ESR, AXA IM and sovereign fund form joint venture; buys 6 logistics properties in Japan for US$1b

ASIA-PACIFIC logistics real estate platform ESR, AXA Investment Managers - Real Assets (AXA IM), and a major sovereign wealth fund have entered into a joint venture, and have acquired for US$1 billion six logistics properties in Japan completed by ESR.

In a media statement issued on Tuesday, ESR, AXA IM and the unnamed sovereign wealth fund announced the tripartite joint venture. Its maiden acquisition is a set of six logistics properties built by ESR three years ago or less and located in prime locations in Tokyo and Osaka.

ESR is also the sponsor of Singapore-listed ESR-Reit, and its financial backers include APG, SK Holdings, JD.com, Citic CLSA, Goldman Sachs, CPPIB, PGGM, Ping An and Allianz. As at September 2018, assets under ESR's management exceeded US$14 billion, and the gross floor area of projects owned and under development stood at about 11 million square metres.

Besides this initial set of properties, the joint venture may acquire other properties developed by ESR in Japan as well as third-party stabilised assets that meet its investment objectives, with an eye on investment opportunities across Japan's gateway cities. Further capital may be raised from new investors. On the yield spectrum, the joint venture said that it will focus on delivering stable core returns.

According to the statement, the logistics sector in Japan has been growing at 8 per cent yearly. This drives the strong, sustained demand for modern logistics facilities, which account for only under 10 per cent of the total logistics space in Japan.

Josh Daitch, senior managing director, investment and capital of ESR, and his colleague Pierre-Alexandre Humblot, who helms the private capital division, said: "Scale in tenant relationships and debt management is key to achieving superior core returns in logistics. The perpetual investment vehicle has the potential to grow several-fold in the coming years, with a strong pipeline of stabilised assets while offering a higher-yielding alternative to J-Reits.

"In a logistics real estate market still characterised by a limited number of private institutional offerings, the vehicle's seed portfolio comprises new, state-of-the-art facilities strategically located in prime logistics locations of the major metropolitan areas of Japan, making it extremely attractive."

Laurent Jacquemin, head of Asia-Pacific at AXA IM, pointed out that Internet retailing penetration is still low compared to many other global markets, but it is confident that building a portfolio of well-located modern logistics assets will allow the joint venture to deliver secure income returns over the long term.