 1.61 1.68 1.75 1.82 -5% 1.86 1.76 1.66 1.57 1.49 1.42 1.35
vs. SGD
Japan
0% 1.44 1.51 1.58 1.65 1.72 1.79 1.86 0% 1.96 1.85 1.75 1.65 1.57 1.49 1.42
5% 1.49 1.56 1.63 1.70 1.77 1.84 1.91 5% 2.06 1.94 1.83 1.74 1.65 1.57 1.49
10% 1.53 1.60 1.67 1.74 1.81 1.88 1.95 10% 2.16 2.03 1.92 1.82 1.73 1.64 1.57
15% 1.57 1.64 1.72 1.79 1.86 1.93 2.00 15% 2.26 2.12 2.01 1.90 1.80 1.72 1.64
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 103: Asset value breakdown by type Figure 104: RNAV breakdown by country
Management Others
fee 5%
5%
Brazil
US
1%
8%
Land held for Development
future pipeline
development 13%
4%
Under
development Japan
7% 26%
China
Completed 60%
properties
71%
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Key risks
Key management personnel risk
Led by CEO Ming Z. Mei, GLP is highly dependent on its key management personnel (see
Appendix) and other senior managers of the company, in our view. Given the importance
of management know-how and relationships, against intensive competition in the sector,
the inability to attract and retain key management and senior managers could potentially
impact the financial performance and market perception of GLP.
This is partially mitigated by the company’s long-term incentive compensation packages,
whereby senior management has direct interest in the company with a stock-based
performance programme, which allows greater alignment of interests.
Currency risk
By virtue of its business operations in China, Japan and Brazil, GLP is exposed to
currency risks in these three markets. Moreover, GLP's presentation currency is in USD,
and hence currency fluctuations could impact its reported financial results through
currency translation. While management adopts natural hedging by borrowing in local
currencies, and uses foreign exchange contracts to hedge and minimise net foreign
exchange exposures, this may not be adequate in mitigating any impact from unfavourable
currency fluctuations.
We have adopted CS economists' exchange rate expectations in our forecasts, but
assuming a further 10% depreciation of the CNY, JPY and BRL against the USD, our TP
for GLP declines by 9.7%, while our PATMI estimate for FY17E will decline by 7.5%.
Competition risk
Although GLP has market leadership in China, Japan, Brazil and the US, we note that the
logistics market is generally very fragmented, and key players often collectively only
command a small fraction of the entire market. We expect competitive intensity to continue
increasing in its key market of China in particular, given the significant amount of new
investments made into the sector by established logistics players and new entrants alike.
In our view, the barriers to entry may not be as significant, given the relative ease of
constructing a typical logistics warehouse. Further, local and regional competitors may
have equal or better local knowledge and relationships and access to funding and land at
reasonable prices, hence eroding GLP's current market leadership position and impacting
GLP’s rental and occupancy outlook.
Access to land risk
By virtue of its role as a developer of logistics facilities, continued access to suitable land
in ideal locations close to transportation nodes, and at appropriate prices is a key risk for
the company. Greater competition in the market, in conjunction with a general reluctance
by provincial governments in granting land for industrial use has resulted in tougher
competition for land in China. This is partially mitigated by GLP's sizeable land reserves of
12.1 mn sq m, and strategic relationships to gain access to land; although pricing and
attractiveness of the location remains key.
Regulatory risk
GLP’s development assets are located in China, Japan and in Brazil and its operations will
be subject to provincial and government approvals in the respective countries. In addition
to various licences and permits to operate, we understand that obtaining the various
permits, licences, certificates and other approvals from various administrative authorities in
China during various stages of construction is an intricate and convoluted process. This
may thus contribute to delays in GLP's development starts and completion targets.
Financing risk
Property development is a capital intensive business, which requires significant upfront
capital expenditure. Adequate financing at attractive rates to fund land acquisitions and
construction costs prior to the leasing out of the completed facility in a timely manner is an
important determinant of the future returns profile of the company. Given its scale of
operations and low market interest rate environment, GLP has thus far been able to
secure attractive funding costs to finance its development build-out, with group weighted
average interest costs of 2.9% in FY16.
