ESR China REIT Secures First Cornerstone Investor, Targets February Listing

Hong Kong-listed industrial heavyweight ESR has secured one of China’s top securities firms as the initial cornerstone investor for its inaugural mainland China REIT, with the company targeting a February listing for the logistics asset portfolio.

The registration and listing application for the AVIC ESR Warehouse Logistics Closed Infrastructure Securities Investment Fund, which was received by the China Securities Regulatory Commission and the Shanghai Stock Exchange earlier this month, is currently under review and is expected to be approved in January, ESR’s managing director of business development and investment Rui Hua Chang told Mingtiandi.

“As we approach year-end, investors are closing their books and taking stock of their 2023. Now is a good time to get in front of investors to launch the roadshow and due diligence, so investors can consider us as they start to plan their 2024 asset allocation,” said Chang, who is responsible for ESR’s C-REIT initiative.

The proposed listing, which is expected to raise approximately RMB 2.88 billion ($404 million), would give Warburg Pincus-backed ESR its third REIT in the region, with the company also sponsoring ESR-Logos REIT, one of the 10 largest REITs on the Singapore exchange, and ESR Kendall Square REIT, which became South Korea’s first publicly listed logistics trust with its December 2020 IPO.

ESR declined to disclose the identity of the cornerstone investor.

High Quality Tenants

The proposed listing would give investors access to a seed portfolio of three logistics facilities located a 45-minute drive west of Shanghai in the Jiangsu provincial city of Kunshan.

Composed of three buildings developed within a single project, Jiangsu Friend Phases I-III span over 426,000 square metres (4.6 million square feet) of total floor area. Of the trio, Phase I measures 135,000 square metres, Phase II provides 85,000 square metres and Phase III is the largest at 206,000 square metres.

The assets, which are held by a wholly owned ESR subsidiary, have maintained a 95 percent occupancy rate over the past four years and are anchored by multinational brands from the logistics, e-commerce, and fast-moving consumer goods sectors.

“Investors have been saying that the stability and quality of our tenants are among the best they have ever seen. This is one of our competitive advantages,” said Chang, adding that “we do all of our leasing in-house, we don’t outsource. This is an important skill of ESR which our peers don’t have.”

Chang said that the portfolio is currently home to 13 occupiers, with the company having recently added more consumer and food brands to its tenant roster including luggage maker Samsonite, as well as Havi, the supply chain manager for KFC and Pizza Hut in China.

The trust, which will be managed by state-backed AVIC Fund Management, aims to provide investors with an annualised cash distribution rate of around 4.4 to 4.5 percent.

ESR said it expects to subscribe for 34 percent of the total units in the REIT at the time of the proposed listing, and intends to re-invest the proceeds from the listing into mainland assets.

Expanding C-REIT Market

The proposed listing comes as ESR aims to capitalise on China’s pilot REIT programme to provide investors with a new avenue to monetise their investments.

“The ESR strategy has always been to create a private as well as a public channel for our investors to eventually exit their projects. That is ESR’s overarching strategy.  You can see that (ESR Kendall Square REIT IPO) has been very successful. After Korea, we are trying to do it in China as well, because it is one of our four biggest platforms along with Japan, Korea, and Australia, and the end of 2020 was the start of China’s REIT trial programme,” said Chang.

ESR, which manages $150 billion of total assets globally, has over 190 Greater China assets totaling $30.8 billion in value, the majority of which are located on the mainland. Last month, with backing from Beijing’s Taikang Insurance, the company spun off a portfolio of six industrial assets into a RMB 2 billion ($288 million) private RMB income fund, its largest such vehicle to date.

Since the debut of China’s first REITs in 2021, mainland authorities have been promoting the sector as a way to deepen the country’s property markets and diversify funding sources for residential and commercial developers struggling with liquidity challenges.

Unlike REITs in other markets that offer investors access to a range of commercial properties such as offices and malls, Chinese REITs were initially only permitted to hold infrastructure assets and industrial properties, with the scope expanded to include affordable rental housing projects in 2022 and consumer-related properties such as shopping malls in March.

“China is strongly encouraging the C-REIT market because, unlike Hong Kong and Singapore, which have very established capital markets, China does not have many investment tools. China feels there should be another instrument to give investors a stable return,” said Chang, adding that the stability of REITs can provide an attractive asset class for China’s rapidly ageing population.

ESR competitor GLP became the first international firm to list a REIT in China when its GLP C-REIT commenced trading in June 2021 as part of the country’s first batch of listed property trusts.

Warburg Pincus-backed DNE Group achieved its own industrial REIT listing late last year after winning approval for D&J New Economy Industrial Park REIT, a RMB 1.38 billion ($200 million) trust, in September of 2022.