Japanese Giants Picking Up Half-Stake in ESR Osaka Mega-Shed Through $474M Fund

Industrial specialist ESR has launched a JPY 70 billion ($474 million) fund to enable the sale of a 50 percent stake in a Greater Osaka warehouse billed as Japan’s largest.

Four Japanese corporate heavyweights, including insurer Dai-ichi Life and developer Hulic, will invest in the domestic vehicle, which will acquire the half-stake in ESR Amagasaki Distribution Center from a private fund, according to an announcement. Spanning 388,570 square metres (4.1 million square feet) of gross floor area in the city of Amagasaki northwest of Osaka, the shed is the largest multi-tenant logistics facility in Japan and one of the biggest in Asia Pacific.

Singapore-based ESR, fresh off its $7 billion privatisation in June, framed the transaction as part of efforts to diversify its funding sources in Japan by expanding its network of capital partners to include domestic institutional investors.

“Going forward, ESR will continue to provide attractive investment opportunities to domestic institutional investors through the establishment of domestic funds related to logistics facilities developed and operated by ESR,” the company said.

Quartet Joins Venture

The new fund’s JPY 70 billion size includes an investment of JPY 22 billion plus leverage. Ricoh Leasing and Sumitomo Mitsui Trust Panasonic Finance joined Dai-ichi Life and Hulic to take part in the fund, holding ESR Amagasaki in a 50:50 venture with the half-stake’s seller, ESR Japan Income Fund.

The 2020-built Amagasaki facility was part of the $2.1 billion seed portfolio of ESR JIF, which achieved a $750 million first closing in October 2021. The core vehicle’s cornerstone investor is said to be Singapore sovereign giant GIC, with France’s AXA IM also having committed capital.

The open-ended ESR JIF is targeting a gross asset value of $10 billion by 2026. At the end of 2023, the private vehicle had five properties under management with an aggregate valuation of S$1.74 billion (now $1.36 billion), according to a presentation by Singapore-listed ESR-REIT, which committed $70 million to ESR JIF last year.

In addition to ESR Amagasaki, ESR JIF’s portfolio includes ESR Nanko 1 in Osaka, ESR Aisai near Nagoya and two Greater Tokyo sheds, ESR Toda and ESR Kawasaki Yako, comprising a total gross floor area of 727,557 square metres.

Evolution Continues

With ESR now owned by a consortium of investors including fund managers Starwood Capital Group, SSW Partners, Sixth Street and Warburg Pincus, along with the Qatar Investment Authority, Canada’s Ontario Municipal Employees Retirement System, Sumitomo Mitsui Banking Corporation and ESR’s founders, the company is seizing opportunities to take on initiatives that might not have been possible when it was listed on the Hong Kong stock exchange.

Phil Pearce, the former deputy CEO promoted to company president in July, is overseeing ESR’s transformation from its earliest roots as a developer towards an asset-light model, as the management looks to identify assets on its balance sheet for potential disposals.

With APAC’s most developed markets, including Japan, in vogue with investors looking for low-risk strategies in the current environment, ESR’s management views the company as well-positioned to help institutions deploy capital in those locations.

“The key strategic objectives are to simplify the business, bolstering our balance sheet and recycling capital,” Pearce told Mingtiandi last month. “We aim to grow the core of our business, which includes our fund management platform, focusing on logistics and data centres, as well as infrastructure.”