ESR is set to expand its $25.4 billion in assets under management in Australia with a newly formed A$1 billion ($692 million) develop-to-hold logistics fund partnership with Singapore’s GIC.
“We’re seeing an increasing appetite from our capital partners for logistics assets as the asset class looks to benefit from the growth in adoption of online shopping, a trend which we believe will accelerate,” said Phil Pearce, CEO of ESR Australia. “The success of our capital recycling and asset light strategy combined with the growing demand for logistics space, and emerging opportunities in adjacent areas such as data centres, makes us optimistic about the prospects for ESR Australia.”
The ESR Australia Development Partnership (EADP) will focus on developing strategically located sites in Sydney, Melbourne and Brisbane that benefit from new or upgraded infrastructure projects, the company said, and comes just three months after the two companies teamed up on an A$1 billion core logistics partnership down under.
GIC Commits A$400M to New Venture
GIC has committed A$400 million to the partnership as a cornerstone investor, with ESR contributing an unspecified amount in return for a 60 percent stake in the venture. The partners plan to expand EADP to an eventual size of A$1 billion either through additional investment from GIC or by bringing in new investors. No additional information was released on potential other participants in the fund.
The partners are seeding the new venture with a pair of prime land parcels in the Sydney metropolitan area which ESR had acquired within the last year for a combined A$190 million ($131 million), the company said. Through the new fund ESR aims to transform this initial land portfolio into premium logistics assets worth approximately A$410 million.
With this fresh batch of cash, the new partners plan to develop ESR Horsley Logistics Park, a 2.2 million square foot (208,000 square metre) purchased for A$142.5 million in late 2019, into a 1.2 million square foot distribution centre, and intends to build a 430,556 square foot warehouse facility on an 8.7 hectare site in the ESR Leppington Industrial Estate near the new Western Sydney Airport.
ESR Australia is considering other plots from its pipeline for incorporation into the partnership with GIC, the company said, and is targeting projects which feature close proximity to major transport links and distribution hubs.
Three Partnerships in Six Months
This latest deal marks the second time this year that GIC has joined forces with ESR in Australia, after the Singaporean fund invested A$450m in a vehicle targeting income-producing assets in March. ESR Australia Logistics Partnership (EALP), which was established to acquire income-producing assets.
In both the core and development partnerships ESR initially holds a 60 percent stake, with plans in place for the developer and fund manager to eventually sell down its interest to other investors to where it hold just 20 percent of each vehicle.
Together, the pair of Australian partnerships provide ESR Australia with the capacity to acquire and develop more than A$3.5 billion ($2.4 billion) of logistics assets, the company said.
The ventures down under come after the Singaporean sovereign wealth fund in January partnered with ESR in China for a $500 million joint venture aiming to develop institutional-grade logistics facilities in key mainland cities.
Besides its two partnerships with GIC, ESR’s Australia fund portfolio includes a pair of closed-ended, core-plus vehicles, the ESR Australia Logistics Trust focusing on industrial projects, and the ESR Office Partnership IV which holds a set of commercial properties.
Sheds Weather COVID-19 Crisis
Wednesday’s announcement comes just four days after the logistics specialist closed on a $1 billion joint venture with longstanding partners Canada Pension Plan Investment Board and Dutch pension manager APG Asset Management to develop industrial real estate projects in South Korea. The company reassured investors at the time that it had witnessed only minimal disruption as a result of the global COVID-19 crisis.
In announcing its latest Australian initiative, ESR reiterated the strength of the company’s position in spite of the global challenges resulting from the pandemic, saying in a statement that the new Australian partnership demonstrated the resilience of the firm’s fund management model, which is underpinned by “strong relationships” with their capital partners.
“COVID-19 has not slowed the appetite for high quality logistics assets in Australia,” Pearce said.
Stocking Up Down Under
ESR is powering on with its expansion in Australia, having built up an arsenal of stabilised assets and land for future development valued over $2.5 billion since entering the Australian market in July 2018 by taking over local investment firm Propertylink.
The fund manager is dialing in on Australia’s e-commerce-fueled growth in logistics demand, which ESR chairman Jeffrey Perlman has termed the “bedrock” of the company.
Analysts predict that online shopping is set to boom in Australia, with e-commerce forecast to make up 12 percent of all consumer spending in the country next year, according to a report by Australia Post.
The Warburg Pincus-backed firm listed on the Hong Kong stock exchange last October, raising HK$14 billion ($1.8 billion) in the city’s second-largest listing of the year.