Fitch Affirms Global Logistic Properties Limited at 'BBB+'; Outlook Stable

Tue Jan 7, 2014 9:08pm EST

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(The following statement was released by the rating agency) HONG KONG, January 07 (Fitch) Fitch Ratings has affirmed Singapore-listed Global Logistic Properties Limited's (GLP) Long-Term Issuer Default Rating (IDR) at 'BBB+'. The Outlook is Stable. The agency has also affirmed GLP's senior unsecured rating at 'BBB+' and its Singapore dollar-denominated perpetual capital securities issued in December 2011 and January 2012 at 'BBB-'. KEY RATING DRIVERS Robust Operating Performance: The company continued to post a robust operating performance in the financial year ended March 2013 (FY13). For 1HFY14, GLP posted total revenue of USD277m, down 19% from a year ago following the sale of assets to JREIT, which was subsequently listed. However, on a pro forma basis, GLP's revenue increased by 15%. The strong revenue growth was mainly driven by the 39% rise in revenue in China. Pro forma operating EBIT (excluding revaluation gains or losses) increased by 15%, also driven by strong growth in China. In 2QFY14, GLP had new leases in China of 575,000 square metres, up 60% from a year earlier and close to three times the amount a quarter earlier. Rising Chinese Contribution: Fitch expects GLP to generate most of its revenue and EBIT (excluding revaluation gains/losses) from China instead of Japan following the listing of JREIT and the deployment of more capital into China, including the establishment in November 2013 of a fund with several partners to invest USD3bn to develop modern logistics properties in China. At end-September 2013 the company's portfolio of completed properties in China stood at 8.2m sqm, up from 7.6m sqm at end-March 2013. Expanding Fund Management Platform: GLP's fund management business is an important way to finance its expansion in China and Brazil and monetise its assets (for example, via the sale of assets to JREIT). As of March 2013, total assets under management stood at USD8.4bn, compared with USD2.6bn a year earlier. Of this, USD2.4bn has already been committed to investments. In November 2013, it also set up the Chinese logistics property fund. Limited Rating Headroom: GLP's operating EBIT net interest cover ratio is likely to remain around 3.0x-3.3x over the next two to three years, compared with 3.1x in FY13 and 3.8x in FY12. This is due to an expected decline in operating EBIT following the JREIT transaction and higher interest costs stemming from the 5.5% Singapore dollar-denominated perpetual capital securities issued in 2011 and 2012. In Fitch's view this leaves GLP little headroom at the current rating level. Any future increase in interest rates or interest costs will weaken the operating EBIT net interest cover ratio further. However, Fitch expects the ratio to improve once the pace of its portfolio expansion in China slows. Extending Debt Maturity Profile: GLP has continued to refinance its existing debt and extend its debt maturity. As of September 2013, the weighted debt maturity profile of the company was 4.7 years, compared with 2.9 years as at September 2011 and 3.2 years as at September 2012. The debt maturity profile remains relatively short compared with peers, although this is mitigated by the company's continued access to debt capital markets. Sufficient Liquidity: GLP had unpledged cash of USD1.39bn and short-term debt of USD268m at end-September 2013. GLP has good relationships with Chinese and Japanese financial institutions, including Bank of Tokyo Mitsubishi, Bank of China, Bank of Communications, and it currently has relationships with a total of 26 institutions. As of September 2013, the company had USD356m in unused bank credit facilities. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include: - Operating EBIT net interest coverage falls to below 3x during its expansion phase or remains below 3.5x once its portfolio is stabilized (End-March 2013: 3.1x and end-September 2013: 2.9x) - Unencumbered asset cover ratio falls to below 2x on a sustained basis (End-March 2013: 7.0x and End-September 2013: 7.3x) - Average debt maturity profile sustained at below five years. Positive: Future developments that may, individually or collectively, lead to positive rating action include: - Fitch does not expect any positive rating action until GLP's Chinese portfolio stabilises. Contact: Primary Analyst Vanessa Chan Director +852 2263 9559 Fitch (Hong Kong) Limited 2801, Two Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Alex Choi Associate Director +852 2263 9969 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage" dated 5 August 2013, are available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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