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Singapore's GLP ups ante in Chinese e-commerce warehouses

Ming Z. Mei, CEO and co-founder of Global Logistic Properties (Photo by Keiichiro Asahara)

SINGAPORE -- Ming Z. Mei, the 44-year-old chief executive of Global Logistic Properties, a Singapore-listed warehouse developer and operator, doesn't see China so much for its slowing economy as he does for its rapidly modernizing retail landscape, one where e-commerce is thriving and creating ever more demand for what his company does best -- storing and helping things move around. 

Started with a Chinese team handpicked by Mei, a Chinese native himself, GLP is already China's top modern logistics facilities provider. It has warehouses in 38 cities.

With a working knowledge of China and plenty of international experience, Mei and his team quickly reacted as China awoke and morphed into the world's second-largest consumer market.

But Mei has bigger plans still, and GLP needs cash to realize them.

In July, the company's China arm went to the Shanghai Stock Exchange to issue $224 million in panda bonds -- yuan-denominated bonds issued by non-Chinese companies. It was the first panda bond issue by a global real estate company and marked a rare issuance by a truly foreign company (plenty of red-chip companies -- those based in the mainland but incorporated elsewhere and listed in Hong Kong -- had already issued panda bonds).

Things went well. Really well. GLP's bonds were more than three times oversubscribed thanks to keen interest from institutional investors. And the company has obtained approval to go back to Shanghai for more panda issues -- up to $1.5 billion worth including the first round.

Although its China operations already make up 57% of GLP's net asset value -- followed by 25% in Japan, 7% in the U.S. and 5% in Brazil -- the holder and mover of things is hungry for more action in China.

Chain and internet stores are replacing traditional family-owned stores in the country, boosting demand for modern logistics facilities. GLP is the dominant player in e-commerce warehousing in China, with online retailers such as, Vipshop and among GLP's top five customers in the world's most populous nation. E-commerce makes up 26% of GLP's total leased area in China, higher than 11% in Japan and 10% in the U.S.

Despite the country's economic headwinds, Mei is still bullish on China. This year alone, he expects to kick off $1.4 billion worth of projects.

"Considering that the U.S. has around 1.2 billion sq. meters of warehouse space, I think China can reach 2 billion sq. meters over the next several decades," Mei said. "Organized retail [large and chain retailers] makes up only about 14% [of China's entire retail market]. But in the U.S. and Europe, it makes up 60% or more."

Mei said GLP's amount of warehousing space in China can quadruple. "We've been growing quite rapidly," he said, "and I think it is possible, given [enough] time."

An alum of the Kellogg School of Management, part of Northwestern University, in the U.S. state of Illinois, Mei was poached by Prologis, a U.S.-based industrial real estate investment trust, when he was 30. Prologis owns, manages and develops logistics facilities around the world. Jeffery Schwartz, a former chairman and CEO of the company, approached Mei while Mei was serving as Asia-Pacific director of finance and business development for Owens Corning, a U.S. construction materials company. Together with Schwartz, Mei in 2004 launched Prologis' China operations -- the predecessor of today's GLP.

When Mei launched Prologis China, the country had already earned its factory of the world moniker; it was mostly coveted for its cheap labor. "Our warehouses were mostly for manufacturing and exporting businesses," Mei said. "And we had a big presence in the port areas."

It was around 2006 when Mei began noticing some changes. "We realized," the CEO said, "domestic consumption was becoming a big part of our business." Online retail was on the verge of blooming.

A year later, e-commerce giant Alibaba Group Holding was listed on the Hong Kong Stock Exchange. GLP reacted quickly and started building large-scale logistics hubs near major population centers where the consumer market was growing in line with rising incomes. Large loading docks for trucks were located on two sides of the new warehouses so that items could smoothly move in and out.

Jump forward 10 years to today. Domestic consumption now accounts for around 90% of GLP's China business. GLP's warehousing space in China has grown fiftyfold, to 14.9 million sq. meters. And there is still ample room to grow, considering the staggering growth of China's e-commerce market.

Another key to GLP's success lies how Mei built his team in China. Born in Guangdong, China, and raised in the U.S., Mei was faced with a brand-new challenge when he launched Prologis' China operations 12 years ago. He had no logistics or real estate experience. "There were not a lot of experienced managers to hire," he said, "because the whole logistics and warehousing industry did not exist" in China.

A GLP logistics center in Suzhou, China

Instead of looking at the warehousing business from a real estate perspective, Mei took the opposite approach. "We hired people from the retail, manufacturing and logistics sectors to focus on the customer's perspective."

He also brought aboard some young civil servants who were doing marketing work for local governments. "They [understood] which sectors governments want to focus on, so they would go back, negotiate and help us secure good sites," Mei said. "I think that [approach] was what differentiated us from other traditional competitors."

GLP uses this localization strategy in other markets. In Japan, the company has had a footprint since 2001, but the business there did not start taking off until after some local managers were hired. The current president of GLP Japan and others leading the 120-person team are Japanese with international exposure. "We believe each country needs to be run by local nationals," Mei said. "They understand the culture and the market practice."

Another factor that has supported GLP's expansion is easily accessible capital from its partners around the world.

