Blackstone Makes Buyout Offer for Japanese Trust

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Stephen Schwarzman’s Blackstone hasn’t lost its appetite for Japanese retail

US private equity giant Blackstone is looking to add more Japanese properties to its $104 billion global trove of real estate assets under management. The New York-based firm has offered to acquire ASX-listed Astro Japan Property Trust, which owns a portfolio of Japanese office, retail, residential, and hotel assets for A$436 million ($346.8 million).

The deal, which values the trust’s Tokyo-focused portfolio at A$1.1 billion ($875.2 million), would significantly boost Blackstone’s footprint in Japan, on the heels of the company’s $651 million offer for a Singapore-listed business trust that owns a Japanese shopping mall portfolio.

Blackstone to Privatise Trust’s Japanese Portfolio

Through a Singapore affiliate, Blackstone Real Estate has proposed buy the Japanese properties at a 2.38 percent premium to book value, delivering A$7.18 ($5.73) per security to unit holders, a 13 percent premium over the price last traded on Monday before trading was halted on Tuesday morning. Astro Group’s board unanimously recommended the proposal in the absence of a superior offer, according to a statement. Security holders will vote on the proposal on September 13.

“We are pleased to be able to put this proposal to our securityholders,” commented Allan McDonald, chairman of Astro Group in the statement. “The Blackstone Proposal delivers Astro securityholders with an asset premium that reflects the quality and scarcity of our underlying real estate portfolio, and net proceeds that provide cash liquidity at a material premium to recent trading levels.”

Kawasaki Dice, a shopping mall in Kanagawa, is among the Japanese assets Blackstone is looking to buy

Through the deal with Blackstone, Astro Group, which has a market cap of around A$390 million ($311 million), would be delisted from the Australian Securities Exchange and wound up. Astro has reportedly courted other international buyers, and in March rejected a takeover bid from an affiliate of global private equity firm Lone Star funds. Lone Star had made a conditional all-cash offer for the properties at their December 2016 book value of A$969 million ($698 million).

Astro Assets Heavy on Retail

Astro’s portfolio comprises 29 Japanese real estate assets, 27 of which it fully owns, with these properties mainly located in central and greater Tokyo, with others in Fukuoka, Osaka, and Shizuoka. Retail properties account for over half the value of the portfolio, with offices comprising just over one quarter, and residential and hotel assets making up the remainder. The properties are said to be 99 percent occupied by area.

Astro, which is managed by Tokyo-based Spring Investment, is the last Australia-listed trust with a Japanese property portfolio.

Private Equity Giant Has a Taste for Trusts

The proposed trust buyout fits with Blackstone’s established strategy of buying and privatising retail trusts that the investment firm sees as undervalued. Affiliates of Blackstone in late June made a S$900.6 million ($651 million) acquisition offer for all the units of Croesus Retail Trust, a Singapore-listed business trust comprising a portfolio of 11 retail properties in Japan. Blackstone’s offer of S$1.17 (84.66 cents) per unit represented a premium of about 38 percent over the 12-month volume weighted average price (VWAP) for the trust’s units.

Blackstone has pursued a similar strategy in the US over the years, dating back to at least 2011, when the firm bought out Florida-based REIT Equity One to privatise the portfolio of 26 shopping centres in the southeastern US for $473 million. Similarly, in 2015 the private equity firm acquired the US REIT Excel Trust for $2 billion, giving Blackstone a platform of 38 community-based retail properties across the country.

In September 2015, Blackstone Real Estate bought out the shares in Chicago-based Strategic Hotels & Resorts Inc, a New York-listed REIT with a 16-property portfolio, in a cash deal valued at $3.93 billion. The company then flipped 15 of those assets to Anbang Insurance last year for $5.5 billion.

Blackstone was reported in January to be preparing to launch an Asia-focused fund of at least $5 billion focused on retail and warehouse assets. More recently, the alternative asset giant was said to be planning its first buyout fund focused on the region with an investment of up to $3 billion.

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