Singapore’s Global Logistic Properties (GLP) has started putting to work some of the billions of dollars of cash it has taken in from investors eager for a piece of China’s logistics boom, by acquiring competitors on the mainland.
According to a statement from the logistics real estate developer on Monday, GLP will partner with state-owned China Materials Storage and Transportation Development Company (CMSTD) to form a joint-venture that may invest more than RMB 3.6 billion ($727 million) into developing new warehouse facilities.
A Joint Venture Aimed at Gaining Access to Land
The new company, which will be 49 percent held by GLP and 51 percent by CMSTD plans to build up to 1.3 million square metres (14 million square feet) of warehouses on 2.69 million square metres (29 million square feet) of land held by CMSTD.
GLP is said to have the option of increasing its ownership in the JV to 50 percent at a later date, and the joint-venture company is said to have the right of first refusal on any potential land acquisitions by CMSTD.
Global fund investors have poured more than $3.81 billion into China’s warehouse developers since August last year, however, the industry’s biggest challenge remains the limited availability of suitable sites for warehouse development. GLP’s new joint venture appears aimed at solving this dilemma by essentially splitting the profits with a large state-owned enterprise, provided that the SOE can come up with the land.
GLP Continues Winning Streak
Since being formed from the sale of the Japan and China assets of Prologis after the global financial crisis, GLP has rapidly achieved a dominant position among high-end warehouse developers in China, and CMSTD is the largest Chinese state-owned warehouse logistics provider in the country.
During February this year, GLP took in $2.51 billion in new investment from a Chinese investment consortium which was eager to take advantage of the logistics real estate industry’s nearly nine percent average development yields.
Partnership with an SOE
Under the terms of the partnership, GLP will invest RMB 2 billion ($2.5 million) to acquire a 15.3% stake in CMSTD through a private share placement. CMSTD is listed on the Shanghai Stock Exchange (SH: 600787) and the price of RMB11.82 per share represents a 10% discount to the last transacted price of CMSTD shares on the Shanghai Stock Exchange on 25 July 2014.
Also as part of the deal, GLP will receive three of the 11 seats on CMSTD’s Board of Directors.
Following this transaction, GLP would be the second largest shareholder of CMSTD after China National Materials Storage and Transportation Corporation (CMST) which is 100% owned by China Chengtong Holdings, supervised by State-owned Assets Supervision and Administration Commission of the State Council (SASAC).
CMSTD’s property portfolio comprises 38 million sq ft of logistics facilities on 53 million sq ft of land. A significant part of the portfolio includes legacy assets in prime locations which could potentially be re-zoned for commercial or residential development. Part of the proceeds from the private share placement will be used to acquire 10 million sq ft of land for the development of 5 million sq ft of modern logistics facilities. Combined with the joint venture land reserves, GLP will get access to CMSTD’s total land resources which total more than 100 million sq ft.