OREANDA-NEWS. December 22, 2015. Fitch Ratings has affirmed Global Logistic Properties Limited's (GLP) Long-Term Foreign-Currency Issuer Default Rating at 'BBB+' with Stable Outlook. The senior unsecured rating and all outstanding bonds are also affirmed at 'BBB+'. The agency has also affirmed its Singapore dollar-denominated perpetual capital securities issued in December 2011 and January 2012 at 'BBB-'.

KEY RATING DRIVERS
Growing Asset Management Platform: GLP has been committed to expanding its fund management platform since 2012. Total assets under management (AUM) in the fund management business have increased to USD32bn at end-September 2015, representing a CAGR of 105% for the past 3.5 years. We expect the continued growth in AUM to provide cash income stability to the holding company (holdco).

Globally Diversified Assets: GLP has been a market-leading logistic asset owner in China, Japan and Brazil. It also became the second-largest industrial asset owner in the US after the USD4.6bn acquisition of US Income Partners II in November 2015, increasing its US AUM to USD12.8bn. GLP's USD33bn globally diversified logistic assets helps in attracting and retaining customers; especially multinational customers who benefit from GLP's global operation and who account for around 50% of leased area. This has allowed GLP to maintained a high occupancy of over 90% in all regions and tenant retention of 80% in mature markets

Healthy Portfolio Financials: GLP's subsidiaries in China and Japan have strong financial profiles, with recurring EBITDA/interest coverage ratios at 6.5x and 13.3x respectively in the financial year ended 31 March 2015 (FY15). The China portfolio's loan-to-value (LTV) is historically in the low teens, giving GLP's China operation greater headroom to raise debt to fund its business expansion.

GLP's jointly controlled entities (JCEs) in Japan, Brazil and US have high proportions of fixed-rate debts of over 80% as of 1HFY16, which limit the negative impact of rising interest rates. The LTV of its JCEs (on pro-rata basis) increased slightly to 45.5% in FY15 from 44.3% in FY14 after adding the assets from US Income Partners I, which has an LTV of more than 60%. While the US funds are raising leverage of the JCEs on pro-rata basis, we do not expect this leverage to exceed 50%. In mitigation, we expect GLP's JCEs on pro-rata basis are able to sustain EBIT/interest above 2x in the next three years.

Increasing Holding Company Leverage: GLP has issued USD1bn and JPY80bn of bonds in so far in FY16 to build a liquidity buffer at the holdco for its role as a bridge financing platform for the group. GLP has used this liquidity to finance the acquisition of its US funds and extending shareholder loans to the China portfolio. Its leverage, as measured by holdco net debt minus net working capital to investment in funds, rose to 40% in 1HFY16 from -18% in FY14. We expect this ratio to fall in FY17 after it completes the sale of stakes in US Income Partners II to investors by April 2016 and assuming no further acquisitions of new funds.

Holdco Coverage Remains Healthy: The GLP holdco receives management fees and dividends mainly from Japan, Brazil and US. We assume no cash income contribution from China due to continued capital expenditure. Fitch estimates GLP holdco's recurring income interest coverage at below 2.0x in FY16 as interest expenses from the two bonds issued in the year will not be offset by the fee income to be generated from its newly acquired US funds; we expect coverage to rise above 2.0x in FY17 when all the AUM contribute a full year of management fee income.

Expansion Caps Rating Level: GLP's rating continued to be capped by the risks inherent in its fast expansion strategy. Unlike a typical 'A'-rated investment property company that has fairly stable income stream and low leverage ratios, a big part of GLP's recurring management fee depends on new project development. GLP's leverage may increase after including the two US funds with higher LTV of 50%-60%. Until GLP's portfolio stabilises, its financial profile at the holdco level and the operating assets level may continue to fluctuate.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Annual revenue growth of 20% for next three years
- Capex/revenue at around 200% for next three years compared with 232% in FY15
- Includes all announced transactions
- No future acquisitions.

RATING SENSITIVITIES
Positive: Fitch does not expect 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 falls below 2x on a sustained basis (FY15:1.8x)
- Holdco net debt minus net working capital/Investment in funds above 50% on a sustained basis
- Significant increase in the leverage at its operating subsidiaries and jointly controlled entities (JCEs) on pro-rata basis. That is, JCE's debt/total property assets exceeds 50% on a sustained basis, or country segment's debt/ total property assets exceeds 50% on a sustained basis (FY15: China subsidiary: 9%, Japan subsidiary: 45%)
- Significant deterioration in the coverage at its operating subsidiaries and JCEs (on pro-rata basis). That is, JCE's recurring EBIT/interest at less than 2x on a sustained basis, or country segment's EBITDA/interest at less than 2x on a sustained basis (FY15: JCEs pro-rata 2.3x)

The full list of rating actions is as follows:

Global Logistic Properties Limited
- Long-Term Foreign-Currency IDR affirmed at 'BBB+'; Outlook Stable
- Long-Term Local-Currency IDR affirmed at 'BBB+'; Outlook Stable
- Senior unsecured rating affirmed at 'BBB+'
- CNY2.65bn 3.375% senior unsecured notes due 2016 affirmed at 'BBB+'
- CNY350m 4% senior unsecured notes due 2018 affirmed at 'BBB+'
- JPY15bn 2.7% senior unsecured notes due 2027 affirmed at 'BBB+'
- USD1bn 3.875% senior unsecured notes due 2025 affirmed at 'BBB+'
- SGD750m 5.5% perpetual capital securities notes affirmed at 'BBB-'