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Global Logistic Properties to Buy Hillwood's U.S. Industrial Portfolio for $1.1 Billion

Portfolio Acquired By GLP Checks All the Boxes Favored By Investors: High Occupancy Big-Box Warehouse-Distribution Buildings in Robust U.S. Warehouse Markets With Growing E-Commerce Tenants
September 12, 2016
Continuing its buying spree amid industrial fundamentals that have arguably never been better, a deal announced by Global Logistic Properties, Ltd. (GLP) this week to purchase a 15-million-square-foot logistics portfolio from Hillwood Development Co. would solidify the Singapore-based company's position as the second-largest owner of industrial property real estate in the U.S.

Singapore-listed GLP, already the largest owner of logistics property in China, Japan and Brazil and second only to San Francisco-based Prologis (NYSE:PLD) in the United States, expects to close the $700 million purchase of Hillwood's existing buildings in December. The remainder of the buildings, which GLP plans to buy for another $400 million, are in development and will be acquired in phases over the next 18 months as they are completed by the Dallas-based company controlled by H. Ross Perot, Jr.

The initial phase of the purchase from Hillwood includes 32 buildings in Chicago, Dallas, Atlanta, Pennsylvania, Los Angeles, Cincinnati and Indianapolis. Chicago and Dallas comprise the largest percentage of properties at 24% and 23%, respectively. The properties include Gross Farms in Lehigh Valley, PA; the Braselton Commerce Center in Atlanta and Laraway Crossing in Chicago. Last week, Hillwood began construction of Joliet Logistics Park, the largest speculative warehouse project in the Chicago market.

The portfolio includes 10 million square feet of newly built, 100% leased logistics buildings with an average period of nine years before lease expiration, 80% of the space occupied by investment-grade tenants or publicly traded companies, according to GLP.

Online retail tenants comprise 42% of the total leased area being acquired by GLP, followed by general retail (19%), food and beverage (12%) and home improvement (11%).

In fact, the deal would appear to check every box as a stellar industrial real estate deal for investors.

An analysis by CoStar Portfolio Strategy of industrial sales prices per square foot shows that the pricing premium on fully occupied industrial properties is particularly high today compared with high-vacancy buildings, 55% compared to a historical average of 28%, noted Andrew Rybczynski, CoStar senior real estate economist.

In late 2013, about 40% of demand flowed to buildings newer than five years old. Today, that number is a little over 60% as more and more new buildings become available, he added.

"With new buildings coming on line, and projections calling for supply to continue, buying into vacancy that will have to compete against new product makes a good deal less sense," Rybczynski said.

The Hillwood acquisition is GLP's third huge industrial purchase since entering the U.S. market in February 2015. Tapping into strong investor demand for industrial property, the company, controlled by Singapore's sovereign wealth fund, last November acquired Denver-based Industrial Income Trust's 58 million-square-foot portfolio for $4.55 million. In February of last year, GLP paid $8 billion to acquire Blackstone Group's IndCor portfolio.

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GLP said in a statement that it will be the asset manager of the portfolio and expects to retain a 10% stake in the proeprties post-syndication, following a similar pattern as in previous purchases by bringing capital partners into the transaction by the initial closing in December. GLP initally plans to fund the transaction with $470 million of equity and $635 million of long-term debt, which the company said it has secured at a low-cost fixed rate.

With the transaction, the company expands its U.S. footprint to 187 million square feet, with a total global portfolio of 560 million square feet. GLP's U.S. debut has come during what's arguably the strong run for the U.S. industrial real estate market on record.

John W. Guinee, REIT analyst with Stifel Nicolaus & Co., who maintains "buy" ratings on six of the eight industrial REITs covered by his firm, expects the strong performance in the sector to continue.

"We expect industrial fundamentals to continue to modestly surprise to the upside and look attractive relative to other property sectors," Guinee saId in a research note this week. "We also note that the inevitable increase in supply, expected about the time demand subsides, continues to get kicked down the proverbial block."

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