Fitch Places Global Logistic Properties' 'BBB+' Ratings on Watch Negative.
GLP's ratings have been placed on RWN pending a review of GLP's operational and financing plan after its proposed privatisation in January 2018, and more clarity about its capital structure. GLP has received approval from shareholders to be acquired by a management-led consortium and will subsequently be delisted. GLP's leverage could increase in order to finance the acquisition of stock from shareholders in January 2018.
The RWN will be resolved in the coming weeks once the transaction is completed and Fitch is able to assess the company's deleveraging plan.
KEY RATING DRIVERS
Higher Leverage; Deleveraging In Place: GLP's leverage could increase to finance acquisition of shares in January 2018. The company has multiple options available to deleverage over the next 12 months, including optimising debt given low interest rates in Japan and low leverage at its China operations. Fitch may downgrade the rating on GLP if we assess that the deleveraging plan will not be effective in reducing leverage in the coming 12 months.
Good Execution Track Record: GLP has multiple funding levers, including asset sales to new funds, establishing potential China acquisition funds and income funds, syndicating new and existing portfolios, and establishing new funds and REITs. GLP has a good execution track record in which its portfolios are syndicated to third-party capital partners quickly after launch.
Leading Logistic Property Owner: GLP's USD43 billion of globally diversified logistic assets were located in China (35%), US (34%), Japan (24%) and Brazil (7%) as of September 2017. GLP is the largest logistic asset owner in China, Japan and Brazil. The company has strengthened its position in the US since its entry in 2014. Its footprint will also be extended into Europe when it completes the acquisition of Gazeley, an owner and operator of European logistic properties, in the coming weeks.
High-Quality Operating Assets: Fitch believes that GLP will continue to benefit from its sheer scale and global network that positions it strongly as online shopping becomes increasingly popular. Exposure in emerging markets also allows GLP to enjoy positive rental reversions upon lease renewals.
GLP is a leading global provider of modern logistics facilities with 2,691 completed properties across 119 cities, making it much bigger than global investment property companies like SEGRO PLC (BBB+/Stable), and Chinese ones like Dalian Wanda Commercial Property co. Ltd. (BBB/Negative) and Red Star Macalline Group Corporation Ltd. (BBB/Stable). GLP has operations in China, US, Japan, and Brazil, and will soon have operations in Europe, which makes it much more widely diversified than Red Star Macalline and more evenly spread across the globe than Dalian Wanda's operations. China remains the market with the biggest potential for GLP. It is a less mature market with shorter-dated lease terms compared with the stable European markets that SEGRO focuses on. Exposure to developing countries also helps GLP to have better same-property net operating income growth and rental growth upon lease renewals.
GLP's leverage (measured by investment property net debt / recurring EBITDA) could rise to the higher end of its peer range as it finances the acquisitions of shares as part of its privatisation. This explains the RWN on GLP's rating.
Fitch's key assumptions within our rating case for the issuer include:
- Operational performance based on management input
- Only transactions that are completed in FY17 are included in our financial analysis
- Gazeley acquisition will be completed before end of FY18
Developments That May, Individually or Collectively, Lead to Negative Rating Action
- The rating may be downgraded if, after our review, Fitch believes that GLP's capital structure will be materially weakened on a sustained basis.
Developments That May, Individually or Collectively, Lead to Positive Rating Action
- The rating may be affirmed at 'BBB+' if, after our review, Fitch believes that GLP's temporary increase in leverage can be reduced within 12 months such that the holding company's leverage does not materially deteriorate beyond the current level
The company had total debt of USD6.0 billion at end-September 2017. Of the amount, USD1.7 billion was short-term debt while the company had cash of USD1.1 billion. GLP may take on new loans to satisfy the short-term debt repayment needs.
FULL LIST OF RATING ACTIONS
Global Logistic Properties Limited
- Long-Term Foreign-Currency IDR of 'BBB+' placed on RWN
- Senior unsecured rating of 'BBB+' placed on RWN
- Ratings on CNY350 million 4% senior unsecured notes due 2018 of 'BBB+' placed on RWN
- Ratings on JPY15 billion 2.7% senior unsecured notes due 2027 of 'BBB+' placed on RWN
- Ratings on USD1 billion 3.875% senior unsecured notes due 2025 of 'BBB+' placed on RWN
- Rating on USD2 billion EMTN programme of 'BBB+' placed on RWN
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|Publication:||Daily the Pak Banker (Lahore, Pakistan)|
|Date:||Mar 5, 2018|
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