case study
innovative+dynamic financing strategy for GEP In 2011, GEP launched an innovative three-year strategy following the financial crisis to diversify its sources of funding and to substantially reduce the Partnership's sole reliance on bank financing. In 2013, GEP (then GELF) launched its inaugural €500 million Eurobond on the Luxembourg Stock Exchange, the largest listing of international bonds in Europe. This was the first time an investment fund successfully issued a bond in Luxembourg, allowing GEP to:
+ Access a cheaper source of financing + Have more flexibility in decision-making + Extend its debt maturity + Eliminate the need to obtain secured bank financing to acquire new properties + Provide better returns for unitholders Demand: Over €1 billion Price: 1.75%
In November of 2014, GEP issued a second Eurobond of €400 million. Given the success of the first bond and a high level of capital on the market, GEP was able to obtain an even lower rate. The second bond completed the three year strategy and GEP is one of the only real estate investment vehicles that is effectively independent from bank financing.
Demand: Over €970 million Price: 3.125%
First successful bond issue in Europe In 2007, the first Eurobond was launched by Prologis European Fund. However, the bond price and credit rating performed badly resulting in a price drop of 70% by the end of 2008. Therefore, GEP needed to convince investors that logistics real estate was a stable investment and the portfolio was strong. The launch and current performance of the GEP bonds were the first successful bond issuance by a Luxembourg-based investment fund.
Capital market challenges + Investors were not familiar with logistics real estate + It was almost unheard of for an investment fund to issue a bond + First logistics real estate bond, issued by a competitor, performed badly + The market required GEP to convince rating agencies on the strong credit metrics of GEP in order to obtain an investment grade rating + Convince and select banking partners to manage the process + Meet with potential bondholders to convince them of the investment + Investors and rating agencies had to get comfortable with the 2016 GEP liquidity review, which could potentially result in a wind-down of the Partnership
In 2011, GEP secures three new
The journey
bank facilities, two secured and one unsecured, valued at €800 million, as a short-term stepping stone towards a bond issuance GEP achieves initial credit ratings from Moody’s and S&P in 2012 The team prepares extensive documentation and obtains
GEP issued second
regulatory approvals
Eurobond, repays the two remaining
Goodman and GEP develop
bank facilities from
marketing materials prior to
2011, completing
the bond being launched on the
a three year proces
market and perform a road show GEP agrees with
with international bond investors
three banks to GEP obtained
GEP issues first
receive a €100 million
one unsecured
Financial crisis
GEP launches
Eurobond, repays
Revolving Credit
loan to launch
starts, hard to
a new, three year
unsecured loan
Facility, as a flexible
the partnership
obtain financing
financing strategy
from 2011
source of financing
2008
2011
2006
2013
2014
A secured loan vs a bond + A loan not subject to mortgage security + Repayment due based on bond maturity date (final payment date) + Is tradable on the secondary market + GEP maintains full control over rental income + Virtually zero risk of default due to property devaluation + Almost all operational decisions can be taken without consent of bondholders + Easier access to large amounts of debt, therefore supporting GEP's growth and increasing capital requirements + However, less flexibility to negotiate in case of a covenant breach + Bond investors and rating agencies require regular updates and reporting + A loan secured by mortgages over the properties + Strict covenants in place + Tight controls over capital - Customers pay rent directly to bank - Any and all insurance compensation goes to the bank - Difficult for GEP to use rental income - High risk of loan default if property value dips by more than 10% + Bank consent required for changes to: - Lease agreements - Capex on stabilised assets
open+ fair performance+ drive
team+ respect customer+ focus
innovative+ dynamic
success is in our GNA