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Canada, Dutch pensions, Hong Kong logistics firm in new US$1 billion joint venture

The Canada Pension Plan Investment Board (CPPIB) is renewing ties with Dutch pension manager APG Asset Management and Hong Kong logistics investment firm ESR Cayman in a new US$1 billion joint venture to invest in South Korea’s logistics sector.

The ESR-KS II is a successor vehicle to their $1.15 billion joint venture from five years ago, CPPIB, Canada’s largest pension manager, says in a statement on April 24.

It will primarily invest and develop industrial and warehouse logistics properties in the Seoul and Busan metropolitan areas. The deal is expected to close before July, subject to regulatory approval.

“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,” Jimmy Phua, CPPIB’s head of Asia real estate, says in the statement.

CPPIB will initially invest $450 million for a 45% stake in the joint venture.

APG will invest $350 million for a 35% share, and ESR will take up the balance 20% for $200 million.

The partners could each double their initial investments and raise the total to $2 billion, CPPIB says.

Their 2015 joint venture initially raised $1 billion and upsized to $1.15 billion. It invested in 17 projects across South Korea.

Institutional investors have been drawn to South Korean logistics property in recent years because they offer a steady income stream and have relatively longer average leases, according to Patrick Ma, director for listed products and research at Hong Kong property manager Admiral Investment.

Demand for e-commerce is also rising as people stay away from physical stores and turn to online shopping to avoid potential exposure to Covid-19, the disease caused by the ongoing coronavirus pandemic.

“…the logistics sector has been the beneficiary of the fast-growing demand for e-commerce, which has further demonstrated its resilience amid this Covid-19 pandemic. We expect interest by institutional investors on logistics properties across the region, including those of South Korea, to stay strong,” Mr. Ma tells Asia Asset Management (AAM).

The South Korean logistics market is “very promising” to institutional investors because the country has one of the highest e-commerce penetration rates the share of online sales to overall sales – in the world, according to a property investment consultant in Hong Kong.

“This will significantly drive up the demand for logistics assets such as warehouses,” he tells AAM, speaking on condition of anonymity.

CPPIB manages the Canada Pension Plan, which had C$420 billion ($298.5 billion) of total assets at the end of 2019.

APG Asset Management had around 533 billion euros ($577 billion) of total assets as of February 2020, and ESR Cayman had $22.1 billion of assets under management as of December 2019.