Here's A Little-Known Global Company Thriving In The Fast Growth of The Logistic Infrastructure Markets In China and Japan

By Gene Marcial (Contributor)Little-known Global Logistic Properties, an out-of-the-mainstream young global company based in Singapore, has gained a solid foothold in Asia as the largest provider of modern logistics facilities in two of the world’s huge markets most difficult to crack: China and Japan.

So it makes perfect sense that a number of investors have placed investment bet on Global Logistic as a pure play in a thriving niche market and participate in the continued expansion in those two countries. In an important sense, the exploding demand for warehousing and logistics facilities in those dynamic markets is one true measure of consumer spending and business activity in China and Japan.

Several U.S. institutional investors already have taken investment stakes in GLP, including global investment firms Lone Pine Capital, which has acquired a 10.11% interest; BlackRock Fund Advisors, which owns a total of more than 1%; Cohen & Steers Capital Management, with a nearly 1% stake; and Vanguard Group, 0.45%.Shares of GLP, which trade on the Singapore Stock Exchange (GLP.SI) with a market capitalization of (Singapore) $12 billion have risen to $2.60 (Singapore) a share, up from a 52-week low of $1.49 on Oct 4, 2011. The stock hit a 52-week high of $2.71 on Sept 13, 2012. The stock has already exceeded price forecasts of bullish analysts, but some of the large investors believe it will hit more than $3 a share over the next 12 months.

Among four major industrial providers in Asia, GLP is “out most preferred” although it is a relatively new company, says Kim Wright, analyst at UBS Securities Asia. “It is well positioned, in our view, being the largest industrial provider in China and Japan,” and should be able to fund an expansion program of $1 billion (U.S. dollars) in China in 2013, using its own available cash resources. And GLP is reasonably priced, trading at just 1 times its 2013 price-to-book value and at a 17% discount to its estimated net asset value, Wright figures.

GLP owns, manages, and leases out 446 modern warehouses and properties spread across 36 major cities in China and Japan. Located in key hubs, industrial zones and urban distribution centres, GLP’s properties are occupied by diverse manufacturers and retailers, and third party logistic companies that do business in those two countries.Amazon.com (AMZN) is GLP’s largest tenant in China, leasing some 3.5% of GLP’s facilities. Other major tenants are several Chinese companies that do contract work for Apple (AAPL) as well as for other U.S. technology companies. Procter & Gamble (PG) is another big customer.Amazon.com and the other U.S. retail companies have been benefiting from the jump not only in consumer shopping at stores of all sizes in China and Japan but from the huge leap in consumer online transactions.

Online retail sales in China have doubled every year since 2005, expanding at a compounded annual growth rate of 97%. In 2011, online retail volume made up 4.3% of total retail sales in that country. That growth far exceeds the rise in overall retail sales of 17% a year. Forecasts see retail sales in China increasing by 14.8% in 2012 and by 16% in 2013.All this spending by consumers translate into huge demand for storage and warehouse facilities from manufacturers, distributors and retailers, which in turn generate meaningful boosts in revenue and earnings for GLP, analysts say.

Analyst Sean Gardiner of Morgan Stanley, who recently rated GLP as overweight, noted in an industry report that GLP’s “deliverable growth over the next four year will be driven by booming demand, leading industry position and robust development pipeline opportunity.”

The booming e-commerce is also propelling demand for more logistics facilities,” he adds. In China, he expects a three-fold jump in online transaction values over the next four years. And in Japan, Gardiner notes that industry analyst Forrester expects an 11% annual growth in 2012-2016 in transaction value.

Among other positives Gardiner sees are the company’s strong balance sheet with U.S. $1.8 billion of cash on hand to fund growth, and the company’s potential to recycle part of GLP’s assets in Japan into either a Japan REIT or a private deal to unlock some of its hidden value.

“The shipping of good in and out of our warehouses reflect not only the increasing demand for our facilities but the extent of the rise and fall of consumer spending on a variety of goods in Chin” says Jeffrey H. Schwartz, co-founder and deputy chairman of Global Logistics.

GLP posted solid results for its fiscal first quarter ended June 30, 2012, with revenue up 32$, mainly driven by completion of development projects and operational growth in China, where revenue jumped 75%. In Japan, revenue leaped 18%.“Our balanced portfolio and robust capital structure, further strengthened in July, provide us with a strong foundation for future growth,” says Schwartz. “We remain mindful of global economic conditions,” he says, “but are confident that our focus on the best markets will lead to continued growth in earnings, increased cash flow and long-term shareholder value.” In China, GLP’s net operating profit margin was 76%, up 1% year-on-year.

Analysts note that one positive for the young GLP is its highly experienced and well seasoned management, led by Ming Z. Mei, CEO and co-founder of GLP, and Jeffrey Schwartz, a former CEO and chairman of New York Stock Exchange-listed Prologis (PLG), where he spearheaded that company’s entry into the European markets in 1997 and also established Prologis’ Asia platform in 2022, initially in Japan and eventually progressing to China and Korea. A 1985 Harvard Business School graduate with a Master Business of Administration, Schwartz serves on the boards of Guanghua School of Management, Peking University, and the board of trustees of Emory University, and treasurer of the Real Estate Roundtable, a non-profit public policy organization.

With GLP’s continued expansion in China and Japan, “we intend to be an important part of Asia’s robust economic growth,” says Schwartz.