CPP Investments, APG and ESR Expand South Korean Logistics JV
ESR Group Limited (“ESR” or the “Group”; SEHK Stock Code: 1821), APAC’s largest real asset manager, announced today the upsize of its second development joint venture (“ESR-KS II” or the “Joint Venture”) in Korea with APG and Canada Pension Plan Investment Board (“CPP Investments”).
ESR-KS II was established by APG, CPP Investments, and ESR in June 2020 with US$1 billion as the initial equity allocation and upsize options of bringing the total equity investment capacity to as much as US$2 billion. ESR-KS II is a development joint venture which invests in and develops a best-in-class industrial and warehouse logistics portfolio in the Seoul and Busan metropolitan areas, the two markets with the largest populations and highest consumer spending in Korea. APG, CPP Investments and ESR agreed in 2020 to initial investments in the Joint Venture in the amounts of US$350 million, US$450 million and US$200 million, representing respective holding of 35%, 45% and 20% in the Joint Venture.The Joint Venture has deployed over 80% of the initial US$1 billion equity allocation in less than two years with over 1.3 million sqm of class A warehouse space under development.
The Joint Venture is a successor vehicle to the US$1.15 billion maiden development joint venture (“ESR-KS I”), of the trio in Korea. To date, a total of 3.9 million sqm of class A warehouse space has been developed (or under development) by ESR-KS I and ESR-KS II. ESR-KS I has divested 30% (by total equity) of its completed properties to ESR Kendall Square REIT to date, generating total proceeds of over US$1.38 billion.
Thomas Nam, CEO of ESR-Kendall Square, ESR’s South Korean platform, said: “Institutional investment in the Korean logistics sector remains very strong as investors continue to rebalance their allocations towards logistics assets against the backdrop of e-commerce acceleration. The upsize of ESR-KS II reflects the collective confidence of our capital partners in ESR’s ability to capitalise on this secular opportunity. We will continue to build on our capital management and development strengths to identify quality opportunities and create value for our investors and stakeholders.”
Jeffrey Shen and Stuart Gibson, Co-founders and Co-CEOs of ESR, said: “As the largest real asset manager in APAC, ESR’s integrated fund management platform has provided its capital partners with access to some of the world’s best secular growth opportunities propelled by the positive trends of e-commerce, digital transformation and financialisation of real estate. We are delighted to successfully upsize another vehicle with our longstanding capital partners and extend our track record of delivering consistent strong performance across our APAC portfolio.”
Graeme Torre, Managing Director and APG’s Head of Real Estate, Asia Pacific, said: “The Korean logistics market has shown its resiliency during the pandemic, while demonstrating healthy growth prospects underpinned by robust growth in e-commerce and third-party logistics. We continue to be supportive of the sector, which complements very well with our existing regional logistics exposure and offers very strong risk-adjusted returns that will benefit our pension fund clients and their participants. With ESR’s leading track record and expertise in the local market, as well as their ESG credentials, we are pleased to continue our partnership with ESR and CPP Investments.”
Gilles Chow, Managing Director, Head of Real Estate North Asia at CPP Investments, said: “Korea is one of the most sophisticated internet and e-commerce markets globally. We continue to see strong demand for quality logistics assets in the country. We are delighted to expand our successful partnership with APG and ESR to further capitalise on opportunities in the sector, which we believe will deliver steady, long-term returns for the CPP Fund.”
ESR-Kendall Square, ESR’s South Korean platform, is the largest logistics owner in the country with US$9.2 billion of assets under management (“AUM”) and 4.3 million sqm of GFA as of 31 December 2021. In addition to its strong track record in fund management and its best-in-class portfolio of institutional-grade logistics assets, its sustainable approach to investments and operations has gained industry-wide recognition. In the 2021 Global Real Estate Sustainability Benchmark (“GRESB”) Assessment, ESR-KS I was named “Regional Sector Leader” in the Development Benchmark, industrial real estate sector. The fund also received the highest possible 5 Green Stars rating, scoring 93 points and topped five “GRESB Development” rankings.
ESR-Kendall Square’s properties have also earned numerous awards and green building certifications, including APAC’s first WELL Gold Certification for logistics real estate and a number of LEED Gold Certifications.
