What Impact Would Global Logistic Properties’ Recent Brazilian Acquisition Have On Its Business?

Back in March this year, Global Logistic Properties (SGX: MC0) acquired 36 warehouses from developer, BR Properties. The 36 properties will add a gross leasable area of 1.2 million square metres of space and will cost GLP US$1.34 billion. The deal will roughly double the size of GLP’s current portfolio of 1.4 million sqm in Brazil. BR Properties and Global Logistic Properties share a common shareholder, the Government of Singapore Investment Corp, more commonly known as GIC.

Is the acquisition worth the price?

The properties involved in the acquisition have a lease ratio of around 98%. Based on GLP’s acquisition price, the purchase will give the company a revenue yield of 9.55%.

With a target loan-to-value ratio of 35% for the properties, GLP would be paying 65% of the acquisition price using its own cash holdings. The math on that works out to be US$871 million (0.65 multiplied by US$1.34 billion) and with US$1.49 billion in cash and cash equivalents as of 31 March 2014, that’s not too tall an order for GLP.

Currently, GLP’s weighted average interest rate for all its borrowings stands at a rather low figure of 3%. So, when you put all these together – 1) a revenue yield that’s much higher than its average interest expense and; 2) the use of cash that would not stretch its balance sheet – it seems that the acquisition is a smart buy for the company.

In addition, the purchase also gives GLP a number of options to extract more value in the future. For instance, the company can choose to inject the properties into its fund management platform in Brazil. Such a move can help GLP free up capital while still allowing the company to profit from the properties by earning management fees on those funds. GLP currently has two funds in Brazil, GLP Brazil Income Partners I, and GLP Brazil Development Partners I. Each has assets under management of slightly more than US$1 billion.

What impact will the acquisition have on the company?

A 9.55% revenue yield on the acquisition will generate about US$128 million (9.55% of US$1.34 billion) in additional revenue for GLP. Based on the company’s latest annual revenue of US$598 million, the extra revenue due to the acquisition alone would represent an increase of 21%. For investors who are looking for growth in Global Logistic Properties, it seems that there’s still gas left in the tank.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.