GLP was born as a result of the 2008 financial crisis, which put debt-heavy Prologis in a hole. The crisis effectively froze the global financial system. Mei and Schwartz teamed with GIC, a Singaporean sovereign wealth fund, to purchase Prologis' China business and its stake in Japan funds for $1.3 billion. The transaction solved Prologis' financial problems and gave birth to GLP. The Asian company was listed on Singapore Exchange in 2010. Today, GIC remains GLP's largest shareholder, with a stake of around 36%.

GIC's backing of GLP effectively served as testimony to other sovereign wealth funds and helped the warehouse provider raise funds around the world. It was not the first time the Singaporean state investor had bet on logistics properties. It began putting money into Prologis' logistic property funds as early as 1999. "I think in our early days, it was very helpful," Mei said, "because [GIC] helped us create operation manuals and processes, and it is very respected in the field of private equity and real estate."

GLP built up its fund management business by bringing in a number of international and local investors. In 2011, it set up a venture with the Suzhou municipal government in China to build a logistics park, formed a joint development fund for Japan properties with the Canada Pension Plan Investment Board, or CPPIB, and co-invested with the China Investment Corporation, or CIC, to acquire 15 logistics facilities in Japan.

In 2012, GLP expanded its fund management business to Brazil, acquiring over 30 logistics assets through joint ventures with GIC, the CIC and the CPPIB for $1.45 billion. The deal was followed by the listing of a $1.3 billion J-REIT on the Tokyo Stock Exchange, Japan's largest real estate initial public offering.

In 2014, GLP agreed to receive a $2.5 billion investment from Chinese state-owned enterprises and financial institutions including Bank of China, China Life Insurance and HOPU Funds, a China-based private equity fund.

"We have about 15 major investors from a diverse background from Asia, from [the] Middle East, from North America," Mei said. "And we continue to grow with them."

This has made something of a globe-trotter out of Mei, who says he gets to spend about a week of every month in Shanghai, where his family resides. "And even then, I'm flying within China to different cities to see the facilities and meet people," he said with a laugh.

GLP, in a joint effort with GIC, entered the U.S. in 2015 with a whopping $8.1 billion acquisition from private equity fund Blackstone. Most of GLP's stakes were eventually syndicated to institutional investors from Asia and North America. The landmark deal was followed by the purchase of a $4.55 billion U.S. portfolio through a second U.S. property fund established with China Life and other institutional investors.

"We have strong demand from pensions and sovereign wealth funds that want more investment in the U.S.," Mei said. Many of the leases for GLP's U.S. assets were signed around 2011, when the country was coming out of the Lehman-triggered recession. This creates an upside in rental fees when tenants renew their leases. "If you look at the last couple of quarters," Mei said, "our rent growth on renewal has been about 19 to 20%, better than we actually anticipated." This gives the capital partners cash yield of "7-8%, [when] they are looking for products that give them 6-7%. This is very attractive, given the stable nature of the U.S. economy," Mei said.

Going forward, Mei said the company will focus on expanding in its existing markets, though Europe could be on the horizon. "I look at Europe as a couple of years behind the U.S.," Mei said. "Given the population, economic base and the e-commerce growth, we believe that the demand is quite healthy. Further out in the future, Europe is potentially one of the markets we want to go into."

For now, one of Mei's favorite markets is Japan. "People always view Japan as a very mature, even no-growth environment," he said. "But actually Japan [has been] one of our best markets for the last 10 years."

While Japan's consumer market has limited room for growth, there is upside for GLP's facilities as the country modernizes what it has now for efficiency's sake. "Japan had a lot of small warehouses because there were a lot of layers of distribution," Mei said. "Only 3% are modern facilities. Over time, this could get to about 20 to 30%. We continue to invest as much money as we can in Japan."

GLP's share price began picking up in January. It had been on a downturn since early 2014, when the slowing Chinese economy chased away some investors.

That is not to say it is out of the woods in China, where more warehousing players are eyeing a piece of the e-commerce boom.

Like GLP, those would-be competitors are also looking for cash. In July, China Logistics Property, formerly known as Shanghai Yupei Group, listed on the Hong Kong Stock Exchange, raising 3.3 billion Hong Kong dollars ($430 million). The company sits fifth in China's modern logistics facilities industry and plans to use some of the proceeds to develop new logistics parks.

Another Shanghai-based player, e-Shang Warehousing Services, is rumored to be on track for an IPO by the end of the year.

As competition tends to do, it is eating away at GLP's net profit, which plunged 24% in the April-June quarter from the year-earlier level, to $202.9 million. 91% of its warehousing spaces were leased, but the ratio was down 1 percentage point from the previous quarter, mainly due to woes in China and Brazil.

However, most analysts remain positive. "The group is starting developments only in cities with strong demand and has met 20% of its [current financial year's] development starts so far," said Eli Lee, lead analyst at OCBC Investment Research, who kept a "buy" rating on GLP stocks in a report released after the April-June results were announced. "In Japan and [the] U.S., GLP continues to see strong leasing trends and positive portfolio performance."

While Mei also has a positive outlook, his comes from a different vantage point. GLP's footprints and deep knowledge in the markets it operates in have won the trust of institutional investors around the world and will continue to drive the company's expansion, he said.

"We pride ourselves that no matter how big the company becomes, we think and act like we're a small company and maintain that entrepreneurial spirit," Mei said. "We stay local but combine the global best practices. That's our key to success." 

-- Company in focus

-- CEO in the news

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