About APG
As the largest pension provider in the Netherlands, APG looks after the pensions of 4.8 million participants. APG provides executive consultancy, asset management, pension administration, pension communication, and employer services. We work for pension funds and employers in the sectors of education, government, construction, cleaning, housing associations, sheltered employment organizations, medical specialists, and architects. APG manages approximately €586 billion (April 2022) in pension assets. With approximately 3,000 employees, we work from Heerlen, Amsterdam, Brussels, New York, Hong Kong, Shanghai, and Beijing. www.apg.nl
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the 21 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At March 31, 2022, the Fund totalled C$539 billion. For more information, please visit www.cppinvestments.com or follow us on LinkedIn, Facebook or Twitter.
About ESR
ESR is APAC’s largest real asset manager powered by the New Economy and the third largest listed real estate investment manager globally. With US$140.2 billion in total assets under management (AUM), our fully integrated development and investment management platform extends across key APAC markets, including China, Japan, South Korea, Australia, Singapore, India, New Zealand and Southeast Asia, representing over 95% of GDP in APAC, and also includes an expanding presence in Europe and the U.S. We provide a diverse range of real asset investment solutions and New Economy real estate development opportunities across our private funds business, which allow capital partners and customers to capitalise on the most significant secular trends in APAC. ESR is the largest sponsor and manager of REITs in APAC with a total AUM of US$45 billion. Our purpose – Space and Investment Solutions for a Sustainable Future – drives us to manage sustainably and impactfully and we consider the environment and the communities in which we operate as key stakeholders of our business. Listed on the Main Board of The Stock Exchange of Hong Kong, ESR is a constituent of the FTSE Global Equity Index Series (Large Cap), Hang Seng Composite Index and MSCI Hong Kong Index. More information is available at www.esr.com.
It was a little over two years ago, in the midst of the pandemic, that APG, CPP Investments and ESR established a US$1 billion joint venture to boost investment in South Korean logistics real estate and it is worth going over that press release as well to give you more context:
SEOUL/HONG KONG, 23 April 2020 – APG, Canada Pension Plan Investment Board (“CPP Investments”) and ESR Cayman Limited (“ESR”; SEHK Stock Code: 1821) announced today they have entered into a strategic agreement to establish a new development joint venture, ESR-KS II (“ESR-KS II” or the “Joint Venture”), with a total equity allocation of US$1 billion, representing an investment capacity to deliver as much as US$2 billion of new development projects.
ESR-KS II is a new development joint venture which will invest in and develop a best-in-class industrial and warehouse logistics portfolio in the Seoul and Busan metropolitan areas, the two markets with the largest populations and highest consumer spending in South Korea. APG, CPP Investments and ESR have agreed to initial investments in the Joint Venture in the amounts of US$350 million, US$450 million and US$200 million, respectively. The partners have allocation expansion options that could bring the total equity investment capacity to as much as US$2 billion over time. APG, CPP Investments and ESR will hold 35%, 45% and 20%, respectively, of the total issued shares of the Joint Venture.
The Joint Venture marks APG’s fourth development collaboration with ESR, and CPP Investments’ third joint venture with ESR. It is a successor vehicle to a US$1 billion joint venture – which was later upsized to US$1.15 billion – between the three parties that has led to the development of 17 projects totalling 2.2 million sqm of GFA in South Korea.
Graeme Torre, Head of Real Estate, APG Asset Management Asia commented: “Following the success of our first joint venture with ESR and CPP Investments in Korean logistics, we are delighted to be able to repeat the partnership. This will allow us to capture the next wave of growth and opportunity in a sector that even in these uncertain times, is demonstrating resilience. Throughout our global portfolio we look for investment opportunities that allow us to meet the long-term return and sustainability objectives of our pension fund clients. With like-minded partners such as CPP Investments and the local execution expertise of ESR, this new venture is perfectly placed to do just that.”
Jimmy Phua, Head of Asia Real Estate at CPP Investments, said, “Asia’s consumer sector has been one of our key investment themes. The continued growth of South Korea’s e-commerce market is driving the demand for quality logistics facilities. This new joint venture deepens our longstanding relationship with ESR and APG. It will be key to our growth strategy in the logistics sector globally.”
