Blackstone Buying Out R&F’s 30% Stake in Guangzhou Logistics Park for $540M

Blackstone has agreed to acquire the remaining 30 percent interest it does not already own in a Guangzhou logistics park for RMB 3.4 billion ($540 million), signalling faith in the mainland market after regulators blocked the private equity giant’s buyout of developer Soho China.

The Manhattan-based firm had made its biggest-ever purchase of an industrial real estate asset in China when it bought a 70 percent stake in Guangzhou International Airport R&F Integrated Logistics Park from Guangzhou R&F Properties for $1.1 billion in a deal that closed in January.

Once this latest transaction is completed, the 98 hectare (242 acre) project — the Greater Bay Area’s largest urban logistics park — will be wholly owned by opportunistic funds managed by Blackstone.

The disposal will enable R&F Properties, which has $725 million in capital market debt coming due next month, “to address its near term maturities, including but not limited to offshore senior notes”, the Hong Kong-listed developer said Tuesday in an exchange filing.

Rise of the Dragon

The acquisition of the Guangzhou facility will give Blackstone full control of a planned construction area of 12,916,800 square feet (1.2 million square metres) and a completed rentable area of 9,577,943 square feet. The deal values the property at roughly RMB 886 ($139) per square foot of planned space.

Located 15 kilometres (9.3 miles) from the southern city’s airport, the logistics park is home to tenants including couriers SF Express and YTO Express and e-commerce giants Tmall and JD.com. The property also hosts top mainland corporates China Mobile, China Unicom, Sinopharm and China Resources Pharma.

In July, Blackstone appointed Shanghai-based Peter Hwang, a veteran of records management company Iron Mountain, to lead the firm’s 5 million square metre China warehouse platform, known as DragonCor, which includes the Guangzhou logistics park as the star of its portfolio.

Warehouse Motif

Assembling countrywide mega-portfolios of logistics assets has become a core theme in the repertoire of the shop run by billionaire Stephen Schwarzman. Blackstone in May completed its long-anticipated acquisition of Embassy Industrial Parks, gaining a portfolio with 10.6 million square feet of logistics and warehouse assets near major cities in India.

In April, Blackstone agreed to sell its Milestone Logistics portfolio in Australia to ESR Milestone Partnership, a collaborative venture of Hong Kong-listed ESR and Singapore sovereign wealth fund GIC, for $2.9 billion after a protracted bidding contest against four other contenders.

The fund management titan seems to have shaken off its failed $3 billion buyout of Soho China, the developer controlled by mainland real estate personalities Pan Shiyi and Zhang Xin. In a deal announced in June, entities controlled by Zhang, Soho’s chief executive, had committed to selling a 54.93 percent stake to Blackstone funds. But in September the two parties said the deal had failed to meet unspecified preconditions set out by regulators.

Digging Through Debt

In a struggle to escape a debt-squeeze scenario made famous by its cross-town rivals at China Evergrande Group, R&F Properties is pulling out the stops to service its liabilities, which include RMB 18 billion in capital-market debt maturing or becoming puttable in 2022.

In September, R&F’s controlling shareholders worked out a pair of deals that allowed them to loan HK$8 billion ($1.03 billion) to the developer, while potentially pocketing HK$2 billion in change.

A private company controlled by R&F chairman Li Sze-lim and vice chair Zhang Li agreed to sell R&F Property Services HK, a real estate management spinoff of the developer, to cross-town rival Country Garden Services for up to RMB 10 billion. Meanwhile, R&F Properties announced that its chair and vice chair would be providing the developer with HK$8 billion in financing over the next few months.

In late October, Fitch downgraded the long-term foreign currency issuer default ratings and senior unsecured ratings of R&F and a subsidiary to B- from B+ and put the group on “rating watch negative”. The moves reflected the group’s limited funding access amid refinancing needs in the coming 12 months.

R&F is likely to repay the upcoming bond maturities using cash, which may lead to a deterioration in its business profile, the credit rating agency said, as the developer prioritises servicing of debt obligations over acquisition of new projects.