An ESR China shed set to join the fund
Industrial heavyweight ESR has sold a 95 percent stake in a portfolio of six Chinese industrial properties to the mainland’s Taikang Insurance in a deal which values the assets at RMB 2 billion ($288 million), according to a filing by the Hong Kong-listed company on Monday.
The Warburg Pincus-backed developer and fund manager sold a 349,649 square metre (3.8 million square foot) portfolio into a vehicle backed by the Beijing-based insurer, with ESR, which also manages the fund, retaining a 5 percent stake.
The sale of properties from ESR’s balance sheet marks its latest funding tie-up with a mainland insurer as it continues to shift to an asset-light model driven by management fee income while the financial giants keep boosting the real estate portion of their portfolios.
“This milestone achievement testifies to the strong relationships and track record which ESR has built with domestic RMB investors, and the compelling long-term income potential of our portfolio of well-located and premium logistics assets in China,” ESR co-CEO Jeffrey Shen said in an August release announcing the fund’s establishment, adding that the company will actively expand the portfolio with high quality assets.
Hitting China’s Major Hubs
The assets, which earned a total net profit of RMB 146.1 million (then $21 million) in 2022, are located in major logistic and manufacturing hubs across China, including the eastern provinces of Jiangsu and Zhejiang, Guangdong in the south and Hebei in the north.
The initial consideration represents a 29 percent premium to the properties’ total net asset value of RMB 1.6 billion ($216 million) as of September. Based on the company’s estimated maximum final consideration price, the company expects to book a gain of RMB 337.6 million ($48 million), or a premium of 21 percent.
ESR co-CEO Jeffrey Shen
The largest of the assets by net asset value is a two-phase facility located in the southern city of Dongguan, which accounted for 45 percent of the portfolio’s net asset value as of September.
The second-largest asset is in the northern city of Langfang, while the three remaining properties are in the Yangzte River Delta cities of Suzhou, Haining, and Xuzhou.
Monday’s announcement is the first time that ESR has publicly identified its partner in the vehicle, which with a total investment capacity of RMB 10 billion ($1.4 billion) ranks as the company’s largest RMB income fund
The company has highlighted its growing network of RMB capital partners ready to recapitalise stabilised assets from ESR’s development and core funds.
The deal allows the company to “realise gains on disposal and is in line with the Group’s capital recycling strategy of transferring balance sheet assets into investment vehicles it manages and co-invests in,” according to the company’s stock exchange filing.
Asia Pacific-focused ESR, which managed $150 billion in total assets as of August, also stated its intention to increase the rooftop solar power generation for selected assets in the portfolio as part of the company’s plan to install 1,000 MW of rooftop solar power capacity on its properties by 2030.
Insurers Go Shed Shopping
The transaction marks the latest investment in Chinese commercial property by mainland and foreign insurance companies as they look to increase stable rental income in their investment portfolios, with insurers adding to their real estate exposure despite China’s property downturn.
The fund management unit of ESR’s indebted peer GLP in July raised RMB 2.6 billion ($360 million) of equity from a group of five mainland insurance companies for its eighth China income fund anchored by over RMB 5 billion worth of core logistics assets in China.
That fund followed GLP’s sixth and seventh RMB income funds closed in November 2022 with respective commitments totalling $1.05 billion and $743 million, with Chinese insurers backing both industrial property-seeded funds.
Last month, GLP also sold an office complex in Beijing to a RMB 3.6 billion ($490 million) China income office vehicle backed by an unidentified major Asian insurance company. That same month, US private equity giant Blackstone denied rumours of the sale of 11 Chinese logistics parks worth over RMB 10 billion ($1.4 billion) to Chinese insurer Ping An.
Hong Kong-listed insurance giant AIA has also raised its bets on China’s property sector, having invested in July alongside other Chinese insurance companies in a RMB 3.5 billion ($485 million) Shanghai life science park fund managed by China’s DNE Group.
In December 2022, the insurer acquired a 90 percent stake in a Shanghai commercial complex for RMB 5 billion ($716 million) in one of China’s largest real estate transactions that year. That deal came after AIA joined several international insurers in backing GLP’s fifth RMB income fund in July which saw a $5 billion recapitalisation of a portfolio of 54 mainland logistics assets.
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