Logistics: The rise of the mega-deal

The big logistics transactions seen in the past few months have created financing opportunities for lenders. Alicia Villegas reports.

Over the last 12 months, the European logistics sector has been subject to a series of mega-deals, most of them funded by Asian capital and carrying a substantial amount of debt.

Large platform deals are being driven by the huge volume of equity in the global real estate market, which investors are competing to deploy, as well as an improving environment for the valuation of companies, in the sector. Deals have been financed with debt from a mix of Asian and European lenders.

What is significant in terms of financing, however, is the reduced amount of debt involved in the capital structure of these deals, compared with the last market cycle, notes Jack Cox, head of EMEA industrial & logistics capital markets at CBRE.

“Many investors are income-focused and are looking to make an absolute return on their capital rather than just the highest equity multiple through aggressive leverage,” he says.

The sale of European logistics platform Gazeley is the latest of several large transactions that made headlines. The platform was sold by Canadian property giant Brookfield in October to Singaporean warehouse specialist GLP for $2.8 billion.

The deal, expected to be funded with $1.2 billion of long-term debt, includes a portfolio of 3 million square metres of logistics assets across the UK, Germany, France and the Netherlands.

“The financing of Gazeley will be one of the biggest of the winter season. There are a number of lenders looking at it at the moment,” says one European banker.

In May, Real Estate Capital’s sister title, PERE, revealed that Brookfield was seeking a major refinancing of Gazeley ahead of a potential sale and appointed investment bank Morgan Stanley to handle it.

“Big platforms have been refinanced prior to being taken over, so the buyer has an option to take finance in place,” Cox explains.
In June, Blackstone sold its Logicor platform to China Investment Corporation for €12.25 billion, in the largest transaction ever seen in the European logistics sector. The deal was reported to be funded with a €6.8 billion loan from Bank of China and China Construction Bank, of which €3 billion would enter the syndication market, with Chinese banks thought to be first in line to participate.

Logicor’s portfolio, with 147 million square feet of logistics assets across 17 European countries, is located along primary transport corridors and close to large populations, which positions it to benefit from the structural shift in demand driven by the rapid growth in e-commerce.

A month earlier, AXA Investment Managers – Real Assets, the subsidiary of French insurance giant AXA, purchased Gramercy Property Trust’s European logistics assets in a €1 billion deal.

The portfolio of 39 logistics assets across nine European countries was financed by several loans, and AXA IM kept the existing debt in place following the acquisition.

Among the debt packages secured by Gramercy against its logistics assets was as a €34.4 million loan provided by ING in January this year for a distribution centre in Utrecht, the Netherlands; DekaBank’s €131.6 million loan for a German portfolio provided in December 2016 and the €125 million financing written by Berlin Hyp to fund the acquisition of a mixed-use portfolio of 12 assets in the Netherlands, Germany and Poland.

The acquisition of the Gramercy portfolio, which had no development assets, is “a great example” of European capital being competitive to secure a large portfolio of standing assets, Cox says.

In March, Blackstone and London-based property investor M7 Real Estate acquired a €1.28 billion portfolio of Dutch and German logistics assets from Hansteen Holdings, the London-listed real estate investment firm.

The deal, the price of which reflected a premium of about 6 percent, or €76 million, to the valuation of the assets at the end of last year, was financed by a syndicate of banks – Morgan Stanley, Bank of America Merrill Lynch and Deutsche Bank – with Oaktree providing mezzanine financing. The more than €1 billion financing, which also funded an asset outside the portfolio, had a loan-to-value ratio in the range of 75 percent.

This series of mega-deals in the logistic sector began with the acquisition of P3 Logistic Parks for €2.4 billion by Singapore sovereign wealth fund GIC, in October 2016.

P3 closed a €1.4 billion portfolio refinancing, which included a €600 million loan underwritten by Morgan Stanley to refinance the firm’s western European and Polish portfolios. The Czech and Slovakian assets were financed with a similar sized loan from a club of four local lenders. Raiffeisen Bank, for its part, wrote a smaller loan secured against Romanian warehouses.

“P3 was the first deal in which we saw a large amount of capital coming from Asia, which demonstrated the depth of demand at a global level for European logistics,” Cox notes.

The portfolio included a substantial amount of development land, with 1.4 million square meters of potential developable area.

This means the deal was “not just a vote of confidence in the current market, but it demonstrated confidence in the future because of the amount of development coming through”, Cox adds.