Blackstone Raises Bet on Last-Mile Logistics in Europe

"Blackstone Inc. is doubling down on its warehousing bet that is aimed at ensuring same-day delivery of food and goods by reinvesting in its European last-mile logistics real-estate company, a transaction valued at almost $24 billion.

The deal represents the biggest private real-estate transaction globally since 1995, according to Dealogic. It also ranks as the largest M&A transaction in Europe involving private companies since 2012, according to the data provider.

Blackstone formally launched Mileway in 2019 to house its European property funds' portfolio of urban warehouses and dark kitchens located in and around populated centers. Companies like Amazon.com Inc., Deliveroo PLC, a U.K. food-delivery company, and parcel-delivery operator Deutsche Post rely on these so-called last-mile properties as key distribution points to make customer deliveries on time.

Typically, the Blackstone funds that own Mileway would cash in on their investment by selling the business and returning proceeds to investors or listing the business in an initial public offering. Instead, the alternative asset manager is selling the business to a new Blackstone fund whose investors want to maintain exposure to the asset indefinitely, said James Seppala, the firm's real-estate head in Europe.

The deal values Mileway, whose investors include large U.S. pension plans and international sovereign-wealth funds, at 21 billion euros, equivalent to $23.7 billion, the New York firm said. That is approaching three times its 8 billion euro value at the time of the Amsterdam company's launch.

"Investors have decided to remain invested in the business because of the scarcity of opportunity to gain exposure to these types of assets," Mr. Seppala said.

That said, some investors chose to exit their positions in Mileway for cash rather than maintain or increase their exposure to the holding by participating in the new Blackstone fund that will own the business, Blackstone said.

This type of transaction carries potential conflicts of interest since the private-equity firm and its investors are involved both as buyers and sellers of the asset. To guard against this possibility, Blackstone said it used outside advisers to confirm Mileway's valuation. It hired Morgan Stanley to determine whether a higher offer exists.

Blackstone, which manages $448 billion in real-estate assets globally, did a similar type of transaction in 2020 for $14.6 billion to retain ownership of BioMed Realty Trust, one of the largest owners of life science buildings in the U.S.

EQT AB, one of Europe's largest buyout firms, did a similar deal in 2020, agreeing to sell portfolio company IFS to two of its other funds and TA Associates in a more than 3 billion euro deal.

Mileway's network of warehouses totals more than 1,700, up about 70% in less than three years, according to Blackstone. The buildings are located across 10 countries, including the U.K., Germany, the Netherlands, Sweden and France.

The shift toward e-commerce and food delivery -- which was accelerated by the Covid-19 pandemic -- is driving demand for space near highly populated areas where online orders can be loaded onto trucks and vans or picked up by couriers for local delivery. Retailers and restaurants face scarce final-stage space near major cities.

And as more companies promise same-day delivery or even two-hour arrivals, such space is rising in demand and value. Overall, vacancy rates for logistics real estate in Europe fell to a record average low of 3.5% from 5.1% over the course of last year, while prime rents rose by 5% year-over-year amid a shortage of prime stock, Savills PLC, a London-based real-estate service provider, said.

The extended bet on Mileway is consistent with Blackstone's focus on real estate to generate gains even as inflation worries escalate. Last month, the firm reported a near doubling of its fourth-quarter net income, noting that its real-estate holdings in areas like warehouses for e-commerce and life-science facilities can continue to raise rents at two to three times the rate of inflation." [1]

1. Blackstone Raises Bet on Last-Mile Logistics in Europe
Dummett, Ben. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 16 Feb 2022: B.6.