As Alan Miyasaki, head of real estate Asia acquisitions at Blackstone, sees it, both public and private markets work very well. In his view, scale matters in public markets. As an example, he cites Croesus Retail Trust which was acquired by Blackstone in 2017.
The property portfolio was “smallish” with all the assets located in Japan and traded at a discount to its net asset value for most of the time it was listed in Singapore. The only time investors in Croesus got the valuation was when Blackstone privatised the trust.
Similarly, Soilbuild Business Space REIT (SB REIT) was also undersized. “The entire value of debt plus equity was around $1 billion. It was too small to get analysts to follow it. So it did not really get as much exposure as it would have otherwise,” Miyasaki said in a recent interview.
As a result of a limited investor following, SB REIT was trading below its book value and at a relatively high yield which made it difficult to issue equity to acquire assets which are accretive to DPUs.
“In the private markets, because we have the capital, we can continue to grow the business. So, I think for [SB REIT] it was helpful to go private, because now we have Blackstone’s capital behind it and can help it grow further,” Miyasaki says.
Moreover, as a private entity, there is no regulatory limit on gearing and the capital structure can be more aggressive.
As for future plans, Miyasaki says Blackstone will work with the Lim family to grow the portfolio. Following the privatisation, Blackstone holds 69.72% of SB REIT and the Lim family 30.28%. He sees potential in logistics properties and “office parks”.
Properties defined as office parks include the Sandcrawler, which was recently acquired by Blackstone, and Solaris at One North from the SB REIT portfolio. “They are office-like spaces where you have technology and content creation and distribution tenants. Solaris in One North really has a lot of those,” Miyasaki indicates. “One North is a market where we are seeing more demand from tech groups and so that’s obviously where we want to be.”
While Blackstone is focused on growing the portfolio it had acquired from SB REIT, it is still on the lookout for exit strategies despite it being early days. “We think carefully about exits,” Miyasaki says, adding that options include a private sale or a relisting. “The thing we focus on is making sure we have the most flexibility. Obviously, whenever we sell something, we have a long discussion with partners about how we want to do it jointly.”
On April 18, GIC and ESR Cayman jointly announced the acquisition of a $3.77 billion portfolio of logistics properties from a Blackstone fund.
“In Australia, we have a portfolio of industrial properties called Milestone Logistics. Recently, we ran a dual-track process where we looked at taking it public and having it as a listed entity and also doing a private sale. We did both at the same time. We ended up in a situation where we were able to achieve better value in a private sale. But if it had been better value for our investors going public, we would have done that. We have a fiduciary duty to our investors so we’re very mathematical and analytical on how we look at this,” Miyasaki says.
Elsewhere in India, Blackstone listed a couple of portfolios, Embassy REIT and Mindspace Business Park REIT. According to Miyasaki, these are huge companies with analyst coverage. As a result, they trade better than some private markets because of the benefits of liquidity.