JD.Com Invests $306M in Logistics Developer ESR

Shanghai-based logistics developer ESR today announced that a subsidiary of JD.com, China’s second-largest ecommerce player, is investing $306 million into the regional warehouse builder.

The logistics investment by the $53 billion high tech retailer provides a boost both for the growing network of distribution centres of the developer formerly known as E-Shang Redwood, as well as for JD’s ongoing expansion of its retail network across Asia. Detailed financial terms of JD Logistics’ resulting shareholding in ESR were not made available.

“We are very excited to have JD.com become a long-term shareholder of the company,” Jeffrey Shen and Stuart Gibson, Co-CEOs of ESR said in the company’s statement. “This move demonstrates JD’s vote of confidence in our team, vision, and growth strategies.”

The two parties said that their strategic cooperation is aimed at enabling “best-in-class logistics services for customers and businesses in China and beyond. ”

JD Looks to Logistics Investment to Secure Space

“Investing in ESR, a leading pure-play pan-Asia logistics real estate platform and one of our major warehouse partners, presents tremendous opportunities for us,” said JD Logistics CEO Zhenhui Wang in the statement. He added that, “The investment in ESR will further strengthen our relationship to solidify and expand our logistics networks.”

ESR, which was formed by the merger of Warburg Pincus-backed E-Shang and Japan-focused warehouse developer Redwood Group in 2016, is already JD’s biggest landlord in mainland China, according to sources with the logistics developer. ESR expects to invest some $3 billion in developing new projects across Asia this year. US private equity firm Warburg Pincus co-founded E-Shang in 2011 with mainland entrepreneurs Sun Dongping and Jeffrey Shen.

JD Logistics was established in 2017 and today’s investment can be seen as both an expansion of its partnership with ESR and as a way for JD to secure access to space needed to accommodate its growing retail empire.

For 2017 JD announced revenues of RMB 362.3 billion (US$55.7 billion), an increase of 40.3 percent from the previous year, driving a need for more warehouse space. The company founded by entrepreneur Zhang Qiangdong also has been rapidly expanding its network of physical retail outlets.

Serving China’s Ecommerce-Hungry Masses

The $306 million in new capital can be expected to primarily drive development of new facilities in China, according to sources familiar with the deal who spoke with Mingtiandi.

With China’s ecommerce providers competing to offer same day delivery to customers in more markets, the deal is aimed at removing logistics hurdles that many analysts see as the biggest single impediment to ecommerce growth in a market where more than 69 percent of Internet users made online purchases last year.

The agreement could lead to joint development of new ecommerce facilities by the ecommerce giant and ESR, with the warehouse developer potentially benefiting from JD’s brand recognition as it pitches local governments on the benefits of making land available for logistics projects.

Partners Pave Way for Southeast Asia Expansion

Beyond mainland, China today’s investment also plays into the southward expansion of both companies.

JD, whose 292 million users still primarily reside in mainland China, last year announced a $500 million investment in Thailand as it expands into Southeast Asia. In January of this year the retail giant announced further expansion of its presence in the region via an investment in Vietnamese e-commerce firm Tiki.vn.

ESR has also been active in Southeast Asia in the past two years with the company having bought an 80 percent stake in the manager of Singaporean industrial REIT Cambridge Industrial Trust in January of 2017. Later renamed ESR-REIT, the trust has explored options related to Sabana REIT’s strategic review, and is currently in exclusive discussions with Viva Industrial Trust on a proposed merger.