Abu Dhabi Oil Group Signs $5.5B Real Estate Deal With Apollo-Led Consortium

The Abu Dhabi National Oil Company (ADNOC) announced on Wednesday, that it has entered into a $5.5 billion long-term real estate investment partnership with a consortium led by Apollo Global Management.

Under the real estate partnership, Apollo (APO) led a group of institutional investors to acquire a 49% stake in Abu Dhabi Property Leasing Holding Company (ADPLHC), a wholly owned affiliate of ADNOC. Following the deal, ADNOC will retain a 51% majority stake, maintaining full ownership and control over the select real estate and social infrastructure assets and responsibility for all operations and maintenance.

The transaction will result in upfront proceeds of $2.7 billion to ADNOC and is expected to close before year-end, subject to customary closing conditions and regulatory approvals.

For Apollo, the investment presents a unique opportunity to access high-quality lease assets with a superior, risk-adjusted return profile, and lock in long-term, recurring and stable cashflows from a tenant that is one of the world’s leading and most creditworthy energy companies, the private equity firm said. In addition, the portfolio of assets is expected to achieve strong occupancy and rental rates.

“We are pleased to invest in ADNOC’s real estate portfolio, simultaneously supporting achievement of their strategic plans while presenting our investors with a highly attractive risk-reward opportunity,” said Apollo CEO Leon Black. “In a market where high-quality, long-dated yield is scarce, this transaction allows our institutional and insurance clients, including Athene, to participate in a proprietary investment alongside a world-class company like ADNOC.”

Shares in Apollo rose 2.8% to $48.17 on Tuesday, taking their year-to-date gain to 1% so far this year. Looking ahead, the $55 average analyst price target implies 14% upside potential over the coming year.

Oppenheimer analyst Chris Kotowski recently assigned a Hold rating on the stock saying that although he continues to view APO as a great long-term growth story he finds the shares relatively fairly valued near term.

“We like APO’s business model and think it will be among the secular winners in the new financial landscape as regulation and economic forces push more activity out of the regulated banking sector,” Kotowski wrote in a note to investors. “We see potential for a path back to meaningful carry in the Corporate Private Equity sector, but remain on the sidelines for now given the current valuation and look to see a rebound in the net carried interest receivable balance.”

The rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is backed up by 7 Buy ratings versus 6 Hold ratings. (See APO stock analysis on TipRanks)