Shares of Global Logistic Properties (GLP) gained on the Singapore Exchange, closing 0.93 per cent higher at $2.16 on Wednesday.
Investors were cheered by news that it was acquiring a 53 per cent stake in Airport City Development, developer of the Beijing Capital International Airport’s cargo handling area.
Analysts see the acquisition as a positive for the Singapore-listed warehouse company as China’s air-cargo business continues to grow at a rapid clip.
The amount of cargo travelling through Beijing Capital International Airport has grown 17 percent (compound annual growth) annually for the past four years.
And going forward, growth is expected to remain brisk at about 15 per cent annually for the next four to five years.
GLP’s interest in Airport City Development will add about 793,000 square metres to GLP’s China portfolio, and increase its rental revenues in China by roughly 20 percent.
Jeffrey Schwartz, Chairman of the Executive Committee, GLP, said: “With the addition…we are now at approximately 50/50 NAV between Japan and China.
Obviously we think that China – with the growth, with the population there – will be a much larger market for us although we are still very bullish on the Japan market given the critical lack of high quality distribution facilities in Japan.”
Analysts say that it is extremely difficult to acquire such a significant stake in a port or airport asset – time is needed to establish relationships and even political connections.
They add that GLP’s ability to enter into such a deal bodes well for investors in the long term as it means GLP may be able to land similar assets in future, too.
GLP says it is looking to expand in Japan, other areas in Asia, and second-tier cities in China but going forward analysts say managing geographically spread-out assets could be a challenge.
Mr Schwartz said: “We see tremendous growth opportunities and prospects in Chengdu and Wuhan, markets that we are beginning to focus on now…will be a further additive to our growth prospects.”
Roger Tan, Head of Research, SIAS Research, said: “I think if they are to go on expanding their assets, internally they would face management issues.
Assets are all over the place, assets are far apart how do you manage those assets from a single location? And, how do you ensure that governance is in place? That is one challenge.
The other challenge is that once your assets are in place, you are not the only player in the area.
How do you compete with your competitors around there? On top of that, land is considered quite scarce.”
Going forward, GLP says rentals in Beijing offer upside potential, and analysts say they could double in the next one to two years if demand remains in place.
Source : Channel NewsAsia – 5 Jan 2011