CPPIB, Goodman Add $1.75B to China Logistics Fund, Aim to Double Mainland Portfolio

The Canada Pension Plan Investment Board (CPPIB) and ASX-listed Goodman Group have committed another $1.75 billion to their China logistics partnership and plan to double the size of their mainland portfolio according to an announcement late last week by the Canadian pension fund manager.

Maintaining their existing 80/20 split, CPPIB is committing $1.4 billion and Goodman Group will kick in $350 million for this latest capitalisation of the joint venture, CPPIB announced on its website on 22 August.

With this new investment the partners have now committed $5 billion in equity to their China joint venture, stepping up the pace of their logistics bets as more capital rushes to meet the needs of the mainland’s growing consumer class.

Partnership Sees 5G Networks Boosting Demand for Sheds

“The fundamentals of the Chinese logistics sector remain compelling, driven by domestic consumption growth in China, including e-commerce which underpins the strong demand for prime logistics facilities,” commented Jimmy Phua, Managing Director, Head of Real Estate Investments Asia for CPPIB.

CPPIB and Goodman aim to grow the partnership to more than 5 million square metres in the medium term as demand for logistics space increases, especially as the introduction of technologies such as 5G greatly boosts online business and the need for related logistics capacity.

The JV partners see opportunities for profitable warehouse development in China as being driven by the need to move more goods to the country’s needy consumers. “With its growing middle class, significant e-commerce activity and rapid advancements in technology, China is a core growth area for our business,'” Greg Goodman, Chief Executive Officer of Goodman Group said in the statement.

The partnership appears ready to pull the trigger on new acquisitions with Goodman’s Greater China CEO Kris Harvey saying the JV has a number of potential acquisitions under due diligence as CPPIB confirms its intention to expand on the C$28 billion ($21.6 billion) that it has invested in China to date.

Adding to a Decade-Old Partnership

The Goodman China Logistics Partnership (GCLP) was started in 2009 with $300 million of equity, the investors adding funds from time to time since then. GCLP currently has 33 properties and a total of 2.5 square metres ( 27 million square feet) of space. As of the end of last year, its assets under management were $2.4 billion. The fund had a gearing ratio of 7.6 percent and 98 percent occupancy, according to Goodman.

The partnership’s assets are spread throughout China. GLCP has two properties in Beijing, three in Chengdu, two in Kunshan, eight in Shanghai and four in Tianjin, plus single investments in Changzhou, Guangzhou, Jiaxing, Suzhou, Taicang, Wuhan, Wujiang and Yaozhuang. The largest property held by the venture is Goodman Pudong Airport, at 2.1 million square feet.

As of June 30, CPPIB had C$366.6 billion ($281 billion) in assets and a total of C$28 billion invested China, according to the release. The pension fund manager says it would like to increase its exposure to the country from the current 7.6 percent to 20 percent by 2025.

Big in Asia, and Huge in Logistics

CPPIB is also an investor with Goodman in the Goodman Hong Kong Logistics Partnership (GHKLP), which was formed in 2006 and now has $4 billion under management and a total of 13 properties. As with the China logistics fund, Goodman has 20 percent and CPPIB has 80 percent. GHKLP owns half of the 224,000 square metre Interlink Industrial in Tsing Yi and CPPIB the other half.

CPPIB this year has increased its investments in Asia’s logistics sector through three separate partnerships including its JV with Goodman. In August, the Aussie industrial specialist committed to a $500 million fund targeting South Korean warehouse assets in cooperation with ESR. Earlier in the year, the pension group teamed up with Ivanhoé Cambridge, the real estate subsidiary of pension Caisse de dépôt et placement du Québec, to form a $484 million venture with pan-Asia developer Logos Property to invest in logistics assets in Southeast Asia.

CPPIB partnered with Singapore’s GLP last year in the 50/50 GLP Japan Development Venture II, which has 13 assets as of early 2018. The Canadian pension group also invested $500 million in 2017  in an Indian logistics real estate joint venture with IndoSpace, forming IndoSpace Core. CPPIB has the majority, with the venture itself managed by the local partner. The initial investments were 13 industrial and logistics parks with a total of about 14 million square feet.

The pension investor has been active in China outside of logistics. In July 2018, it signed an $817 million deal with Beijing’s Longfor Group to develop rental properties in Tier I and II cities, and in January it signed another deal with Longfor, valued at $ 622 million, to develop mixed-use projects in Shanghai and Chengdu.