Deals

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

Global Logistic Properties Ltd., a Singapore-traded landlord with a $40 billion warehouse portfolio in China, Japan, Brazil and the U.S., was crying out for some honest-to-goodness investor activism. A little belatedly, Singapore's sovereign wealth fund is prodding it to release what could be billions of dollars of trapped shareholder value.

It's still not too late for GLP to open the locks, though it might have fetched a better price by hawking itself to a potential Chinese buyer when the mainland was more relaxed about capital outflows.

GLP has sent a letter to potential bidders, asking for first-round offers by early next month, Bloomberg News reported on Thursday. The shares jumped as much as 9.4 percent, and continued to climb on Friday after the company confirmed it was in preliminary talks for a possible sale.

Open Sesame
Global Logistic Properties, China's No. 1 warehouse landlord, had a lower market value before speculation of an impending sale than at the time of its 2010 IPO
Source: Bloomberg

It all began in early November with a consortium of China Investment Corp., Hopu Investment Management and Hillhouse Capital Management scouting around for additional partners to make an unsolicited bid. A month later, GLP revealed that its 37 percent owner GIC Pte -- Singapore's sovereign wealth fund -- had requested a strategic review of all available options.

It's something the board should have thought of on its own. At the end of October, GLP was worth less than when it first sold shares to the public in October 2010. Its market value has jumped S$3 billion ($2.1 billion) since then.

Investors' apathy is hard to fathom. Online retail in China has grown at a compounded annual rate of 61 percent over 12 years, leading to an explosion in warehousing demand. The former Prologis Inc. executives who built GLP with GIC's help have been no slouches in capturing that opportunity.

The Chinese and Japanese warehouses they bought at throwaway prices from their employer -- after it got hammered by the 2008 financial crisis -- were good enough for $400 million or so of rental revenue in 2010. What came later is a fund management business that has swelled to $39 billion in assets, making GLP the No. 1 player in logistics real estate in China, Japan and Brazil.  

These funds, in which GLP owns anywhere between 10 percent and 56 percent, allow it to bulk up operations without piling on leverage. Selling properties to funds gives the company cash profits; continuing to maintain them post-sale leads to a steady income stream. As much as 16 percent of its $763 million revenue last fiscal year was from fund management fees.

But when it comes to borrowings, GLP's 14.8 percent net debt-to-assets ratio is probably a tad too conservative. As a group, the 30 companies on Singapore's Straits Times Index have much more volatile revenue than GLP; their 1.8 percent return on assets is also half of the landlord's. Yet owing to very low leverage, GLP's return on equity trails behind the benchmark's average.

A Landlord Sans Leverage
Global Logistic Properties' return on equity* has lagged behind that of the benchmark Singapore index
Source: Bloomberg
*Trailing 12-month data

GLP shareholders may have expected a bigger upside from the fund management business. That didn't happen because all except one of its funds are unlisted. GLP J-REIT, the publicly traded Japanese real-estate investment trust, has returned 32 percent in Singapore dollar terms, including dividends, over the past four years. Over the same period, investors' returns from owning GLP shares have been minus 13 percent.

The window for a slice-and-dice restructuring is closing. The appetite of insurance companies and other investors for a piece of warehouse rentals when global interest rates were at rock bottom is unlikely to persist as the U.S. Federal Reserve tightens monetary policy.

Selling all of itself may be a more viable option. Warehousing demand in China still has plenty of headroom. Even in Japan, where most of the existing storage is outdated, half of the new supply coming online this year is already pre-leased.

GLP's portfolio would be worth a serious look for any deep-pocketed buyer, including global rivals such as Prologis and Australia's Goodman Group. However, for Chinese bids, Beijing's increasingly impatient clampdown on capital flight could be a dampener. Overseas deals of $10 billion or more face a very high hurdle, if not outright rejection.

With better timing, GLP could have unlocked more value.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. and No. 2 in the U.S.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net