Singapore-listed Global Logistic Properties (GLP) has raised S$414.4 million ($339 million) from the sale of new shares that it will use to fund its share of an acquisition of logistic properties and developments in Brazil.
The acquisition was announced late afternoon yesterday and is expected to be completed in early December. The total acquisition cost is 2.9 billion Brazilian real ($1.45 billion), but GLP has teamed up with three high-profile partners so its initial investment is capped at $334 million.
The partners are the Government of Singapore Investment Corp (GIC), which prior to last night’s placement owned just over 50% of GLP; China Investment Corp (CIC); and Canada Pension Plan Investment Board (CPPIB). GLP will be the manager of the assets with the help of the current on-the-ground local management team of 40 people who are part of the acquisition.
The four partners are buying two separate portfolios of logistics facilities from three funds owned by Prosperitas, a Brazilian asset management company focusing on real estate. The first portfolio is made up of 34 existing properties that are 100% leased and have an appraised value of $1.25 billion plus one development project. The second one includes five development projects that offer significant opportunities for GLP to grow its network of modern logistics facilities in the region. The acquisitions will be made through two newly formed joint ventures.
GLP and CIC will each own 34.2% of the JV that is acquiring the portfolio of existing properties, while GIC will own 20% and CPPIB 11.6%.
The second JV, which will hold the development projects, will be 41.3% owned by GLP, while CPPIB will take 39.6% and GIC 19.1%. CIC is not part of this JV.
This is GLP’s first move into Brazil, but it is going in on a large scale from the start. In fact, the acquisition of the existing assets alone will make GLP the biggest owner of logistics properties in Brazil and on top of that it will have a strong development pipeline for further growth. Prior to this, GLP’s portfolio has been split between high-growth assets in China and more mature logistics facilities in Japan.
“We are very excited to be entering Brazil, an attractive market with strong fundamentals and compelling opportunities for growth. Our proven ability to provide best-in-class, modern and flexible logistics solutions makes GLP ideally-placed to flourish in this significant, underserved market,” said Ming Mei, GLP’s CEO.
“GLP is now the leading provider of modern logistics facilities in three of the world’s most attractive markets,” she added. “We remain mindful of the global economic conditions, but are confident that our unrivalled market presence in China, Japan and now Brazil positions us well for future growth.”
GLP’s investment in the two Brazilian portfolios will generate a levered internal rate of return of more than 18% after tax, according to an announcement published on the Singapore Exchange website.
And together with the monetisation of some of its Japanese assets, which are being spun off through a Japan real estate investment fund (J-Reit) that is currently in the process of listing in Tokyo, its assets under management will almost triple to $7.2 billion from $2.6 billion. The company said this will lead to “significant growth” in recurring fee income.
And if the placement is any indication, investors appeared to like the acquisition. According to sources, the deal was about three times covered and more than 90 investors participated in the transaction, including a large number of existing shareholders.
This allowed the price to be fixed just above the mid-point of the indicated range at S$2.59, which translated into a discount of 4.8% versus Monday’s close of S$2.72. Singapore was closed for a holiday on Tuesday and GLP was suspended from trading yesterday pending the announcement of the acquisition and confirmation that the company has received listing approval for the J-Reit from the Tokyo Stock Exchange.
The shares were offered in a range between S$2.56 and S$2.61, which equalled a discount of 4% to 5.9% versus the latest close.
The company sold 160 million new shares, which accounted for 3.5% of the existing share capital and about 18 days of trading volume.
Sources said the buyers included sovereign wealth funds, high-quality global long-only funds and hedge funds. There was also solid interest from real estate-focused funds. The deal was fully covered within an hour of the 5.30pm launch, and the bookrunners closed the order books for Asia and European investors at 8pm. However, they kept them open for US accounts until 9.15pm. That seems to have paid off as one source noted that there was good participation from the US. The demand out of Europe was okay too.
Existing shareholders obviously had an incentive to participate, so as to prevent their holdings from getting diluted, but both they and the new investors also liked the fact that the proceeds are going towards a specific acquisition. Overall, GLP is also viewed as a high-quality, liquid name. The share price is up 55% so far this year and has gained 53% since its IPO in October 2010.
Brazil is the sixth largest economy in the world and has been growing at an average 4% during the past seven years. However, according to the GLP announcement, the country has “a markedly limited supply of quality logistics facilities”.
The supply of logistics space is only around 6% of that in the US, and approximately 80% of the available facilities are unable to meet modern logistics requirements, the company said. Class A assets in São Paulo have seen robust annual rental growth of 12.9% since 2008 and the outsourcing of logistics facilities is expected to drive future market growth, as companies look to increase supply chain efficiencies, it added.
The 2014 Football World Cup and the 2016 Olympic Games, which will both be held in Rio de Janeiro, are likely to further increase productivity and consumption.
Some 88% of the assets and projects acquired by the two JVs are located in either São Paulo or Rio de Janeiro, which together generate more than 40% of Brazil’s GDP.
The properties in the first JV have a high-quality, diverse tenant profile and a weighted average lease expiry of 8.5 years. The contracts are inflation-linked. Approximately 87% of the gross leased area caters to domestic demand. This JV will assume BRL1.1 billion ($534 million) of onshore debt with a bullet-like repayment schedule and a weighted average maturity of around eight years.
The development projects in the second JV are located in major industrial and logistic hubs with direct access to key transportation nodes. The partners are expecting to spend a combined $455 million to complete the five projects on top of the initial acquisition cost. GLP’s share of this will be $188 million.
The total acquisition cost may be adjusted downwards if certain development milestones related to the properties are not fulfilled within pre-agreed deadlines.
The placement was arranged by CICC, Citi, Goldman Sachs and J.P. Morgan. Citi was also acting as a financial adviser to GLP with regard to the acquisition.
