Burstone Group has announced a series of transactions including a strategic partnership with Blackstone in Europe, marking the acceleration of the Group’s international fund and investment management strategy.
On successful completion, third-party assets under management are set to increase almost fivefold from R4.7 billion to approximately R23 billion with revenues from fund and asset management projected to more than double over the next two years.
In the largest of the transactions, funds managed by affiliates of Blackstone, the world’s largest alternative asset manager, will acquire an 80% interest in Burstone’s Pan-European Logistics (PEL) platform valued at €1.022 million (R20 billion). Burstone will retain a 20% co-investment in the PEL platform while continuing the asset management function. The proposed transaction is subject to regulatory and shareholder approval.
Accumulating since 2017, the portfolio comprises 32 quality midsize and big-box logistics properties located around key European urban centres in seven countries with the majority in Germany, France, and the Netherlands. The 1.2 million square metre portfolio is 97% occupied by over 110 tenants, primarily in the third-party logistics sector.
Burstone and Blackstone will expand the PEL portfolio by focusing on aggregating industrial and logistics properties across core European markets.
The transaction with Blackstone offers several financial benefits including a significant reduction in Burstone’s loan-to-value (LTV) ratio by 12.5%, bringing it down to approximately 33.5%. Burstone will also increase its dividend payout ratio from 75% to between 85% and 90%, effective from the interim reporting period 1H25.
Additionally, the transaction delivers an immediate positive earnings impact of 1.3% based on historical FY24 distributable earnings, with further enhancements expected as the Group benefits from reduced leverage in a higher interest rate environment.
The net proceeds of approximately €250 million (R5 billion) from the proposed transaction will be allocated in alignment with Burstone’s strategic objectives, focusing on: reducing debt by around R4 billion to decrease LTV by 12.5% and strengthen the balance sheet; investing R860 million in growth opportunities within the Group’s Australian and German platforms, which are expected to yield high single-digit cash returns and high teen leveraged IRRs; supporting further growth in the PEL platform; and increasing the dividend payout ratio.
“We have indicated for a while that we have been seeking strategic partnerships in Europe and we are delighted to partner with Blackstone. This partnership deepens our already strong relationship with Blackstone’s operational and management team, who know our European team well from previous successful collaborations. Partnering with such a best-in-class international business unlocks exciting opportunities for the platform, enhancing scalability and driving the growth potential of the Group’s fund and investment management business,” says Andrew Wooler, CEO of Burstone Group.
“Logistics is one of our highest conviction investment themes globally. This exceptionally well-located portfolio of assets in core logistics markets across Europe is additive to our existing portfolio and allows us to continue to capitalise on customer demand, including because of growing e-commerce penetration trends across the continent,” comments James Seppala, Head of European Real Estate at Blackstone.
In addition to its strategic partnership with Blackstone, Burstone is in exclusive negotiations to acquire a 25% co-investment stake and ongoing management of a €170 million German light industrial platform.
Burstone Group’s 50/50 JV with Australian Irongate Group continues to grow its management platform having announced a new industrial joint venture with a leading global alternative asset management firm.
An initial soft commitment of A$200 million of equity has been earmarked with the aim to upsize upon successful deployment. Burstone (alongside Irongate management) will provide the minority co-investment stake and the Irongate JV will provide the investment and asset management functions. The JV will acquire an initial portfolio of industrial and logistics assets in Queensland, with a total purchase consideration of approximately A$140 million and equity from the JV of approximately A$80 million. Post the current identified pipeline total equity under management is expected to increase 32% since acquisition, from A$450 million to A$600 million.
The Group has built the foundation for a third-party fund management platform in which institutional capital can invest. In South Africa, Burstone is negotiating with cornerstone investors to build an SA Core Plus platform, utilising a portion of its South African assets to seed this new venture.
“Burstone’s commitment to expanding our fund and investment management model combines traditional real estate asset yields with additional upside potential from our comprehensive management capabilities, including fund, investment, asset, and development management. This hybrid model supports our strategy of maximizing returns on capital deployed while leveraging our scalable platform to drive operational efficiencies,” concludes Wooler.