ASX-listed Cromwell Property Group said Wednesday it has tied up with South Korean real estate investor IGIS Asset Management to buy a set of Italian logistics assets from express giant DHL for €52.5 million ($61.6 million).
The DHL portfolio comprises seven properties in northern Italy which the Aussie investment manager says will form the seed portfolio for a new investment vehicle, Cromwell European Logistics Fund, to be launched in the fourth quarter of this year.
Cromwell has been stepping up investments in Europe despite criticism from its biggest shareholder, ARA Asset Management, that the Brisbane-based investment manager’s strategy is detrimental to shareholder interests.
Faith in Sheds
“Logistics is a ‘high conviction’ sector that we believe will prove resilient in these difficult times and provide our capital partners with strong potential for outperformance over the medium term,” said Rob Percy, chief investment officer at Cromwell. “The demand for logistics assets is likely to continue to increase, supported by long term structural and demographic trends, especially in urban locations where supply is constrained.”
The properties in the portfolio, which are located near the cities of Milan, Turin, Bologna and Verona, will be fully leased back to DHL on long-term contracts averaging 16 years. Two of the seven logistics centres are brand new, while the other five properties are said to comply with DHL standards, with the company having occupied the buildings since completion.
Beyond Italy, Cromwell’s new fund has been set up to invest in core logistics assets across Belgium, France, Germany, Luxembourg and the Netherlands toward a total gross asset value of up to €500 million.
Seoul-based IGIS, which manages over $27.7 billion of assets, said its investment in the Italian portfolio is part of its strategy to diversify its exposure across Europe with the Korean company now having allocated 27 percent of its holdings overseas.
E-Commerce Ramps Up in Italy
“We have been observing the rapid growth of e-commerce and express courier market in Italy for quite some time,” said Sei-hyun Kwon, senior vice president at IGIS. “Understanding how tough it is nowadays to identify this type of logistics portfolio in strategic locations, we are very fortunate to be able to work with Cromwell.
Italy is among the fastest growing e-commerce markets in Europe, with annual revenue expected to grow to more than $25 billion by 2024 from $16.7 billion last year, according to Statistica.com.
IGIS, which owns and manages office, residential and retail assets in Europe, South Korea and the US, has been actively buying logistics assets overseas. In July 2019, the company launched South Korea’s first public logistics fund with the acquisition of three Amazon facilities in Europe for 593.6 billion won ($497 million).
ARA Asset Management, which launched an A$520 million ($371 million) hostile takeover bid for the Australian company in June, has shown less enthusiasm for Cromwell’s European tastes.
The Singaporean firm, which held 24 percent of Cromwell’s stock as of last month, contended in its takeover offer that Cromwell’s investments European retail properties had destroyed shareholder value. Cromwell’s management has urged shareholders not to take action on ARA’s offer.
Pandemic Boosts Logistics Appeal
Despite the Covid-19 pandemic tilting the global economy into recession, logistics properties have been benefiting from accelerating demand for warehouse space amid an e-commerce boom.
While global real estate investments dropped 33 percent in the first half of the year, industrial property deals dropped a mere 4 percent during the period, Savills said in a report this month, with executives from the London-based firm pegging Europe as a growth area.
“The fundamentals underpinning the logistics market in Europe remain strong and have proved resilient through Covid-19,” said Marcus de Minckwitz, Director of Savills regional investment advisory across Europe, Middle East and Africa. “The accelerated growth of e-commerce will continue to drive structural change across the continent. E-commerce requires more warehouse space than traditional retail and so the more consumers shop online, the more warehouse space will be required.”
Besides logistics, Cromwell, which has over A$11 billion in assets under management, has also been seeking alternative investments in Europe as traditional commercial properties such as office buildings and shopping malls have been the hardest hit by the pandemic.
Earlier this month, Cromwell partnered with EXS Capital Group and Stratus Data Centres to establish a fund that will invest in data centres across Europe and the Asia Pacific.
The fund, which is envisioned to eventually manage over $1 billion of data centre assets, has agreed to invest in its first two projects in London and Frankfurt. “We have received significant inbound interest from capital partners” into this fund, according to Cromwell’s Percy.