Is GLP’s 1.5bn US acquisition a right step for the group?

Yields could rise to close 6% as it widens its US footprint.

Global Logistic Properties Ltd.'s recent acquisition of $1.5 billion worth of warehouses from Hillwood Development Co. is not just another typical transaction for the group as this will solidify its position as second largest US sector player.

According to a report by OCBC Investment Research, the said acquisition will grow the group’s footprint in the US to 187m sq ft and will solidify GLP’s position as the second largest owner and operator of logistics facilities in the US.

"The larger scale of operations will enhance the group’s network effect in the US, which will allow for flexible customer expansion, optimize distribution networks and drive efficiency," OCBC stated.

To recall, the group's recent deal has two parts: a US$700 portfolio to be acquired in December 2016 and a US$400 development portfolio to be acquired in phases upon completion and lease up.

The initial portfolio is 100% leased with a weighted average lease expiry of nine years. On the other hand, the development portfolio will have the stringent lease-up metrics which lock in long term tenants and eliminate lease-up risk.

"The acquisition cap-rate of 5.7% is reasonable, in our view, given the quality of the portfolio and its leases," the report said.

Meanwhile, OCBC also stressed that the 15m sqft portfolio being acquired has a strong concentration in locations expected to benefit from the growth in e-commerce.

DBS Group Research echoed the same sentiments saying the the acquisition would increase the group's yields.

"We believe that yields could rise close to 6% upon the ability to raise portfolio rents nearer to their portfolio average in the medium term," DBS cited.

More so, DBS cited that GLP will be the asset manager with total equity commitment of US$47 million.

"The return on equity (ROE) for GLP’s US$47m equity stake is expected to be 13% ( inclusive of management fees and rental income)," the report noted.

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