The Stock Exchange of Hong Kong has approved ESR’s proposed spin-off of three mainland logistics projects and their potential listing through a China REIT on the Shanghai Stock Exchange, marking a step forward in the planned transaction as the recently launched C-REIT market gathers steam.
Following the bourse’s confirmation, the Hong Kong-listed industrial developer is still working on the relevant approvals from other regulators, including China’s National Development and Reform Commission (NDRC), the China Securities Regulatory Commission (CSRC) and the Shanghai Stock Exchange, among others, ESR said Monday.
“As the leading manager of REITs in APAC, we strongly believe in the continued financialization of real estate in APAC and especially in China,” said Stuart Gibson and Jeffrey Shen, co-founders and co-chief executives of ESR Group in a prepared statement.
First announced in December, ESR’s proposed trust involves the first three phases of the company’s Kunshan Huaqiao Park complex, totalling more than 427,000 square metres (4.6 million square feet) of gross floor area. The complex is located in Kunshan’s Huaqiao town, roughly midway between Shanghai and Suzhou in eastern China’s Jiangsu province.
The trio of assets in the seed portfolio for ESR’s proposed trust include Jiangsu Friend Phase I, a fully leased asset with over 135,000 square metres; Jiangsu Friend Phase II, with over 85,000 square metres; and Jiangsu Friend Phase III, with over 206,000 square metres. All three assets have been stabilised since 2018.
Shen and Gibson “The proposed transaction is also a testament to ESR’s focus on accelerating our asset-light strategy,” they added, noting that by injecting ESR’s assets in private funds and REITs, the company continues to grow its fund management revenue while also recycling capital into attractive opportunities across Asia Pacific.
Chang Rui Hua, ESR’s managing director of capital markets and investor relations, told Mingtiandi in December that the group is working with AVIC Trust as the REIT manager partner on the new vehicle. The terms and timetable of the proposed transaction have not been finalised as of ESR’s latest announcement.
ESR has over $140 billion in total assets under management, including $32 billion and around 13.9 million square metres of gross floor area in China as of June 2022. The company late last year completed a 129,000 square metre warehouse complex, Wenzhou Ruian Economic Development Zone in Zhejiang province.
REIT Market Rises
The market for mainland REITs has surged since Chinese authorities cleared the way for onshore listed trusts in mid-2021. By December of last year, developers and fund managers had listed 24 infrastructure and rental housing REITs on mainland exchanges and raised more than RMB 75 billion ($10.9 billion) in the process, according to an analysis by National University of Singapore researchers Sing Tien Foo and Sonny Tan Hock Sun published in the Business Times.
“The burgeoning C-REIT market in China is propelled by many of the secular trends that underpin ESR’s growth and it offers investors another option to enhance and diversify their portfolios,” ESR’s Chang said. While pointing to the company’s track record in launching and manager listed real estate trusts in other jurisdictions around the region, she added that, “Our proposed C-REIT will benefit from the accelerated growth of ecommerce and continued resilience of the supply chain which will drive the demand for modern logistics facilities.”
Mainland regulators in December gave the green light for a warehouse REIT under Chinese e-commerce giant JD.com to list on the Shanghai Stock Exchange, after a logistics fund sponsored by Warburg Pincus-backed industrial developer DNE Group got the nod to become China’s first REIT sponsored by a private company in November.
Singapore-based GLP became the first international firm to list a REIT in China when it partnered with a group of mainland companies to launch GLP C-REIT in June 2021. The C-REIT market could grow to as much as $1.2 trillion in market cap by 2030 if China securitizes just 2 percent of its infrastructure assets, according to a UBS report cited by ESR.
ESR announced the REIT milestone less than a week after revealing that it has now implemented more than 19.6 MW of rooftop solar projects across its mainland China logistics portfolio, with the completion of a project at its ESR Shenyang Yibei Logistics Park.
The facility in the capital of Liaoning province now contributes around 1 MW to Shenyang’s power grid, with the company saying that it expects to have completed solar projects with a capacity of 100 MW by the end of this year.
“Aligned with ESR’s ESG 2025 Roadmap, our ambition is to further increase solar power generation in all operating markets and work towards a 50% increase in ESR’s rooftop solar power installed capacity by 2025,” Shen and Gibson said. “We are committed to increase that considerably in China, and this includes deploying and actualising the environmental value of renewable energy resources to achieve sustainable and efficient operations not only in our premises, but also along our value chain.”
Just one week earlier , the company had announced the completion of the Geomdan Logistics Park by its ESR-Kendall Square subsidiary, with that project adding 150,000 square metres to its South Korean portfolio. Keeping with the company emphasis on sustainability, that facility near Seoul’s Gimpo airport is aimed at achieving LEED Gold status under the US Green Building Council’s rating system for sustainable facilities.