ESR’s integrated fund management platform has provided its capital partners with access to some of the world’s best secular growth opportunities propelled by the positive trends of e-commerce, urbanization and domestic consumption in the region.
Jeffrey Shen and Stuart Gibson, Co-founders and Co-CEOs of ESR, said, “This extension of our partnership with APG and CPP Investments is a testament to our best-in-class local management team led by Thomas Nam and Jihun Kang and our market leading position in South Korea. Riding on the robust fundamentals of the APAC logistics sector, we will continue our strategy to expand our fund management platform across the region to grow our AUM while delivering solid returns for our capital partners and stakeholders.”
ESR-Kendall Square, ESR’s South Korean platform, has not only built a strong track record in funds management, its modern logistics facilities have gained industry-wide recognition for their advanced architectural designs and their sustainability-focused approach. ESR-Kendall Square’s properties have earned numerous awards and certifications, including APAC’s first WELL Gold Certification for logistics real estate and a number of LEED Gold Certifications.
The transaction is expected to close before July 2020, subject to relevant regulatory approvals.
I wanted to provide proper context so you understand that CPP Investments, APG and ESR Group, APAC’s largest real asset manager, have worked together in the past, so committing another US$1 billion to ESR-KS II which was established by them in June 2020 is a testament to how successful this Joint Venture is.
With US$1 billion as the initial equity allocation, the upsize brings the total equity investment capacity to as much as US$2 billion, with CPP Investments holding 45% of this Joint Venture (APG holds 35% and 20% is held by ESR).
The press release states the Joint Venture has deployed over 80% of the initial US$1 billion equity allocation in less than two years with over 1.3 million sqm of class A warehouse space under development.
Gilles Chow, Managing Director, Head of Real Estate North Asia at CPP Investments, said: “Korea is one of the most sophisticated internet and e-commerce markets globally. We continue to see strong demand for quality logistics assets in the country. We are delighted to expand our successful partnership with APG and ESR to further capitalise on opportunities in the sector, which we believe will deliver steady, long-term returns for the CPP Fund.”
And in the initial press release, Jimmy Phua, now Managing Director, Head of Real Estate Asia Pacific at CPP Investments, said: “Asia’s consumer sector has been one of our key investment themes. The continued growth of South Korea’s e-commerce market is driving the demand for quality logistics facilities. This new joint venture deepens our longstanding relationship with ESR and APG. It will be key to our growth strategy in the logistics sector globally.”
Again, the key themes are Asia's strong consumer sector and the rise of e-commerce there driving demand for quality logistics facilities.
You should also read more about ESR Group:
ESR is APAC’s largest real asset manager powered by the New Economy and the third largest listed real estate investment manager globally. Our fully integrated development and investment management platform extends across key APAC markets, including China, Japan, South Korea, Australia, Singapore, India, New Zealand and Southeast Asia, representing over 95% of GDP in APAC, and also includes an expanding presence in Europe and the U.S. We provide a diverse range of real asset investment solutions and New Economy real estate development opportunities across our private funds business, which allow capital partners and customers to capitalise on the most significant secular trends in APAC. ESR aspires to operate sustainably and impactfully, and we consider the environment and the communities in which we operate as key stakeholders of our business.
Clearly this is a world-class partner which also takes sustainability seriously.
This is reflected in the fact that ESR-Kendall Square’s properties have earned numerous awards and certifications, including APAC’s first WELL Gold Certification for logistics real estate and a number of LEED Gold Certifications.
On those properties, a couple of weeks ago, ESR announced it successfully completed 520,000 sqm of Class A, 100% pre-leased logistics warehouse space in South Korea within first half of 2022:
SEOUL, South Korea, June 27, 2022 /PRNewswire/ -- ESR Group Limited ("ESR" or the "Group"; SEHK Stock Code: 1821), APAC's largest real asset manager powered by the New Economy, today announced that ESR-Kendall Square, ESR's South Korean platform, has completed a total of 520,000 sqm of Class A logistics, 100% pre-leased warehouse space, in Korea during the first half of 2022.
