Global Logistic Properties Ltd. (GLP), a unit of Singapore’s sovereign wealth fund, said its China assets will match those in Japan as tenants, including online retailers Amazon.com Inc. (AMZN) and 360buy.com, add more space.
The company invested $1 billion in China last year and expects to expand from that base as it attracts tenants with modern warehouses in the world’s fastest-growing major economy, Chief Executive Officer Ming Z. Mei said. The net asset value in China will match that in Japan in six to 12 months, he said.
“We are in the very early stage of the industry so it’s going to be a long time before we can satisfy the needs of our customers,” Mei said in an interview in Singapore yesterday. “Eighty percent of China’s logistic facilities are old and obsolete so it will be a long time before we can refill all those spaces. We can grow on that $1 billion base.”
The growth in its China assets will boost contribution from a market where earnings jumped fivefold in its fiscal first quarter, supplementing a more stable income stream from Japan, Mei said. The company is also seeking more efficiency in China, where logistics costs are equivalent to 18 percent of the gross domestic product, twice the level in the U.S., Mei said.
China has 550 million square meters (5.9 billion square feet) of warehouse space, compared with 1.2 billion square meters in the U.S., Mei said.
Three to four of its top 10 clients are from the e-commerce industry, Mei said. These Internet companies represent 16 percent of the leased area in China and 11 percent in Japan, the Singapore-based company said in a presentation this week.
The expansion drew investors including China Investment Corp., the nation’s sovereign wealth fund. The two agreed in December to buy 15 Japanese warehouses for 122.6 billion yen ($1.6 billion) as demand for storage rebounded after the March 2011 earthquake. The Singapore company formed a joint venture with the Canada Pension Plan Investment Board last year to invest $250 million each over three years in Japan.
“There is a lot of potential for a big player like GLP, which is by far the largest player in China, to take advantage of redeveloping old facilities,” said Donald Chua, a Singapore- based analyst at CIMB-GK Pte, who rates the stock the equivalent of a hold after a rally. “These will also form a source of acquisition targets. A lot of the local companies are builders but not operators, and GLP has that edge of building and operating.”
Global Logistic increased 0.8 percent to S$2.41 as of 9:31 a.m. in Singapore trading, set for a record. The gain added to the 37 percent advance this year, compared with the 21 percent gain in the Bloomberg Asia Pacific Real Estate Index. (BPRREAL)
The company’s total assets rose 13 percent to $14 billion as of June 30, it said this week. The expansion into China included the purchase of a 53.1 percent stake in Airport City Development Co., which runs logistics facilities within the Beijing Capital International Airport.
Global Logistic is seeking more space amid concerns about the economic outlook of its two key markets. Japan said this week its gross domestic product rose an annualized 1.4 percent in the three months through June, slower than the median 2.3 percent forecast of 24 economists surveyed by Bloomberg News. An aging population and two decades of low growth have also left the nation with a debt pile projected to exceed 1 quadrillion yen ($12.7 trillion) next year, the biggest in the world.
China’s manufacturing teetered on the edge of contraction in July, adding to signs of a deepening global slowdown as Europe’s debt crisis curbs demand for the region’s goods. Chua at CIMB said Global Logistic was able to “circumvent” the slowdown in the last quarter.
The company has operations in 29 cities in China with a net asset value of $3.65 billion as of June 30, according to its presentation this week. In Japan, it’s in seven key locations with a combined net asset value of $3.93 billion.
“New demand is from new economic growth in China,” Mei said. Japan’s “steady, strong cash flow will fuel the growth in China as we want to rebalance the portfolios. We tend to grow faster in China,” he said.
Global Logistic raised S$3.5 billion ($2.8 billion) in October 2010 in what was Singapore’s biggest IPO since 1993. It is a unit of the Government of Singapore Investment Corp., which manages more than $100 billion of the nation’s reserves.
Mei expects a longer time frame before total assets in both countries reach “equilibrium.” Global Logistic has $8.3 billion of assets in Japan and $5.7 billion in China, he said.
“It’s not sexy, it’s not glamorous, but it’s what everyone uses every day that goes through our warehouses,” Mei said.
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