ESR Sets Up Offshore Fund to Buy $1B in Mainland Logistics Projects

Pan-Asian logistics developer ESR is joining with Beijing Properties to set up an offshore fund which would acquire logistics projects worth RMB 6.4 billion ($1 billion) from the mainland builder. The move came a day after Warburg Pincus-backed ESR received a $306 million investment from Chinese e-commerce behemoth JD.com to expand its portfolio in mainland China.

Under the terms of a letter of intent between the two parties, Hong Kong-listed Beijing Properties’ logistics subsidiary China Logistics Infrastructures (CLI) plans to inject projects worth about RMB 6.42 billion into the fund, which would be 65 percent owned by Beijing Properties, and set up jointly with ESR, a filing to the Hong Kong Stock Exchange shows.

Representatives of ESR declined to give further specifics on the potential shareholding of the planned fund when contacted by Mingtiandi.

The preliminary agreement between ESR and Beijing Properties comes as China’s logistics developers rush to fill the growing needs of the country’s $1 trillion ecommerce market and a group of international level warehouse developers, which also function as real estate fund managers, compete to gain control of the country’s warehouse sector.

New Fund Gets Access to Over 800,000 SQM of Projects

Under the terms of the Letter of Intent between ESR and Beijing Properties, the mainland developer has committed to exclusive talks with its larger competitor. In return, ESR agrees to deposit $45 million into a jointly operated bank account, with CLI getting the right to keep the initial deposit should ESR back out unilaterally. Details concerned planned financial contributions by the parties to the fund were not disclosed.

Potentially at stake in the deal is CLI’s network of 287,131 square metres of existing distribution facilities, plus an additional pipeline of 522,300 square metres in projects in progress, scattered across the Chinese cities of Beijing, Tianjin and Shanghai.

The deal represents “a good opportunity for the Group to realize its investment in its logistics property business at a fair and reasonable price,” Beijing Properties said in the statement. Industry sources familiar with the transaction expressed their perception of Asia’s logistics real estate market reaching a tipping point where smaller players will increasingly struggle to meet the needs of major retailers as both traditional brands and ecommerce players compete to shorten delivery times and secure more distribution locations.

In February of this year Global Logistic Properties (GLP), which owns the biggest portfolio of warehouse space in China, set up its own RMB 10 billion ($1.6 billion) fund targeting value-add logistics opportunities on the mainland as it seeks to continue expanding its footprint in the market.

ESR Raising More Cash to Boost China Portfolio

ESR, formerly known as E-Shang Redwood, was formed by the merger of Warburg Pincus-backed E-Shang and Japan-focused warehouse builder Redwood Group in 2016. The developer secured a $301 million injection from online retail giant JD.com this week to ramp up its growing network of distribution centres. The new capital from that deal is expected to primarily drive the development of new facilities in the mainland, according to sources familiar with the transaction.

Setting up the offshore fund with Beijing Properties adds to a string of fundraising by ESR that includes taking in more than RMB 2 billion from US asset manager Invesco Real Estate last September in return for a majority stake in a portfolio of mainland warehouses.

Apart from bolstering its portfolio in China, the Hong Kong-headquartered logistics developer is planning to invest some $3 billion in developing new projects across Asia this year.

ESR has $12 billion assets under management according to the company, and over 10 million square metres of projects either owned and under development across China, Japan, Singapore, South Korea and India.