GLP executes first full portfolio recapitalization via $5bn China fund

A significant amount of existing investors in GLP’s first China development fund have rolled into its new income vehicle.

Logistics powerhouse GLP has introduced its first full portfolio recapitalization via the launch of its fifth China income fund, PERE has learned.

GLP China Income Partners V, the firm’s first offshore USD-denominated core income fund in China, has closed at $5 billion to fully recapitalize the entire portfolio developed by the 2013-vintage GLP China Logistics Fund I. CLF I was the first of the firm’s flagship logistics development fund series in China, and was formed in 2013 with $1.5 billion of capital commitments from institutional investors. While GLP has regularly sold assets from its development funds to its other private and public vehicles, this is the first time that the firm has recapitalized an entire portfolio.

GLP CIP V’s portfolio is composed of 54 prime, institutional-grade modern logistics assets totalling more than five million square meters across 27 key logistics markets in China. More than 80 percent of the portfolio is located in tier 1 and 1.5 cities with a leasing rate of more than 90 percent as of May 2022. The portfolio has a diversified tenant roster anchored by major third-party logistics and e-commerce customers, which represent approximately 70 percent of the leased area.

Craig Duffy, managing director of fund management at GLP, told PERE that GLP CIP V is “essentially a continuation vehicle” for CLF I. This also explains why CIP V has an offshore structure, as CLF I was also USD-denominated. Meanwhile, the four predecessors in GLP’s China Income Fund series were all RMB-denominated and were seeded by assets from GLP’s balance sheet.

The idea of a full recapitalization was partly initiated by some of CLF I’s existing investors, according to Duffy. It is understood that a “significant” amount of existing CLF I investors have rolled into CIP V, along with new investors that include insurance companies, sovereign wealth funds and pension funds. Limited partners in CIP V include AIA and Allianz Group.

In addition to the preference among investors to hold onto the assets, Duffy told PERE that a recapitalization via the launch of CIP V was the most balanced exit option for CLF I. “We had a few primary objectives in mind,” he explained. “First, to maximize value and returns for our investors in CLF I. Second, we wanted to deliver a full one-time exit. This was just the right structure that allowed us to do these few things.”

Other exit options that the firm had evaluated included a public market option; onshore and offshore private market options; and portfolio sales to third parties.

GLP declined to disclose the specific return generated from the recapitalization, but said it was in line with the initial target return for its develop-to-core strategy.

Including CIP V, GLP manages $17 billion in assets across nine China income funds ranging from core to value-add. These include three funds in the GLP China Value-Add Venture series, five funds in the GLP China Income Fund series, and GLP C-REIT.