ESR announced this week an A$138 million ($94 million) mandate which offers the Warburg Pincus-backed logistics specialist an opportunity to raise fresh capital by offering investors access to a set of its Australian business parks and other industrial assets.
The freshly established investment vehicle, ESR Office Partnership IV, will offer investors exposure to core-plus business park assets in Sydney, as well as to other core-plus industrial assets Australia’s east coast, and has been seeded by the fund manager with a pair of office properties in a northeastern Sydney suburb worth A$138 million.
The hybrid developer-fund manager, which last month raised HK$14 billion ($1.8 billion) in Hong Kong’s second-largest listing of the year, announced ESR Office Partnership IV (EOP IV) just one one month after the company established a A$350 million joint venture with China Merchants Capital to expand its Aussie operation.
Feeding Business Park Demand
ESR said that it has already introduced a number of investors to EOP IV, with the company retaining an 11 percent interest in the mandate. The Hong Kong-headquartered firm declined to disclose further details regarding the investors, but confirmed that the new vehicle represents a continuation of a set of earlier Office Partnership mandates organised Australian real estate investment manager Propertylink, which ESR took over in April.
“We are pleased with the launch of EOP IV which is our positive response to the robust demand of investors for more exposure to business park assets while releasing capital for us to pursue further development opportunities,” said Phil Pearce, CEO of ESR Australia.
The company said in its announcement that the transfer of properties to the non-listed vehicle is an integral part of ESR’s asset recycling strategy to help boost growth and secure solid returns.
“We see the business parks as complementary to our core strategy of logistics and industrial property, and we have some good commercial assets, such as those seeding EOP IV, in our portfolio,” added Pearce.
Siphoning Off Office Assets
The pair of Sydney office assets are being siphoned off from a portfolio of offices acquired through ESR’s A$723 million takeover of Propertylink.
PropertyLink had acquired 15 Talavera Road, which has a net leasable area of 12,630 square metres (135,948 square feet) in 2014 for A$34 million and upgraded the property that same year at a cost of A$5 million.
The 29-year-old business park building is located in the Macquarie Park business precinct 17 kilometres northwest of Sydney’s central business district.
Tenants including BSI Group, Vertiv Australia, and Sysmex, give the property a weighted average lease expiry of 2.6 years.
Targeting Biz Parks in the Suburbs
ESR is also injecting into the mandate 18-20 Orion Road, a nine-storey office block in the Lane Cove business park, just four kilometres south-east of 15 Talavera Road.
Built in 1991, the office block has a net leasable area of 9,751 square metres. Tenants include Dental Corporation (BUPA), Netcomm Wireless Limited, and Motorola, give the large footpring building a weighted average lease expiry of 3.1 years.
Propertylink purchased the office, along with the adjoining land at 14-16 Orion Road, for A$56.6 million two years ago.
Growing an Australian Footprint
ESR Australia now manages industrial and business park real estate assets in the country worth $1.3 billion, with a land bank that has the potential to deliver future developments worth almost A$2 billion, according to the company.
“Australia is an important part of our APAC growth strategy,” Jeffrey Shen and Stuart Gibson, co-founders and co-CEOs of ESR, said in a statement.
The co-founders indicated that ESR, through EOP IV and its other initiatives, will be looking to create extra value from the company’s holdings through active asset management, including targeted capital expenditure and repositioning programmes, which will in turn give a boost to its expansion drive in the country.
The continuing momentum of the company’s growth in Australia comes just seventeen months after the logistics specialist formally established a presence down under through its A$102.5 million buyout of real estate heavyweight Charter Hall’s Commercial & Property Pty Ltd (CIP).
Offloading Non-core Assets
At the same time that the firm has been assembling a portfolio of core logistics assets in Australia, ESR has also been selling non-core properties. Just last week, ESR sold an industrial estate in Melbourne to Singapore’s Straits Trading Company for A$24 million.
In October, an ESR joint venture with Frasers Property Australia sold a Melbourne-area office development project to Singapore’s Ascendas REIT for A$110.9 million.