Logistics provider GKE Group is planning to redevelop a warehouse property and build its cash reserves with proceeds from the sale, and leaseback, of its headquarters and warehouse for $45 million.
GKE unit, GKE Warehousing & Logistics, has struck an agreement with a trustee of Viva Industrial Real Estate Investment Trust (Reit) for the sale and leaseback of its property at 30 Pioneer Road.
Once the disposal is completed, GKE Warehousing will lease back the property for five years.
GKE chief executive Neo Cheow Hui said that while overall Chinese manufacturing has slowed, growth opportunities remain in third-tier or medium-sized cities of certain provinces in southern China.
"The slowdown hasn't affected third-tier cities like Wuzhou and Maoming City, which still require a lot of urban development. Locals are still building homes and there is demand for more infrastructure, roads, sewage construction," he said.
The company also plans to use the proceeds to expand its property at 39 Benoi Road, adjacent to the Pioneer Road property.
The redevelopment would add a level for chemical storage and increase the building's total area to 900,000 sq ft from 700,000 sq ft.
GKE will build a 40-foot container ramp, while Viva can build a vehicle link connecting the ramp to the Pioneer Road building, allowing container trucks to have access to each floor. When the ramp and link are completed, Viva will pay another $3 million and a monthly maintenance fee for the ramp.
"The growth of our logistics business depends on the efficient utilisation of the land and space we have," Mr Neo said. "The ramp will help lower our operational costs by sending goods or the truck right in front of the warehouse."
He added that the local slowdown has not affected warehouse utilisation rates because his clients have been outsourcing inventory control and storage to GKE.
"Many of our customers are in shipbuilding, electronics and food and beverage industries, and they have difficulty getting workers. So outsourcing storage is a good cost- control method for them," he said.
The company, with two Chinese ready-mix cement and building materials manufacturing subsidiaries, also plans to build its cash reserves for new business opportunities.
It started a shipping logistics business through a 50 per cent joint venture to build an 83,000 cubic metre liquefied natural gas (LNG) carrier vessel.
In the past three years, demand for the clean energy fuel has been picking up, especially in China and Japan after the Fukushima nuclear plant disaster.
"That created demand for LNG as a substitute fuel for electricity production, and China is also slowly switching from coal power to LNG. And there aren't many vessels transporting LNG," Mr Neo said.
He said the company will have about $50 million cash on hand after the disposal is done. "That gives us a very good war chest for growth opportunities locally or overseas."