Adverse economic conditions risk
While some of its leases may have imputed step-up clauses, in the event of adverse
economic conditions, this could impact GLP’s portfolio occupancy and hinder its ability to
raise rents. As the logistics facilities market is highly sensitive to economic conditions,
GLP's growth is thus dependent on continued economic growth, in particular the growth in
e-commerce and 3PL markets and the general consumer economy.
Figure 105: Key macro-economic indicators for GLP’s key markets
China 2010 2011 2012 2013 2014 2015 2016E 2017E
Real GDP growth (%) 10.3 9.2 7.7 7.7 7.3 6.9 6.5 6.5
GDP per capita (USD) 4,533.6 5,540.4 6,269.8 7,021.5 7,547.2 7,794.4 7,870.5 7,949.9
Growth in real private consumption (%) 9.5 11.5 8.3 7.0 7.9 8.2 7.7 7.8
Growth in real gross fixed capital formation (%) 12.4 8.5 8.8 9.1 6.9 6.1 5.2 5.1
CPI inflation (%) -0.7 5.4 2.6 2.6 2.0 1.4 2.0 1.7
Japan 2010 2011 2012 2013 2014 2015 2016E 2017E
Real GDP growth (%) 4.7 -0.5 1.7 1.4 0.0 0.5 0.4 0.0
Growth in real private consumption (%) 2.8 0.3 2.3 1.7 -0.9 -1.3 0.1 0.1
Core CPI inflation (%) -0.7 -0.3 0.0 0.4 2.7 0.6 -0.3 0.0
Brazil 2010 2011 2012 2013 2014 2015 2016E 2017E
Real GDP growth (%) 7.6 3.9 1.9 3.0 0.1 -3.8 -3.5 0.5
GDP per capita (USD) 11,298.0 13,233.0 12,338.0 12,239.0 11,915.0 8,655.0 8,224.0 8,521.0
Growth in real private consumption (%) 6.4 4.7 3.5 3.5 1.3 -4.0 -4.3 -0.3
Growth in real gross fixed capital formation (%) 17.8 6.7 0.8 5.8 -4.5 -14.1 -11.9 1.1
CPI inflation (%) 5.0 6.6 5.4 6.2 6.3 9.0 9.0 6.3
Source: Company data, Credit Suisse estimates
Appendix
The origins of GLP
In December 2008, Prologis, a leading global provider of distribution facilities, announced
the divestment of part of its operations in China and property fund interests in Japan to
GIC Real Estate (GIC RE), the real estate investment company of the Government of
Singapore Investment Corporation (GIC). The total cash consideration was US$1.3 bn,
plus liabilities assumed as part of the transaction. Prologis had to divest the assets at a 4-
6% loss versus book value, in order to de-lever its balance sheet, relieve near-term
refinancing pressure and enhance liquidity.
GIC RE had previously worked with Prologis on several occasions including the creation of
the Prologis Japan Properties Fund I in 2002 and later the Prologis Japan Properties Fund
II in September 2005. GIC RE had also invested in the Prologis European Properties Fund
earlier. Meanwhile in China, GIC RE formed a China Fund with Prologis to invest in China
logistics facilities developed by a third party.
Figure 106: Summary of Prologis’ divestment to GIC Real Estate
China
20.7 mn sq ft of completed properties and properties under development with a total expected investment of US$861 mn (including a remaining funding
requirement of US$223 mn for properties under development) that were 45.5% leased
Prologis’ interest in five China JVs and one property fund, of which the company's share was 4.4 mn sq ft with a total investment of US$184 mn (including a
remaining funding requirement of US$32 mn for properties under development) that were 69 leased
30% stake in SZITIC CP, a retail joint venture, with a US$53 mn book value
713 acres of land with a carrying value of US$213 mn
Japan
4.5 mn sq ft of completed facilities and currently in lease with a total investment of US$687 mn that was 43.7% leased
4.2 mn sq ft of facilities under development with a total expected investment of US$681 mn (including a remaining funding requirement of US$194 mn) that
was 2.6% leased.
