Blackstone to Buy 40% Stake in Chinese Mall Owner SCP

Blackstone Group LP, the world’s biggest manager of alternative assets including private equity and real estate, agreed to buy a 40 percent stake in Chinese shopping mall developer and operator SCP Co.

The purchase, the price of which wasn’t disclosed, is the New York-based company’s largest mall investment in Asia to date, said Chris Heady, head of Blackstone’s regional real estate business. Blackstone is investing about $400 million in SCP, according to a person with knowledge of the matter, who asked not to be identified because the information is private. Charlotte Bilney at Citigate Dewe Rogerson, a public relations firm that is representing Blackstone, declined to comment on the figure.

Chief Executive Officer Stephen Schwarzman is stepping up real estate investment in Asia, tapping the market for $4 billion for Blackstone’s maiden property fund focused on the region. Blackstone, which has been among the biggest buyers of property in Australia and India, is further seeking to boost such investment in China as rising income and urbanization drive demand.

“SCP is a fantastic collection of real estate assets and a very well-respected company,” Heady told reporters in Hong Kong today. “The retail space in China is one where we believe there is going to be significant growth over the medium-to long-term as the country repositions itself to be more dependent on domestic consumption growth.”

ICBC’s Purchase

ICBC International Holdings, a Hong Kong unit of China’s largest bank, also agreed to buy a 6 percent stake in SCP, helping take the Shenzhen-based developer’s total asset value to more than $2 billion, according to an e-mailed statement from SCP today.

The Financial Times first reported the deal earlier today.

SCP owns and manages 19 shopping malls under its Incity, SCP Plaza and One City brands, according to the statement. It has developed and operated malls with an accumulated gross floor area of more than 4 million square meters (43 million square feet) across cities in the country’s Pearl River Delta, Yangzi River Delta and Bohai Economic Rim, it said.

Among its tenants are Wal-Mart Stores Inc., Inditex SA’s Zara and Hennes & Mauritz AB, SCP Chairman Ding Liye told reporters in Hong Kong today. It keeps the vacancy rate at its malls below 5 percent, he said.

Middle Class

SCP was founded in 2003 with investment by the Shenzhen government, according its website and Ding. The government is no longer a shareholder, Ding said.

International companies such as Carlyle Group LP and Morgan Stanley have invested in various SCP projects, Ding said. Carlyle agreed to buy 49 percent stakes in SCP’s Suzhou and Hangzhou Incity malls, according to a statement posted on SCP’s website in May.

Blackstone is particularly attracted to SCP’s focus on the the rising middle class instead of luxury brands, Heady said.

“It will give us a platform to continue to invest capital in China in the mall sector,” Heady said, adding that Blackstone may provide further financial support should SCP have growth opportunities through new project development or property acquisitions in the future.

China offers long-term opportunities, and the company is investing in property projects including distribution centers and a skyscraper in Shanghai, Schwarzman said in an interview with Bloomberg Television last month.

Asia Fund

Blackstone received $1.5 billion of investor commitments for its Asia real estate fund by its initial close in June and plans to start deploying the money immediately, according to its letter to investors then. It was the largest Asian private-equity real estate fund seeking money by the $4 billion it’s hoping to raise by final close, according to a July report by Preqin, a London-based research firm.

Blackstone has allocated $3.05 billion to Asian real estate, which represents more than half of its investment in the region, according to the company upon the opening of its Singapore office last month, its first in Southeast Asia and eighth in Asia. The alternative assets manager is one of the largest owners of shopping malls with more than 110 million square feet of assets in Asia, Europe and the U.S., according to today’s statement.

Blackstone bought the Greensborough Plaza mall in Melbourne for A$360 million ($341 million), a person familiar with the transaction said in July. At the end of last year, Blackstone purchased the Top Ryde mall in Sydney in a foreclosure sale for 50 percent less than its A$700 million construction cost, Jonathan Gray, its global head of real estate, said at its May 3 investor day.

Investment Returns

The firm in 2010 took over management of more than $2 billion of Asian real estate assets from Bank of America Corp. Its own Asia property fund will focus on China, India, Australia and Japan, a person with knowledge of its plans said in December.

Blackstone is expected to achieve a net return of 1.8 times on about $1.46 billion of equity invested in 15 Asia-Pacific real estate transactions, according to a March 15 memo from Timothy Walsh, the director of the New Jersey Division of Investment, to the state’s investment council recommending a commitment to the new Blackstone property fund.

Blackstone’s third-quarter profit rose 3 percent after gains in property holdings offset a decline in its buyout unit. Assets in Blackstone’s real estate business rose to $69 billion from $64 billion at the end of the second quarter.