Blackstone’s sale of Australian logistics portfolio Milestone through a dual-track process, which was announced this week, marks the country’s largest real estate transaction in five years. For Blackstone, it was also something of a trademark deal for the firm.
Private real estate’s heavyweight manager is understood to have launched the IPO process for Milestone in June 2020, followed by a private trade sale marketing process that began in January this year. The portfolio ultimately attracted 12 bidders on the private side, including managers LOGOS, AXA Investment Managers, Dexus and Mapletree. It was sold to a joint venture between ESR and Singapore’s GIC for A$3.8 billion ($2.9 billion; €2.4 billion).
The deal comes at a heady time for Australia’s logistics market. Deal volume in the sector rose 56 percent last year to a record $2 billion, according to Real Capital Analytics.
Though Milestone represents something of a landmark for Australian real estate and another notable exit of Blackstone, such deals are becoming a familiar pattern with the firm.
The sale process bears a striking resemblance to Blackstone’s $8.1 billion sale of US logistics business IndCor Properties in 2014 and its €12.25 billion exit from European logistics portfolio Logicor in 2017. Both underwent a dual-track process and ended with a record-breaking private sale.
It is not uncommon for managers to run a dual-track process to maximize exit values, especially for large portfolios where the number of viable buyers on the private side may be limited. An IPO process can even help set pricing expectations for bidders in the private market and bolster the value of a potential sale.
Nevertheless, dual-track processes are not for every deal. As one private market analyst notes, the successful IPOs are time-sensitive and transaction-specific as they must capture the interest of retail investors. It is no coincidence that Blackstone tends to use dual-track processes in the logistics sector, where demand for warehouses is driven by the continued growth of e-commerce, a concept well grasped by the public and private capital markets alike.
Logistics is a more obvious choice for real estate listing than, say, an office portfolio, during these pandemic conditions given their relatively higher viability currently. The performance metrics work in logistics’ favor too. The INREV Quarterly Index recorded a total return of 3.4 percent in Q3 2020 for the sector compared with 0.79 percent and -1.4 percent for office and retail respectively.
But with logistics assets becoming more expensive, with cap rates on the decline, it is easy to wonder how much more runway these transactions have. In Australia, the weighted average capitalization rate of the major A-REIT industrial assets dropped by 12 basis points over the past six months and 37 basis points over the past year to 5.4 percent, according to Colliers. That is still comparatively higher than for other asset classes, but compressing momentum is nonetheless clear to see.
Dual-track processes can be time consuming and expensive, and managers do not enter them lightly. It is fair to say that the litmus test for the method in future will be in the bidder numbers. When they become too low, perhaps the dual ‘stalking horse’ effort Blackstone has become so accustomed to will be less warranted. For now, it is a case of business as usual.
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