China has always been Global Logistic Properties’ top market. However, that simple fact was given a whole new life last month after the Singapore-listed logistics developer-cum-fund manager secured a $2.5 billion investment from several high-profile Chinese investors.
The outsized investment, which closed in mid-February, would have been plenty to turn heads the world over, as it involved top-level Chinese institutions such as Bank of China, HOPU Funds (a collection of Chinese state-owned companies and institutions) and an unnamed but large Chinese insurance company. Some $2.35 billion of the capital gave the investors a 34 percent stake in China Holdco, GLP’s holding company for all of its China assets, while the remaining $163 million of new shares in GLP’s listed entity gave those same investors a 1.5 percent stake in the firm itself – and earned them a seat on the board.
As ‘landmark’ as that deal was, it was merely the stone that breached the dam. In the weeks following the signing of that deal, GLP announced no less than eight partnerships and leasing agreements in China, totaling approximately 55.5 million square feet of new developments and 2.9 million square feet of leases throughout the country.
During an earnings call just after the $2.5 billion investment was announced, GLP chief executive and co-founder Zhi Mei Ming said: “With this extra help, we expect to access some of the larger landholdings and partnerships that we didn’t have access to before… You will hear more shortly about some of the exciting things we’re working on.” He certainly wasn’t exaggerating.
Woven in the fabric
GLP’s logistics developments in China already amounted to more than those of all its competitors combined. According to the firm’s latest annual report, its closest competitor in the country is US-based developer Prologis, which had 9.7 million square feet of completed property compared to GLP’s 61 million square feet. With such a large market share, further access and partnerships might be considered unnecessary.
Jeff Schwartz, GLP’s co-founder and chairman, did not agree with that logic. He revealed to PERE that his firm had begun talks with the Chinese investors about five years ago, and that this second major capital raising in China was done for reasons beyond simply bringing in further capital.
“We thought it was critical for our business to have the who’s who in China as our investors,” Schwartz explained. “Raising capital is not the issue – with this we get strategic relationships that can give us access to the best customers and companies.”
Previously, much of GLP’s developments in China had been funded by a private equity real estate vehicle called China Logistics Fund I, which closed on $1.5 billion in equity last November and is 86 percent allocated today. It is understood that the firm could have raised much more for that fund, but Schwartz pointed out that there is little business alignment in a fund – and that’s what GLP wanted from the Chinese institutions.
“They become shareholders in our China business, and we become part of the business fabric of China,” Schwartz said. “We want them to have vested interests in taking our China business to the next level.”
Crossing the threshold
The mega-investment, however, was just the beginning of a month of flurried activity for GLP in China. The deal seemed to act as a trigger for many more partnerships, attracting big names such as state-owned enterprises Jinbei and China National Cereals, Oils and Foodstuffs Corporation (COFCO), domestic development giant Vanke and Bank of China. In three short weeks, GLP signed on another 55.5 million square feet of development.
GLP also signed at least 2.9 million square feet of additional leases, not to mention already having most of its new developments pre-leased by some of China’s largest state-owned enterprises. And even as GLP’s activities in Brazil and Japan ramp up, it is understood that this pace of investment and growth in China is not expected to slow down any time soon.
“We expect to invest $1.7 billion [in China] next financial year,” as compared to $1.2 billion last financial year, Ming said during the earnings call. That would represent an increase of more than 40 percent.
PERE understands that these development and leasing partnerships had been in the works for approximately six to 12 months prior to announcement, but it was the $2.5 billion capital injection that allowed GLP to bring them over the threshold. Such partnerships are expected to allow GLP to focus more on building an integrated network of logistics facilities across China for a customer base that now includes the likes of Vanke, COFCO and Bank of China.
With a market opportunity that GLP has estimated at $2.5 trillion, it seems Schwartz’s vision of becoming “part of the business fabric of China” is well on its way to becoming reality.