Warburg Pincus-Backed Retail Platform Buys 5 Indonesian Malls for $123M

A Warburg Pincus-backed retail real estate venture in Indonesia chose the last day of 2019 to announce the year’s largest shopping centre acquisition, buying a set of five malls for approximately rupiah 1.74 trillion ($123.5 million).

Nirvana Wastu Pratama, better known as NWP Retail, has agreed to buy the set of shopping centres from entities affiliated with Indonesia’s Lippo Group, according to announcements by the company and its partners in the transactions on 31 December, as the four-year-old operation expands its holdings in the Southeast Asian nation of over 270 million people.

The purchase agreements, which come 11 months after NWP raised $200 million from Warburg Pincus and other investors, adds nearly 185,000 square metres of retail space to the company’s portfolio, expanding the platform to 1.2 million square metres of gross floor area, including projects still in progress.

Building an Indonesian Mall Portfolio

“This acquisition represents a milestone in NWP Retail’s rapid expansion,” Timothy Daly, CEO of NWP Retail said in a statement. “It will strengthen the Company’s presence across key markets in Tier-1 and Tier-2 cities in Indonesia and further expand its market leading position as Indonesia’s largest independent retail shopping mall platform.”

Entities controlled by NWP have agreed to purchase the Pejaten Village mall in the Kemang area of Jakarta, along with the Binjai Supermall near Medan in North Sumatra, from Lippo Malls Indonesia Retail Trust (LMIRT) for a total of approximately rupiah 1.30 trillion, according to an announcement by the Singapore-listed REIT.

In a separate set of transactions, the retail group co-founded by Warburg Pincus together with Indonesia-listed PT City Retail Developments in 2015, is purchasing Central Plaza in Bandar Lampung on South Sumatra, Duta Plaza in Denpasar on Bali, and Cimanggis Square in Depok, a satellite city of Jakarta on Java from Lippo Malls for a total of rupiah 440 billion.

Both the manager of LMIRT and Lippo Malls, are controlled by Indonesia’s Lippo Group, the primary holding company of the Riady family, who also own a controlling stake in Singapore’s OUE Group.

Spanning the Archipelago

Prior to this latest set of acquisitions, which constitute the biggest jump in the company’s portfolio to date, NWP had already grown from a seed set of four assets in 2015 to its current 40 assets in various stages of development.

The rapid expansion is driven by demand from retailers for reliable real estate partners as brands rush to open shops in the country’s largest cities, amid quickening sales.

“Indonesia is a very attractive market for retail,” Daly explained to Mingtiandi. “There are 70 million people moving into the middle class – a group the size of the population of Thailand.”

This growing middle class and Indonesia’s developing economy is helping drive a retail expansion that has seen convenience store operators such as Indomaret and Alfamart reportedly growing their number of outlets by 1,200 or more each year, while malls in Jakarta are averaging over 90 percent occupancy.

International retailers are also building out their networks in the country, according to NWP, with both Starbucks and KFC having aimed to open 60 new stores across Indonesia during 2019, and Ace Hardware having opened over 20 new locations last year.

“What we see is that there is a window of opportunity here like there has been recently in Vietnam, China or India, or previously where we worked in eastern Europe,” Daly said, comparing Indonesia’s retail market to some of the region’s fastest growing territories where the former Simon Property Group executive led major mall joint ventures.

“We find that retailers are looking for the right partner to work with,” Daly said, noting that, historically, in order to build a network across the archipelago nation, “They had to partner with 50 different landlords.”

Ramping Up a Retail Pipeline

To become the real estate partner for retailers expanding in Indonesia, Daly and his team have been growing their portfolio of shopping centres through both acquisitions of existing assets, many of which are renovated or repositioned, and through ground-up development of new properties.

The company aims to add 10 to 12 operational projects to its portfolio each year, and currently has 26 projects under development. Of those more than two dozen projects, six will open within the next 12 months, including The Park Sawangan – a 56,000 square metre mall which is slated to open in in Depok, within the Greater Jakarta area, in early 2020.

The company also has projects under way in the cities of Medan, Semarang, Bandung, Kendari and Bengkulu, and currently expects to open six more malls in 2020, to add to its existing 18 operating assets, of which it says 16 are stabilised.

NWP’s operational assets currently total more than 400,000 square metres of gross floor area excluding the pending acquisitions, according to Daly, and the company expects to buy at least eight to ten new pieces of land every year.

Opportunities in Indonesia’s “Unmalled” Cities

NWP’s $200 million fund raising in February saw it bring in cash from the Korean Teachers’ Credit Union, and CITIC Securities’ One-Belt-One-Road Fund alongside a fresh injection from its partners at Warburg Pincus, and Daly sees potential for future partnerships as the company continues its mission of rolling out an institutional grade shopping mall platform in Indonesia.

With some 70 percent of Indonesia’s 200 largest cities still “unmalled,” according to Daly’s estimates, and the amount of modern retail space per capita still at just 25 percent of that in China, NWP sees opportunities for further expansion in the island nation.

“We are always on the lookout for assets that are well located and that we think are attractively priced,” Daly said, comparing the growth potential of NWP to that of warehouse developer ESR, another Warburg Pincus-backed venture which conducted a HK$12.6 billion ($1.6 billion) IPO in October of this year.

While the 30-year retail veteran said that, “an IPO is something that we may consider in the future,” Daly indicated that joint ventures with partners interested in investing in shopping centre portfolios would be a more immediate opportunity for NWP.