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Related Issuers
Rating Action:

Moody's assigns to GLP first-time Baa2 ratings

26 Apr 2011

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.

Moody's adopts all necessary measures so that the information it uses 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.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning 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.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
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Moody's assigns to GLP first-time Baa2 ratings
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