GLP insiders are leading the way
By theedgemarkets.com.sg / theedgemarkets.com.sg | December 12, 2016 : 10:46 AM MYT
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SINGAPORE (Dec 9): Global Logistic Properties is not the easiest company for Singapore-based investors to understand. For starters, most people do not often come into direct contact with logistics warehouses, which GLP develops and manages.
These assets are also held by GLP through a dizzying array of subsidiaries, funds and a real estate investment trust. And, they are scattered across the globe — from China and Japan to Brazil and the US. Yet, many investors are suddenly paying attention to GLP because its share price has surged by some 25% within the last four weeks, pushing its market value to $10.64 billion.
What is driving the stock? The run seemed to have started after a news report that a consortium comprising China Investment Corp, Hopu Investment Management Co and Hillhouse Capital Group has held talks about making an offer for GLP. These investors are no strangers to GLP. Hillhouse Capital already holds 8.14% of the company, while funds run by Hopu hold a further 1.59%. CIC is also a partner of GLP in a few of its funds, including GLP Japan Income Partners I and GLP Brazil Income Partners I.
Meanwhile, funds run by Hopu are part of a consortium that owns 30.2% of GLP China, also known as China Holdco Group. The other members of the consortium are Bank of China Group Investment, China Life Insurance Co and other state-owned companies and institutional investors that are investors in the Hopu Master Fund II. Fang Fenglei, the founding partner and chairman of Hopu Investment Management Co, is a member of GLP’s board of directors.
What is it that GLP’s insiders see in the company that the rest of the market overlooked? Interestingly, there could soon be a corporate exercise involving GLP China. In 2014, GLP decided to carve out GLP China and reduce its shareholding from 100% to 66%. The rationale was that GLP would be able to grow faster with a lighter balance sheet and its Chinese partners would be able to help secure land rights. The transaction took place at just above book value, and GLP booked a gain on its net asset value of 1 US cent a share.
Steve Schutte, chief operating officer of GLP, noted during a recent results briefing that the tie-up with the Chinese consortium has indeed been successful. “Over FY2015 and FY2016, they were able to help us get 680,000 sq m and 313,000 sq m of land respectively,” he said, adding that the Chinese consortium also helped secure 171,000 sq m and 196,000 sq m of additional leases with state-owned enterprises in FY2015 and FY2016 respectively.
On top of that, GLP also acquired a 15% stake in CMST Development Co, China’s largest state-owned warehouse provider. “That was really only made possible because of our support from the consortium,” Schutte said during the results briefing. “It has really allowed us to drive value creation, getting access to nine million sq m of land.”
The shareholders of GLP China agreed to a three-year lock-up period from June 2014. That means they could look at exit options in June 2017. There are a few possibilities. One is an IPO of GLP China. Another is a trade sale. If neither of these options works out, the shareholders of GLP China will explore swapping their stakes for shares in GLP. The parties have agreed to consult an independent third party with respect to the valuation and means for implementing the swap. A fourth option is a return of the profits to shareholders.
GLP’s assets in China are not all held under GLP China, though. The group also has exposure to China through other subsidiaries and various funds. However, all in, China accounts for 56% of GLP’s net asset value. Japan accounts for a further 27%, while the US and Brazil account for 7% and 6% respectively. As at Sept 30, GLP’s NAV stood at US$9.17 billion, or US$1.96 a share.
For 2QFY2017 ended Sept 30, GLP reported a 52% jump in earnings to US$173 million, on a 12.9% rise in revenue to $213.6 million. For 1HFY2017, revenue increased 10.7% to $420.2 million, but earnings fell 1.6% to $375.9 million.
Some analysts figure that the Chinese funds involved with GLP would like to raise their stakes and take the company private for strategic reasons. “As China logistics assets form 56% of GLP’s NAV, the Chinese authorities could see GLP’s potential privatisation as a strategic move for further control of domestic assets,” UOB Kay Hian states.
“A takeover bid would be unsurprising, given GLP’s compelling valuations, trading at a discount to our revalued NAV of $3.06 per share. Additionally, long-term investors would likely be viewing the scalability of the fund management business over the next five to 10 years which, in our opinion, could expand valuations to $4.25.” The broker has a “buy” recommendation on GLP, with a price target of $2.40.
Whatever the case, the interest shown by GLP’s substantial shareholders and fund partners seems to have spurred some internal action. On Dec 1, GLP said GIC Real Estate, which holds 36.6% of the company, had asked for an independent strategic review of options available to its business in line with its commitment to enhance shareholder value.
GLP has since formed a special committee consisting of four independent directors to oversee the strategic review. JP Morgan is the financial adviser for the review.
This article first appeared in this week’s issue of The Edge Singapore (Issue 758, week of Dec 12) which is available on newsstands now
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