What next for Logicor, CIC, Blackstone and the logistics market?

Having built up Logicor in only five years, Blackstone is now selling the logistics business for €12bn (£10.5bn) in the largest European property deal on record.

The 146.4m sq ft business is set to be bought by Chinese sovereign wealth fund China Investment Corporation having fought off competition from Mapletree Investments with Tamesek Holdings and Global Logistic Properties.

While the purchaser of the 630-asset business is now known, the deal prompts as many questions as it answers.

What does CIC want with Logicor?

Logicor provides a unique opportunity to deploy such a large amount of capital into the European property market. With low bond and interest rates, property is throwing off far higher yields than are available elsewhere. This is particularly true in the logistics subsector and is accentuated by the cheap debt that Logicor has in place.

Logicor is poised to take advantage of the structural shift in online retailing and with Chinese businesses such as Alibaba looking to expand into Europe, CIC will be able to capitalise on domestic relationships with prospective occupiers.

CIC has also long been a believer in the potential of the logistics market and has been a major investor alongside Goodman and Global Logistic Properties.

How crucial was CIC’s relationship with Blackstone in clinching the deal?

A deal of this size carries huge risk for the seller. If the buyer walks away the company becomes “damaged goods”, often leading to a softer deal with an underbidder, so pursuing a deal with a trusted counter-party is crucial. And no doubt Blackstone has trust in CIC – the sovereign wealth fund bought a 10% stake in the private equity firm when it floated in 2007 and is one of the largest investors in its funds.

Will CIC keep the whole lot?

Unlikely. Even for CIC this is a big deal. It is expected that it will look to syndicate a large portion of equity to domestic investors.

As a state-controlled fund, it is more easily able to move cash offshore and it may be able to syndicate equity at a premium to investors such as insurers, which are more restricted.

Is CIC taking a risk buying Logicor?

Some. When Blackstone was bulking up Logicor ahead of a disposal some of the assets it bought were considered to be secondary and it will continue to take intensive asset management to maintain occupancy above 90%.

Unlike the UK, in countries where land is plentiful major tenants wield more power in negotiations with landlords, meaning the prospect for rental growth in some areas of the market is subdued.

To many this is the top of the cycle for logistics, with pricing even further ahead of last year’s purchase of P3 by GIC for €2.4bn. Even a small impact from macroeconomic factors, such as interest rate rises in the US, could see pricing falter and make the gigantic numbers skew in the wrong direction.

What will happen to management?

Given the scale of the Logicor portfolio and the secondary nature of some assets, having an experienced and focused management team among its 170 employees to ensure it remains successful in the long term will be crucial.

Many will gain sizeable payouts as a result of the sale and CIC will need to keep key staff, such as chief executive Mo Barzegar.

Chairman of Carillion Philip Green was appointed as the company’s non-executive chairman in April, which would have helped form a corporate governance structure appropriate for the listed sector, but now Logicor is being sold privately it is unclear if his services are needed.

How could Logicor be improved?

The big thing missing is a development arm. Blackstone has kept the company a relatively straightforward proposition to buy as it only owns standing assets, but moving into development would be a way of enhancing potential returns. Barzegar has a depth of experience in his former roles at AMB Property Corporation, now Prologis.

Could CIC make more corporate acquisitions to expand Logicor?

The next European deal every major investor interested in logistics is eyeing is the saleof IDI Gazeley by Brookfield. PwC is advising on the process alongside Morgan Stanley, which is heading a refinancing of the €1.5bn business that is expected to lead to a subsequent disposal. Competition for Gazeley is likely to be even fiercer than with Logicor due to the more palatable price tag.

What next for Mapletree and Temasek?

IDI Gazeley will be the next major proposition offered up, but it is still only a fraction of the size of Logicor. Do not rule out the Singaporean government’s investment companies making plays for other bigger platforms, whether they are formally up for sale or not.

What next for GLP?

This is perhaps the biggest unanswered question.

GLP, Asia’s largest logistics property company, is in the midst of a strategic review prompted by major shareholder GIC, which may lead to a sale. Its bid for Logicor was hampered by the strategic review, but its own future is still intertwined with the European deal.

Chinese investment firm Hillhouse Capital Management is reportedly bidding for GLP, as is a Warburg Pincus-led group that wants to merge GLP with its own logistics business E-Shang Redwood.

Most notable among the bidders though is Blackstone. The private equity firm has a devout belief in the long-term drivers of the logistics market and selling Logicor does not mean it is turning its back on the sector. This is further illustrated by its recent purchases in Europe for its core fund and its plays for last-mile assets through the acquisition of Hansteen’s continental portfolio.

Whatever the future ownership, there will always be speculation that GLP and Logicor could be brought together at a later date as they have no overlap and would make a titanic global platform.

Could June 2022 see the headline: “Blackstone sells GLP to CIC-owned Logicor to create $25bn giant”? Stranger things have happened.

CIC is broadly seen to have more than enough to digest with Logicor to make a play for GLP now and talks with interested parties have been ongoing for the past few months.

What will Blackstone do with the cash?

The concentration of Blackstone’s ownership is in its €6.7bn Blackstone Real Estate Partners Europe IV fund, which held a final close in 2014, as well as the €3.2bn BREP Europe III, which reached a final close in 2009. Some of the funds have also been channelled from its global $13.5bn BREP VII fund, which held a final close in 2012.

All of the funds have lives of around 10 years, but cash can be given back to investors earlier in order to help enhance returns.

The cash from the deal fed back to BREP Europe III will be given back to investors as the fund is closest to the end of its life. This is also the case for BREP VII and BREP IV. The fund manager is currently investing BREP Europe V and BREP VIII.

It is fair to say too that with their personal investment into the funds and their performance incentives, it is more than likely that Blackstone executives will blow some of it on a pretty big party as well.