64 acres of land with a carrying value of US$173 mn
Source: Company data
Subsequently, GLP was formed with Jeff Schwartz (ex-chairman of the executive
committee) and Ming Z. Mei (the current CEO) to manage these assets.
Key management
Ming Z Mei, Chief Executive Officer, Chairman of the Executive
Committee & Executive Director
Mr Mei was formerly the Chief Executive Officer of Prologis for China and Asian Emerging
Markets. He opened Prologis’ first China office in 2003 and built up its China operations to
its current scale.
Yoshiyuki Chosa, President, GLP Japan
Mr Chosa is President of GLP Japan and leads the company’s business in Japan. He was
formerly senior vice president of investment management at Prologis Japan where he
launched and expanded its acquisition business.
Mauro Dias, President, GLP Brazil
Mr Dias joined the company in 2014 and leads the company’s business in Brazil. He was
formerly CEO of Synergy Group’s shipyards and shipping divisions and, prior to that, CEO
of Log-In Logistica Intermodal, a Brazilian logistics company.
Key events
Figure 107: A timeline of key events since GLP's IPO in 2010
Announcement Event
date
18-Oct-10 IPO on SGX. Issue price of S$1.96, with GIC owning 56.8% after IPO, and 51% after over-allotment option
1-Sep-11 Formation of 50:50 Japan Development Fund with CPPIB
19-Dec-11 Formation of 50:50 JV with CIC. Acquisition of 15 modern logistics facilities from LaSalle for ¥122.6 bn
5-Oct-12 Stake reduction in JV with CIC. Sold 16.7% stake to CBRE for ¥7.6 bn
14-Nov-12 First entry into Brazil. Through two JVs with CPPIB, CIC and GIC to acquire portfolio worth US$1.45 bn. GLP equity contribution of US$334 mn.
21-Dec-12 Listing of GLP J-REIT. GLP contributing 30 assets worth US$2.6 bn and retaining a 15% interest
18-Jan-13 Divestment of three properties to GLP J-REIT for US$142 mn
4-Feb-13 Expansion of Japan Development Venture with CPPIB to US$2.2 bn
25-Feb-13 GIC sells down stake of S$1.25 bn at bottom-end of S$2.60-2.66 range. GIC stake reduced from 49% to 36%
3-Sep-13 Divestment of seven properties by GLP Japan Income Partners I to GLP J-REIT for US$277 mn
3-Sep-13 Divestment of two properties to GLP J-REIT for US$287 mn
14-Nov-13 Launching of US$ 3bn China Logistics Fund. GLP to retain 56% stake
18-Feb-14 Announcement on China HoldCo stake sale to China consortium. Consortium partners to invest up to US$2.5 bn
6-Mar-14 Proposed acquisition of 34 assets located in Brazil from BR Properties for US$1.4 bn
6-Jun-14 First tranche of China consortium agreement completed. US$1.48 bn investment (24.4% stake) in China HoldCo, US$163 mn (1.5% stake) in GLP ListCo
11-Aug-14 Divestment of nine properties to GLP J-REIT for US$529 mn
24-Sep-14 Second tranche of China consortium agreement completed. US$875 mn investment in China HoldCo, with consortium partners now holding 33.8% stake
in total
28-Oct-14 Formation of US$1.1 bn GLP Brazil Income Partners II with CPPIB and North American Institutional Investor, expansion of GLP Brazil Development
Partners I by US$0.4 bn
29-Oct-14 Expansion of Japan Development Venture with CPPIB
8-Oct-14 First entry into US. Co-investing with GIC to acquire US$8.1 bn US logistics portfolio. GLP initial stake of 55%
24-Oct-15 Divestment of GLP Kobe-Nishi owned by GLP Japan Development Venture to GLP J-REIT for US$60 mn
21-May-15 Sale of 351.6 mn shares (7.3%) owned by Lone Pine to Hillhouse at S$2.74
28-May-15 Announcement on stake syndication of GLP US Income Partners I, GLP stake to be reduced to 10% on 27 October 2015
21-Jul-15 Establishment of US$7 bn CLF II. GLP China to hold 56% stake
