ESR, CPPIB Add $500M to Korean Logistics JV After REIT Success

Hong Kong-listed logistics giant ESR and Canadian pension fund manager CPPIB will expand their Korea Income Joint Venture, effectively doubling the size of the vehicle to $1 billion in total equity allocation.

The two partners on Thursday announced plans to collectively increase their investment in the Korea Income JV by a further $500 million, with CPPIB contributing most of the capital, after selling off a slice of the venture via Korea’s first dedicated logistics REIT IPO last year.

“The upsize of the Korea Income JV is a reflection of the solid performance the vehicle has achieved in the past several years,” said ESR Kendall Square CEO Thomas Nam. An ESR representative declined to give specific details about the vehicle’s investments.

ESR Kendall Square raised $650 million through the IPO of ESR Kendall Square REIT last December, with six of the 11 assets in the REIT’s portfolio having come from the Korea Income JV. CPPIB was one of the cornerstone investors in that listed vehicle.

The JV was set up in 2018 to invest in income-producing logistics assets in South Korea, as the country’s booming online shopping sector continues to fuel demand for international-quality distribution centres.

E-Commerce Boosts Sheds

“Korea is already one of the most developed e-commerce markets in Asia and the pandemic has accelerated the growth in the past year, further fuelling the demand for quality logistics facilities,” said Jimmy Phua, head of Asia real estate at CPPIB. “By expanding our successful joint venture with ESR, we are able to meet the fast-growing demand and strengthen our leadership position in the market, ultimately delivering long-term value for CPP contributors and beneficiaries.”

South Korea’s e-commerce market grew by nearly 20 percent in 2020 to rank fifth in the world, according to data from market research firm eMarketer. Domestic e-commerce sales in the North Asian nation reached $104.1 billion last year, the report said.

Managing the joint venture’s portfolio to accommodate that growing demand is ESR Kendall Square, the Hong Kong firm’s Seoul-based unit. The portfolio initially consisted of 12 logistics assets with a total gross floor area of 774,666 square metres (8,338,435 square feet), before six of those assets were sold to ESR Kendall Square REIT last December.

Demand for high-quality logistics facilities continues to show stable growth, Nam said, especially as e-commerce adoption and structural changes in supply chain management have been driven forward during the COVID-19 pandemic.

With those trends in mind, ESR Kendall Square REIT was launched in December with units commencing trading on the Korea Exchange on 23 December. Since their debut at KRW 5,190 per unit, the trust’s equity has climbed by over 22 percent in value to close at KRW 6,340 in trading on Friday.

Speaking to Mingtiandi in December, ESR chairman Jeffrey Perlman called the REIT a “game changer” for the warehouse developer’s Korean platform.

“As we have seen with REITs generally, scale matters,” Perlman said at the time. “The larger you can become, the more it will reduce your cost of capital.”

Perennial Partners

Toronto-based CPPIB, which manages Canada’s biggest pension plan on behalf of over 20 million contributors and beneficiaries, is a frequent partner of ESR. In addition to the Korea Income JV, the pair have collaborated on two other joint ventures focused on the Korean logistics sector.

Last June, ESR closed on a $1 billion joint venture with CPPIB and Dutch pension manager APG Asset Management to develop industrial real estate projects in South Korea. Known as ESR-KS II, the JV is developing a portfolio of institutional-grade warehouse assets in Seoul and Busan.

Back in 2015, ESR precursor e-Shang launched a $500 million joint venture with CPPIB and APG to develop warehouses across South Korea.