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 Post By：2012/8/2 11:38:54
With demand from Chinese consumers ballooning for clothes, appliances, furniture and thousands of other items, Jeffrey Schwartz is making big bets on the warehouses needed to store and distribute all those goods.
Mr. Schwartz's Global Logistic Properties owns 156 million square feet of warehouses in Asia, with half its properties in the Shanghai area, which has one of the world's busiest ports. With tenants like United Parcel Service Inc., Nike Inc. and Amazon.com Inc., the company started construction on 18 million square feet of new space last year and another 20 million square feet in 2012.
'The demand far exceeds our ability to deliver product,' Mr. Schwartz said.
But Mr. Schwartz also has seen that growing too fast can cause problems. In the years leading up to the recession, he was chief executive of U.S.-based warehouse giant ProLogis and oversaw that company's risky and debt-fueled expansion drive in China and other countries. Mr. Schwartz stepped down in November 2008 after ProLogis's stock had fallen 71% as investors retreated from companies with substantial debt.
Indeed, Mr. Schwartz's departure from ProLogis set the stage for his comeback. In its struggle to shore up its balance sheet, ProLogis sold its operations in China and the rest of Asia to the Government of Singapore Investment Corp., which teamed with Mr. Schwartz and other executives who left ProLogis to run the portfolio under the new Global Logistic Properties name. Global Logistic made an initial public offering on the Singapore stock exchange in 2010.
Mr. Schwartz, 53 years old, seems to have learned from his ordeal with ProLogis, which last year merged with its largest rival AMB Property Corp. Global Logistic's debt stands at roughly $3 billion, its cash on hand at $1.6 billion and debt-to-equity ratio at roughly 21%.
'I have always been a huge advocate of having the strongest balance sheet in the industry,' Mr. Schwartz said. 'In building GLP from the ground up, my partner [Global Logistic CEO Ming Mei] and I have been afforded the opportunity to build a best-in-class balance sheet.'
But Global Logistic may still run into bigger challenges if China's growth rate continues to fall. Government forecasts in China predict retail-sales growth will decline to 14% this year from the high teens in previous years. The slower growth 'leads people to question [Global Logistic's] ability to hit the development-starts target,' said Sean Gardiner, an analyst with Morgan Stanley who tracks Global Logistic.
Global Logistic stock, after reaching a high of 2.32 Singapore dollars ($1.86) in October 2010, declined to a low of 1.56 SGD in October 2011 because of global economic jitters and investors' concerns about Chinese retail-sales growth losing momentum. The stock since has climbed back to close at 2.25 SGD on Tuesday. Mr. Schwartz counters that this year's projected 14% retail sales growth is compounded, meaning it is building upon a larger base than the headier growth rates of past years.
At the same time, some factors stand to limit the speed of the Chinese market's expansion, and thus Global Logistic's growth. For one, skilled warehouse and logistics managers are in tight supply in China.
Another impediment: Trucking in China is a local business, partly because of numerous government regulations that have stymied development of U.S.-style interstate trucking. Without sophisticated logistics planning, many Chinese trucks return empty from delivering a load rather than finding freight to carry on their trip back.
'The buildings, the racking, the inventory-management systems are state of the art,' Mr. Schwartz said. 'What's not today is the transportation and trucking. There are literally nine million trucking companies in China, six million of which own exactly one truck.'
Global Logistic has attempted to address trucking and other transportation problems by buying a majority interest in Transfar Group Co. Ltd. At Transfar's three Chinese logistics hubs, which are surrounded by warehouses, truckers can bid on loads to haul on their trip back to their base city.
Meanwhile, Global Logistic has nearly tripled in size since buying 57 million square feet of space in the 2008 purchase from ProLogis. Among its largest recent deals was a $265 million purchase early this year of a 53% stake in the primary warehouse and logistics provider at Beijing Capital Airport and its $1.6 billion deal for LaSalle Investment Management's warehouses in Japan.
China presents a big opportunity because it only has an estimated 550 million square meters (5.9 billion square feet) of warehouse and distribution space, of which only about 5.8 million square meters (62 million square feet) is considered modern, according to CBRE Group. By comparison, the U.S. has 18 billion square feet of modern industrial space.
Central to Global Logistic's China expansion is Shanghai, which along with neighboring Suzhou, is the site of more of its warehouses than any other Chinese city. Global Logistic's customers there include the likes of Alibaba.com Ltd., Deutsche Post AG's DHL Express and General Motors Co.
Foreign and domestic companies increasingly favor the seaport city as a distribution point, both for exports from nearby factories and as a foothold to serve Chinese customers in one of the most wealthy and populous regions of China. Express shippers are congregating at Shanghai's Pudong International Airport, which has set its sights on overtaking Hong Kong as the world's busiest air cargo depot. Already, 58% of mainland China's air cargo passes through Pudong's airport, according to Li Derun, president of Shanghai Airport Authority.
DHL in July inaugurated a Pudong airport distribution center adjacent to one operated by UPS. Frank Appel, DHL's chief executive officer, called his company's $175 million center its most advanced anywhere. 'It shows how confident we are in China and the region,' Mr. Appel said.
Meanwhile, land zoned for warehouses is in increasingly high demand in Shanghai and getting more expensive across China. Global Logistic's Mr. Schwartz said prices for Chinese industrial land have increased an average of 12% a year since the end of the global recession. Rents, meanwhile, are rising by 10% to 12% a year in coastal markets and by 8% to 10% annually inland, he said.
'For logistics and warehouse space, the Shanghai market is incredibly hot,' said Michael Cole, managing director of Rightsite Website Technology (Shanghai) Co., an online trade publication tracking the industry. Shanghai warehouse space leases for roughly 34 yuan ($5.32) per-square-meter per-month, Mr. Cole said, and can deliver a generous yield relative to other property types of 9% annually.
Adding further momentum for Shanghai's warehouse industry is the rapid growth of Chinese companies such as Alibaba and 51buy.com. Today, half of Global Logistic's tenants in China are Chinese companies, Mr. Schwartz said. In 2009, 80% were foreign companies.
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