Warburg Pincus-backed ESR has established a A$350 million ($240 million) mandate with China Merchants Capital, according to an announcement by the company, as the newly listed logistics specialist enlists a new partner and takes in cash to fund future developments.
The mandate with the investment management arm of state-owned China Merchants Group – dubbed ESR Australia Logistics Trust – was seeded by the transfer of A$175 million in assets from ESR Australia’s balance sheet to the new entity, with the partners aiming to double the trust’s portfolio to A$350 million over the next 12 months.
The announcement comes comes just six days after ESR announced it had acquired a development site in eastern Australia for A$142.5 million, bringing its development pipeline in the country to A$1.8 billion.
Recycling Capital into Investment Vehicles
“The establishment of this mandate is the first step in a strategy of releasing capital from our balance sheet to fund and accelerate our future developments,” said ESR Australia’s CEO, Phil Pearce.
The 11 logistics assets that have been sold down to seed the trust are located in Brisbane, Melbourne, Sydney and Perth. The properties in the trust will continue to be managed by ESR’s asset and property management team.
Freeing Up Cash from a $1.3B Portfolio
ESR has tapped into China Merchants Capital’s investment muscle just sixteen months after the logistics specialist formally established a presence down under through its A$102.5 million buyout of real estate heavyweight Charter Hall’s Commercial & Property Pty Ltd (CIP).
ESR Australia now manages industrial and business park real estate assets in the country worth $1.3 billion, with a land bank that has the potential to deliver future developments worth almost A$2 billion.
“Partnerships like the one with China Merchants Capital mean we can continue to improve on the substantial growth we have already achieved in this market while delivering strong results for our investors,” said ESR Australia boss Pearce.
Surfing the E-commerce Wave
ESR is looking to ramp up its growth in Australia as e-commerce sales in the country, which hit ten percent of total retail sales last year, are expected to rise to 12 percent of all consumer spending by 2021, according to a report this year by Australia Post.
The venture with the mainland investment manager is the latest move by ESR in Australia after announcing six days ago that it had exchanged contracts on six project sites, including a A$142.5 million development site in Sydney, that would add 48 hectares to ESR’s land bank in major industrial precincts of eastern Australian in Melbourne, Brisbane and Sydney.