ESR Announces $4B China Development Fund Backed by APG, GIC

Hong Kong-listed ESR on Monday announced the creation of a China logistics development fund with capital commitments from Dutch pension fund manager APG Asset Management and Singapore sovereign wealth fund GIC, targeting up to $4 billion in investment capacity.

The fund, called ESR China Development Platform, will invest in warehouses and mixed-industrial-use properties to be sourced, developed and managed by the logistics and fund management giant, according to a late-Friday filing with the Hong Kong stock exchange.

The three partners have made an initial capital commitment of $1 billion to ECDP, with $200 million contributed by ESR and $400 million each supplied by APG and GIC. The fund’s launch marks the first major deal for ESR since it revealed plans earlier this month to acquire Singapore’s ARA Asset Management for $5.2 billion.

“We are thrilled to extend ESR’s successful collaboration and close relationship with these two leading institutional investors, with whom ESR has already delivered strong results in China and across the Asia Pacific region,” ESR co-CEOs Jeffrey Shen and Stuart Gibson said in a release.

Re-Up Options

Each of APG and GIC has the option to increase its capital commitment in ECDP to $800 million, in which event ESR would contribute up to $400 million in total, boosting the trio’s equity commitment in the fund to $2 billion.

Shen and Gibson, who founded ESR with Charles de Portes and US private equity major Warburg Pincus, highlighted the acceleration of e-commerce as supporting demand for logistics facilities in China. The group currently manages a mainland warehouse portfolio spanning 8.5 million square metres (91.5 million square feet) in gross floor area, with $6.7 billion in logistics assets under management in the country.

By the end of 2019, online sales in China had already surpassed the combined total in the US and Europe, with the mainland e-commerce industry projected to trade RMB 13.8 trillion ($2.1 trillion) this year, according to statistics from the GlobalData Banking and Payments Intelligence Center. With that market expected to grow at a compound annual rate of 12.4 percent from 2021 to 2024, ESR and its partners see opportunity in building more distribution centres.

“The China logistics sector continues to be a critical part of the China growth story,” said Graeme Torre, head of real estate for Asia Pacific at APG. “We believe that building new assets designed to meet environmental standards and ever-changing occupier demand is one of the better ways to create a resilient portfolio for long-term performance.”

Frequent Partners

According to Friday’s HKEX filing, APG and GIC hold stakes in ESR of 6.9 percent and 5.96 percent, respectively.

The Singaporean fund with nearly half a trillion dollars in assets under management has teamed up with ESR on a previous logistics venture in China. In early 2020, the partners committed a total of $500 million to a platform focused on developing institutional-grade logistics facilities in key cities across the country.

GIC has also backed logistics development vehicles with ESR in India and Australia, where a joint venture of the two partners this year bought Blackstone’s $2.9 billion Milestone logistics portfolio in the largest-ever direct real estate sale Down Under.

APG, which manages €603 billion ($710.5 billion) in assets on behalf of Dutch pensioners, has furnished capital for logistics development ventures with ESR in South Korea and Japan.