Hong Kong, April 26, 2011 -- Moody's Investors Service has assigned a first-time Baa2 issuer
rating to Global Logistic Properties Limited ("GLP").
At the same time, Moody's has assigned a provisional (P)Baa2 rating
to the company's proposed MTN program.
The ratings outlook is stable.
RATINGS RATIONALE
"GLP's Baa2 rating reflects its leading market positions in
modern logistics facilities in Japan and China," says Kaven
Tsang, a Moody's AVP/Analyst.
"Its large, established Japanese portfolio has high occupancy
rates and stable rental income. The Japanese portfolio generates
a stable annual EBITDA of around US$250-260 million,
comprising about 80% of total EBITDA. This cash flow would
be a stable source of funding to support GLP's China business development,"
adds Tsang, also Moody's lead analyst for GLP.
While the recent catastrophe in Japan has damaged some of GLP's
properties and disrupted its operations, Moody's expects the
impact on GLP's business is temporary and manageable. It
is estimated that damages account for less than 1% of the total
market value of GLP's property portfolio in Japan. Potential
loss in rental income represents around 2-3% of GLP's
rental income generated by its Japanese portfolio.
The company's strengths span the entire logistics value chain,
from site selection, facility design, and development,
to property management, leasing and marketing, as well as
comprehensive solutions. These strengths have attracted large global
and domestic customers such as Panasonic, Hitachi, Nippon
Express, Yum!, DHL, and Amazon.
A favourable industry environment, with rising demand and the lack
of modern logistics services in Japan and China also support GLP's
business growth. The company's extensive logistics network
in the two countries, and its quality services and strong market
knowledge position it to benefit from growth in both.
"The Baa2 rating also captures GLP's exposure to regulatory
uncertainty and the execution risk associated with its rapid expansion
in China," says Tsang.
"However, GLP has established a track record in project development
and management in China over the past five years, which partly mitigated
our concerns. The relatively low investment costs and short planning
and development time frame (around 12 months) of logistics properties
in China allows GLP some flexibility to adjust its development plans,"
he continues.
A majority of its assets are encumbered, which could limit GLP's
financing flexibility. But the company still has room to raise
additional debt, if needed, given its manageable balance sheet
leverage, with debt/capitalization of 35% and debt/total
assets of 33%, as well as its established banking relationships
and its 51.6% ownership by GIC, Singapore's
sovereign wealth fund.
Also, unlike the REITs, GLP does not have any legal or regulatory
obligation to distribute income to shareholders; thus, the
current rating factors in minimal to no dividend payouts over the next
two years. This allows the company a high degree of flexibility
to manage its cash flow for corporate activities or refinancing.
Although GLP has 335 tenants across Japan and China, it is somewhat
exposed to tenant concentration, as its top ten customers in Japan
contribute approximately 50% of total revenue. Still,
GLP's exposure to the credit risks of these customers is manageable
under the current rating level, given their solid credit positions.
The Baa2 rating also takes into consideration GLP's seasoned management
team, which has a wealth of experience and expertise in the global
real estate management and logistics. The company knows its customers
and can thus provide value-added services to meet their needs.
As such, many of GLP's tenants are quite loyal to GLP,
as reflected by the company's high 85% tenant retention rate
in Japan.
While GLP has only a short listing history, its corporate governance
standards are high, given the sponsorship of GIC, GLP's
single largest shareholder.
The Baa2 issuer rating further incorporates a one-notch downward
adjustment for the structural and legal subordination risk arising from
GLP's holding company status and the fact that the majority of its
loans are at the subsidiary level and secured by property. Secured
debt represented 100% of total debt and 32.5% of
total assets as of December 2010. This debt structure is unlikely
to change in the near to medium term.
The stable outlook reflects Moody's expectation that GLP will maintain
continued access to bank funding and a stable capital structure,
balancing its equity and debt, and recycling capital to fund its
planned expansion.
The rating could be upgraded if GLP can strengthen its 1) balance sheet
leverage, with debt/total assets falling below 30-35%,
and 2) debt servicing capacity, with net debt/EBITDA declining to
5-6x and EBITDA interest coverage rising above 5.5-6x
on a sustained basis.
The rating could be downgraded if 1) GLP's EBITDA declines precipitously
as a result of dramatic deterioration in the economies of Japan and China,
or the disruption in operations caused by the recent catastrophe in Japan
extends beyond Moody's original expectation, or 2) the company
pursues an aggressive debt-funded expansion, such that debt/total
assets exceeds 45-50%, net debt/EBITDA surpasses 8-9x,
or EBITDA interest coverage declines below 2.5-3x.
The principal methodology used in this rating was Moody's Approach for
REITs and Other Commercial Property Firms published in July 2010.
GLP is a major operator of modern logistics facilities in two major economies
-- Japan and China. It has 69 completed properties with 2.8
million sqm, in seven cities in Japan, and projects with 11.2
million sqm (GFA) and land in 20 cities in China. Of the 11.2
million sqm in China, 3.4 million are completed projects
with full-scale operations. GLP's portfolio had a
total value of US$7.7 billion as of June 2010.
GLP was listed on the Singapore Stock Exchange in October 2010,
with a market capitalization of US$7.4 billion as of January
18, 2011. GIC, Singapore's sovereign wealth fund,
is GLP's single largest shareholder, with a stake of 51.6%.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
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in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
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Please see the ratings disclosure page on our website www.moodys.com
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of each rating category and the definition of default and recovery.
Hong Kong
Kaven Tsang
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's assigns to GLP first-time Baa2 ratings