29-Jul-15 Acquisition of US$4.55 bn US logistics portfolio from Industrial Income Trust (IIT). GLP initial stake of 100%
10-Aug-15 Divestment of five properties to GLP J-REIT for US$306 mn
17-Feb-16 GLP and CPPIB establish Japan Development Venture II
5-Apr-16 GLP completes syndication of 66% stake in US Income Partners II
30-Jun-16 Sale of 50% share of GLP・MFLP Ichikawa Shiohama to GLP J-REIT for US$151 mn
12-Jul-16 Announcement on successful syndication of 24% stake in US Income Partners II. Expected to close in 2Q FY17
16-Aug-16 Divestment of four properties to GLP J-REIT for US$420 mn
Source: Company data, Credit Suisse estimates
Corporate snapshot
Figure 108: GLP's corporate structure as at FY16
Figure 109: Revenues by type (FY11 to FY16) Figure 110: Revenues by country (FY11 to FY16)
(US$ mn) (US$ mn)
900 900
777 777
800 800
708 708
700 642 625 700 642 625
600 566 600 566
474 474
500 500
400 400
300 300
200 200
100 100
0 0
FY11 FY12 FY13 FY14 FY15 FY16 FY11 FY12 FY13 FY14 FY15 FY16
Rental and related income Management fee income Dividend income received China Japan US Brazil
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 111: Reported EBIT (FY11 to FY16) Figure 112: EBIT excluding revaluations (FY11 to
FY16)
(US$ mn) (US$ mn)
1,600 1,494 800
1,200 600
484
946 910 500 423 411 391
1,000 908
367
400
800 701
300
600
367 200
400
100
200 0
0 FY11 FY12 FY13 FY14 FY15 FY16
-100
FY11 FY12 FY13 FY14 FY15 FY16
-200 -200
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 113: Total assets by country (FY16) Figure 114: Reported NAV by country (FY16)
Brazil Corporate Corporate
2% 1% 6%
Brazil
5%
US US
23% 7%
Japan China
China 57%
Japan 59% 25%
15%
Source: Company data, Credit Suisse estimates Note: Pro-forma NAV assuming GLP’s 10% equity stake in GLP US Income Partners II.
Source: Company data, Credit Suisse estimates.
Figure 115: GLP’s market implied CFROI appears demanding relative to its own
history
Compared to global logistics peers such as Prologis (PLD) and Goodman Group (GMG),
GLP also has a lower CFROI level. Its market implied expectation relative to consensus
forecast is also among the highest in the industry.
HOLT estimates that if The HOLT sensitivity table below shows that a substantial upside scenario for GLP is only
CFROI remains at 4% possible with a best-in-class CFROI level of 7-8% (vs 3.7% forecast for 2016) and mid-
over the next five years, single digit asset growth rates. Conversely, if CFROI remains at 4% over the next five
GLP's fair value (S$1.35 years, its fair value range of S$1.35 to S$1.47 represents downside risk of -20% to -30%.
to S$1.47) implies
downside risk of -20% to
-30%
Figure 117: HOLT fair value sensitivity to T+5 CFROI and asset growth rates
Disclosure Appendix
Important Global Disclosures
Louis Chua, CFA, and Nicholas Teh each certify, with respect to the companies or securities that the individual analyzes, that (1) the views
expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
3-Year Price and Rating History for Global Logistic Properties (GLPL.SI)
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Credit Suisse AG, Singapore Branch ................................................................................................ Louis Chua, CFA ; Nicholas Teh ; Daniel Lim
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Credit Suisse AG, Singapore Branch ................................................................................................ Louis Chua, CFA ; Nicholas Teh ; Daniel Lim
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