Private Equity Looks To Listed Companies Again For Underpriced Real Estate

Private equity firms have continued their raid on the listed sector as a way of finding property assets that they think are underpriced, with Blackstone and Fortress leading the charge in the past few days. 

A consortium including Blackstone-owned iQ Student and giant Dutch pension fund APG has submitted a bid to buy GCP Student Living, a listed student accommodation provider that has a portfolio valued at £1.1B. 

And a consortium led by private equity firm Fortress and including Koch Real Estate Investments had its £6.3B takeover bid for UK supermarket chain Morrisons accepted Saturday. Fellow private equity firm Apollo Global Management could make a counteroffer for the company, which is a major real estate owner.

The two offers come on the back of a flurry of M&A deals in the listed property sector. In June, Blackstone agreed to buy industrial and residential developer St. Modwen, and the same month BTR manager Sigma Capital agreed to sell to Pine Bridge Benson Elliott for £188M. Starwood and Lone Star undertook public-to-private deals in the sector last year, and flexible office giant IWG is the source of constant bid speculation at the moment.

GCP Student Living owns 11 schemes, primarily in London and the south east, that total 4,100 beds. It produced rental income of £17M as of December, and its net assets were £780M, or 171p a share. 

Before the takeover offer from Blackstone and APG was announced, shares in the company were trading at about 169p, slightly below the company’s net asset value. But news of the offer on Monday drove the shares up 11% to 187p, a premium to the company’s net assets. 

Even though they would have to pay a premium to the company’s net asset value to buy GCP, Blackstone and APG are betting that the shares might still undervalue the company’s portfolio: Its shares were trading at 212p before the coronavirus pandemic, on the expectation that values of UK student accommodation assets would continue to rise. 

In its statement confirming it had received a bid, GCP did not say how much Blackstone’s iQ and APG had offered for the company. It did say, however, “Following discussions with the company's independent valuer, the Board is anticipating a material increase in its property valuation for the period to 30 June 2021.”

Supermarket chain Morrisons was the subject of a £5.5B takeover bid two weeks ago from U.S. private equity firm Clayton, Dubilier & Rice, but this weekend, it accepted a £6.3B takeover from Fortress, Canada Pension Plan Investment Board and Koch Real Estate, the property investment division of Koch Industries. 

The deal isn’t a pure property play, but Morrisons stands out among its supermarket peers as it owns the freehold on a much larger proportion of its supermarkets and convenience stores. 

The consortium said in a statement about its strategy for the company that it does not plan to sell off a big swathe of stores via sale and leasebacks to fund its bid, as owning the stores gives it good flexibility. 

However, Bloomberg reported that the consortium could still raise capital by selling a stake in its property assets into a joint venture, presumably with Koch Real Estate. 

L&G, one of Morrisons' largest shareholders, called on the supermarket to publish the value of its property portfolio, so shareholders could accurately assess how much the company is worth, rather than selling it on the cheap to someone who then cashes in on the property value.