HGLG11 and XPLG11 Exchange Properties in Hopes of a Better Future for Their Assets in Duque de Caxias, Brazil

The purchase and sale of two assets in Duque de Caxias are part of a joint strategy to combat vacancy and attract tenants.

Augusto Martins, Head of Real Estate at Credit Suisse

By: SiiLA News

06/04/2024

Credit Suisse ended May with the purchase and sale of assets in Rio de Janeiro for its logistics real estate investment fund, HGLG11. In a relevant fact on May 31, the acquisition of Syslog Galeão and the sale of HGLG WL were disclosed.

According to the statement, the transactions are part of a strategic partnership with XP Investimentos' fund, XPLG11. Syslog Galeão was owned by XP's fund, while XP acquired the share sold by HGLG11—each fund sold 49% of their assets.

HGLG11 is acquiring the equivalent of 27,900 square meters of Syslog Galeão for R$ 88 million, paid in three installments: the first upon purchase, R$ 44 million; the second 12 months later; and the third 18 months after the first payment, both R$ 22 million.

The sale of HGLG WL will be for R$ 79 million, also divided into three installments, under the same conditions as the purchase of Syslog Galeão, with the first installment of R$ 39 million and the last two of R$ 19.9 million each.

The CAP RATE for the transactions is low, with Syslog Galeão at 6.06% and HGLG WL at 5.95%.

PROPERTY PERFORMANCE SINCE 2016

Analysis obtained exclusively on the Market Analytics platform shows that the properties have shown distinct performances over the years.

Data shows that since the funds took control of the developments in 2020 and 2021, the performance of the assets has improved. Syslog Galeão, acquired from HSI by XP, saw a significant drop in its vacancy rate.

In the neighboring development, previously managed by GLP, even with Credit Suisse's purchase, the decline in vacancy was less aggressive but still noticeable. Since 2023, both assets have remained stagnant.

Strategy

Both assets compete with each other, being literal neighbors

What may seem unusual is that the purchase was driven by competition. Both assets compete with each other, being literal neighbors. According to the statement, their proximity led to "predatory competition."

Defined as a commercial and technical partnership, the governance plan will align the exploration and management of both assets.

“In this context, the transaction involves not only the purchase and sale of ideal fractions of the properties—priced neutrally in terms of implied profitability for both funds—but also a commercial and technical partnership between HGLG and XPLG in managing both developments. A governance plan was developed between the parties to be jointly executed from this date, ensuring that the management and exploration interests of the properties are aligned with the goal of delivering the best return for both funds, from the perspective of expenses, revenues, demand management, and investments,” states the announcement.

The statement also identified the Duque de Caxias region as challenging, with high vacancy rates. Market Analytics data shows that the Duque de Caxias area has a 19.7% vacancy rate for A+, A, and B class assets.

Duque de Caxias

Vacancy rate

While the region has a 19.7% vacancy rate, the broader Rio de Janeiro market has a much lower rate at just 16.2%. The region boasts over 1 million square meters of logistics warehouses, nearly half the size of the Rio market, which is 2.7 million square meters.

None of the assets involved in the transaction have zero vacancy; HGLG has 11%, and Syslog has 23%. Both are class A, and among the main tenants are Carrefour in HGLG and Águas do Rio in Syslog.

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