The newly completed space with seven warehouses, primely located across the Greater Seoul Metropolitan area, has been 100% pre-leased to reputable tenants including one of the largest e-commerce companies in Korea, the logistics arm of a major global electronics manufacturer, a global courier service company, a major international logistics service provider and other leading customers.
The newly completed properties further strengthened ESR's dominance in Gwangju City, the most supply-constrained logistics real estate area in Seoul, in Yongin and in Incheon, which serve as the major logistics hubs in Seoul. All properties were built with the best-in-class specifications and design, including direct ramp access to all warehouse floors, wide truck yards for efficient intra-traffic flows, high floor tonnage, high ceiling clearance, further cementing ESR-Kendall Square's leading position in the Greater Seoul logistics market landscape.
Thomas Nam, CEO of ESR-Kendall Square, ESR's South Korean platform, said: "Customer and investor demand for Class A logistics warehouse space continues to surge on the back of continued e-commerce adoption. With this favourable backdrop, our sizable existing portfolio has achieved a record of over 99% occupancy today. We are proud of the successful completion of this logistics portfolio as the scale, advanced building specifications, sustainability, efficiency are all testament to what ESR is renowned for in delivering enterprise value to our customers and capital partners."
Jeffrey Shen and Stuart Gibson, Co-founders and Co-CEOs of ESR, said: "Korea continues to shine as a strategic growth engine for ESR to fuel our platform expansion across APAC. ESR-Kendall Square has established itself as the country's largest logistics owner and leading provider of New Economy real estate that embodies best-in-class design, building specifications, sustainable operations and management. Our differentiated platform continues to attract investors and customers and will drive our next chapter of growth as APAC's largest real asset manager and in leading New Economy real estate platform."
ESR-Kendall Square is the largest logistics owner in Korea with an estimated US$9.2 billion of assets under management ("AUM") and an estimated 4.4 million sqm of GFA to date. In addition to its strong track record in fund management and unrivalled portfolio of institutional-grade logistics assets, its sustainable approach to investments and operations has gained industry-wide recognition. In the 2021 Global Real Estate Sustainability Benchmark ("GRESB") Assessment, ESR-Kendall Square's first development joint venture ("ESR-KS I") was named "Regional Sector Leader" in the Development Benchmark, industrial real estate sector. ESR-KS I also received the highest possible 5 Green Stars rating, scoring 93 points and topped five "GRESB Development" rankings.
ESR-Kendall Square's properties have also earned numerous awards and green building certifications, including APAC's first WELL Gold Certification for logistics real estate, several LEED Gold Certifications in addition to 22 assets achieving the WELL Health-Safety Rating certification, representing over 2 million sqm. The WELL Health-Safety Rating is an evidence-based, third-party verified rating for all new and existing building and space types focusing on operational policies, maintenance protocols, stakeholder engagement and emergency plans that address a Covid-19 environment now and into the future.
Interestingly, CPP Investments is part of this deal too as last year it upsized another JV with ESR and provided most of the capital to double the size of the venture to US$1 billion in total equity allocation:
The Korea Income JV was established in 2018 to focus on investments in income producing logistics assets located in major metropolitan areas of South Korea. The portfolio, which is managed by ESR Kendall Square, consisted of 12 institutional-grade modern logistics facilities with an aggregate GFA of 774,666 sqm. Six of the 12 assets were divested to ESR Kendall Square’s Korea Logistics REIT in December 2020.
Anyway, APG and CPP Investments have an incredible partner in ESR and I foresee many more joint ventures throughout the APAC region as demand for logistics properties keeps growing there.
Below, a September 2020 interview with Jeffrey Perlman, chairman of Hong Kong-listed ESR Cayman, a logistics real estate developer with focus on warehouses and industrial real estate, discussing how the coronavirus outbreak has been affecting his business. He speaks with Sophie Kamaruddin and Haidi Stoud-Watts on "Bloomberg Daybreak: Asia."
Listen carefully to his views as he discussed secular trends driving the demand for logistics properties in APAC region. You should also read more about ESR’s trailblazing chairman here to understand why it has quickly become a major player in the APAC region.
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