After its parent company was stripped of its sole remaining investment-grade rating last week, GLP Capital Partners (GCP), the asset management division of GLP, announced the sale of an office complex in Beijing to a RMB 3.6 billion ($490 million) China income office vehicle anchored by a major Asian insurance company.
GCP has seeded the single-asset office income strategy with a 63,000 square metre (678,126 square foot) office complex in Beijing’s Chaoyang District from GLP’s balance sheet.
On 2 November, the same day that S&P downgraded both GLP and its mainland unit GLP China to junk status, the company voluntarily withdrew from the agency’s credit coverage citing a “mismatch” between S&P’s methods and the company’s business model. Fitch Ratings also downgraded GLP into junk territory within the last month, with Moody’s Investors Service having withdrawn the company’s ratings in 2021 due to insufficient information.
The industrial specialist has also been reported this month to be in due diligence to sell some of its mainland assets to state-backed China Railways Logistics, after Bloomberg had reported in August that the company had put up for sale some $7 billion in Chinese warehouses.
Selling Along the Ring Road
The global alternative asset manager identified the office asset as located along Beijing’s East Second Ring Road with tenants including companies from the financial services, healthcare, pharmaceutical, agriculture and food sectors. It is understood that the property’s financial services tenant is separate from the investor.
The asset manager identified the fund’s anchor investor as an Asian insurance institution that has been a “longstanding partner” and has previously invested in its past strategies. Top three mainland insurer China Life is a major shareholder in GLP and has backed a number of the company’s mainland funds.
It is understood that GLP’s goal of bringing in a co-investor for the office property was to fortify its cash flows and improve the leasing ratio in its portfolio.
GLP had acquired the office building in 2021 and has since enhanced the property through asset management and leasing initiatives.
“We continue to see sustained investor appetite for assets generating stable and secured cash flows,” Teresa Zhuge, the executive vice chairman and president for China at GCP said on 3 November. “The successful closing of the income fund is a strong recognition of our investment and asset management capabilities.”
GCP did not disclose the scale of its own stake in the new China income fund, but the company generally maintains an ownership interest in its investment vehicles.
China Life has been among the primary backers of GLP’s China strategies in the past, including investing in the RMB 10 billion (then $1.6 billion) GLP China Value-Add Venture I in 2018.
In July, five unidentified mainland insurance companies participated in the final closing of GLP Capital Partners’ China Income Fund VII which raised RMB 2.6 billion in equity commitments. The fund was seeded with RMB 5 billion worth of mainland logistics assets from GLP’s balance sheet.
Debt Balloons to $6.5B
The divestments align with GLP’s intentions announced in October to monetize as much as $10 billion worth of assets in the coming months to reduce debt.
“We remain firmly committed to delivering on our asset monetization targets and using the proceeds to support deleveraging as we position the company for its next stage of growth and continued value creation for our customers and stakeholders,” GLP co-founder and CEO Ming Mei said at the time.
Credit rating agencies have remained pessimistic on the company’s ability to reach its capital recycling targets.
When S&P lowered GLP’s rating to junk territory last week, the ratings agency said the company’s delayed asset sales had already hurt the group’s balance sheet, and the “uncertain timing of the recognition of net proceeds” could derail GLP’s deleverage plans and hamper its ability to meet short-term obligations.
S&P said the company is unlikely to meet its monetization targets this year and predicted that it could raise a total of $3.9 billion for the full-year 2023. That amount is just over half of S&P’s initial 2023 forecast for GLP of $5 billion to $7 billion in divestments.
GLP has $6.5 billion in short term maturities as of end June, more than double its $2.8 billion in short term debt at the end of 2022, which S&P described as “sizable” compared to the company’s $2.5 billion cash balance.
Including long-term obligations, GLP’s consolidated debt was at $14.6 billion as of end-June, up from $13.9 billion at the end of last year.
“GLP would need to reduce consolidated debt by more than $7.0 billion over the next six to 12 months to meet its asset-light strategy target and maintain a ratio of funds from operations to debt of more than 9 percent,” S&P said.
Fitch Ratings also downgraded GLP to junk in mid-October pointing to the group’s “weakened financial profile” and delayed deleveraging plans.,
In early October GLP’s fund management division raised RMB 1.75 billion for a China value-add strategy backed by an unnamed global institutional investor.
GCP was spun out of its parent company in February and now has $124 billion in assets under management across 55 private and public funds globally.
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