OREANDA-NEWS. Fitch Ratings has assigned Global Logistic Properties Limited's (GLP; BBB+/Stable) USD1bn 3.875% senior notes due 2025 a final rating of 'BBB+'. The notes are issued under the company's USD2bn euro medium-term note programme.

The notes are rated at the same level as GLP's senior unsecured rating because they constitute direct, unsubordinated and senior unsecured obligations of the company. The assignment of the final rating follows the receipt of documents conforming to information already received and the final rating is in line with the expected rating assigned on 21 May 2015.

GLP's rating is supported by its shift towards being an asset manager and portfolio owner of geographically diversified industrial properties. The good quality of its underlying investments and the prudent financial profile of the holding company (excluding subsidiaries) also support its ratings. GLP's ratings are constrained by the company's expansion strategy, which lowers the visibility of the company's financial profile. This is unlike most 'A' rating category investment property companies that have highly visible income streams and stable financial structures.

KEY RATING DRIVERS
Geographically Diversified Portfolio: GLP manages USD27.7bn of logistic properties, including USD16.7bn invested under its fund management platform (including the recent acquisition of USD8.0bn of assets in the US) and USD11bn operated by its subsidiaries in China and Japan. The company has a geographically diversified portfolio - GLP is the market leader in Brazil, China, and Japan based on total floor area under management and will be the third-largest in the US. Besides the diversification benefits, GLP's global network also enhances its competitiveness by offering its multinational customers an integrated service for their global operations. The logistic properties are also in strong demand because of the rapid development of e-commerce.

Operating Assets Have Moderate Leverage: GLP's operating assets - which include its China and Japan subsidiaries, the jointly controlled entities (JCEs) and GLP J-REIT - maintain healthy asset cover. Its China and Japan subsidiaries' loan to asset value ratios (LTV) were 8.6% and 45.1% respectively at end-March 2015, while the total liabilities/non-current assets (a proxy for LTV) of its JCEs were 44% at end-March 2014. As the total liabilities for the JCEs include payables and accrued expenses, the actual LTV will be slightly lower than the proxy we use. The rental yield of GLP's different operating assets, based on rental revenue/property assets, is around 5%. This is comparable to other Fitch-rated global investment property companies rated 'BBB+'.

Holdco's Strong Profile: GLP's rating is also supported by the holding company's (holdco) healthy recurring income interest cover of above 2.0x based on Fitch's estimates, and unencumbered asset cover improving to 8.5x at end-March 2015 from 8.3x at end-March 2014 and 6.9x at end-March 2013. The agency measures GLP's recurring income interest cover using the ratio of management fees and dividend income (including dividends the holdco receives from its subsidiaries) to holdco interest expenses (including distribution for its perpetual capital securities).

Management fees and dividend income from JCEs and investments totalled USD97m in the financial year ended 31 March 2015 (FY15) and management expects this to hit a run rate of USD150m from FY16 based on existing funds under management. Fitch expects this recurring income to cover the holdco's increased interest expenses, following this proposed notes issuance, by around two times before including dividends from subsidiaries. Dividends that GLP receives from subsidiaries remain significant as implied by the USD22.7m withholding tax it paid on dividend income from subsidiaries in FY15 and USD41.3m paid in FY14.

Asset Sales Support Expansion: GLP has been selling stakes in its assets to fund its growth. It raised USD6.75bn between October 2012 and May 2015, which it has invested in its subsidiaries and increased its interests in JCEs. GLP's flexibility in raising funds by paring stakes in its assets means that the holdco's debts of USD1.44bn (including 50% of its capital securities that are treated as debt) are supported by its net asset value, which totalled USD8.8bn at end-March 2015.

Expansion Uncertainty Constrains Ratings: GLP's acquisitions which have occurred regularly, lower the predictability of its financial profile. For example, GLP completed a USD1.1bn acquisition of Brazilian assets in June 2014 and completed the USD8.1bn acquisition of US assets in February 2015. Both transactions had significant impact on the holdco's financial profile, as the final USD350m investment in the GLP Brazil Income Partners II fund and the planned final USD330m investment in the US Income Partners I fund helped raise the total investments in JCEs and listed investments to USD2.01bn at end-March 2015 from USD1.58bn at end-March 204.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Revenue growth at 18-22% for 2015-2016
- EBITDA margins at 60% for 2015-2016
- Net debt at around USD 2bn for 2015-2016

RATING SENSITIVITIES
Positive: Fitch does not expect a positive rating action until GLP's portfolio stabilises.

Negative: Future developments that may individually or collectively, lead to negative rating action include:
- Holdco recurring income interest cover below 2x on a sustained basis
- Unencumbered asset cover ratio below 2x on a sustained basis
- Material increase in the leverage at its operating subsidiaries and JCEs; with JCE's total liabilities/non-current assets exceeding 50% on a sustained basis, or debt/total property assets in each country exceeding 50% (historic high of 47% at September 2014)