05/17/2023

China REITS Offer Fresh Funding Flexibility for Logistics Developers: MTD TV

Appearing in the first session of this year’s Mingtiandi Asia Logistics Forum, ESR China chief operating officer Zhou Bo said C-REITs allow logistics developers to exit renminbi-denominated funds and properties without risks associated with foreign exchange fluctuations, with the listed funds also offering higher levels of liquidity to investors.

China’s fast-developing REIT market is providing new opportunities for investors in mainland warehouses to monetise portfolios, according to property veterans from ESR, SF REIT, Blackstone’s DragonCor platform and Baker McKenzie speaking at an industry forum on Tuesday.

While logistics REITs have been active on mainland exchanges for less than two years, the listed vehicles have already garnered support from domestic insurance companies, major asset managers and other institutional investors looking for the stable recurring income available through logistics properties, according to Jeremy Ong, a partner at Baker McKenzie.

“The way I look at the C-REIT market is this is the beginning of something potentially quite big, and they’re obviously looking to endorse it and as the market matures, as the regime matures, we’ll see something which is a bit more liquid in China,” Ong said in the same panel.

Domestic Investors Key
Bo told the forum, which was sponsored by Yardi, that pending mainland government approvals, ESR is on track to launch its first C-REIT on the Shanghai Stock Exchange before the end of the third quarter, after having already received the go signal from the Stock Exchange of Hong Kong.

“C-REITs have more liquidity, people can buy the shares and can sell it off anytime so for the investor side, C-REITs are more attractive,” Bo said. He added that REITs provide individual Chinese investors with an important new investment option in a country where the asset management industry is still in its early stages.

Baker McKenzie’s Ong said that the low levels of gearing currently used by C-REITs enhances their appeal for investors by creating more room for growth. He said yields for C-REITs now typically hover around 4 to 4.5 percent, depending on the market.

Ong noted that some of China’s largest institutional investors have been taking cornerstone stakes in new REIT IPOs, which has helped to counterbalance falling activity from overseas players as interest rates climb in most Western markets.

Stock Connect, a program which allows investors to cross the border between Hong Kong and mainland China through exchanges in the two locations could in the future add REITs to its scope, which would further boost liquidity for the sector, Ong said.

Fundamentals Still Strong
While trades of logistics assets in China have slowed in the last year, the industry leaders expect the country’s economic recovery and strong fundamentals to support a rebound in leasing.

Hubert Chak, executive director and CEO of Hong Kong-listed SF REIT shared insights on the health of the e-commerce sector, which drives much of warehouse demand, from the performance of the REIT’s sponsor, SF Holdings, which is responsible for the largest share of deliveries for mainland China’s online shoppers.

“From what I saw from our group’s Q1 operating data, the express delivery, in terms of number of parcels delivered, in Q1 increased by 18 percent, which means the operators, in particular the logistics express delivery business, they still require more space to grow their business, which is good for the landlords,” Chak said.

For Peter Hwang, chief executive of Blackstone’s DragonCor platform, which manages the US private equity giant’s new economy assets in China, including more than 40 logistics parks in 18 cities, the long-term outlook for warehouse assets in China remains solid.

“We are still long term bullish on the sector. I think there’s a lot of fundamental attributes to the consumer market and demographics that are quite favourable to continue to grow the demand for warehouse space,” Hwang said.

He added that China’s middle class population, deep mobile penetration and culture of online shopping will continue to support e-commerce growth, and with it warehouse leasing.

While e-commerce contributes nearly half of ESR’s tenants in China, Bo told the forum that his company also sees growing tenant demand from other market segments powered by the country’s fast-growing tech sector.

“We are trying to get some new hotspot to develop in the future and one is life science, R&D, and lab centres and high-end manufacturing sites, especially in rural areas. Those are the key new products we are trying to develop and lease to capture the market in the coming years, but we still focus on e-commerce which is our number one source of tenants,” he said.

Tokyo Sheds Up Next
Following Tuesday’s session, Mingtiandi’s four-part logistics forum will be back on Thursday, 18 May, for a panel on logistics investment opportunities in Japan.

The upcoming session will feature Pierre-Alexandre Humblot, managing director and head of private capital with ESR, as well as Kwang Joon Kim, executive director for Japan Investments with Phoenix Property Investors.

Also providing their insights in the program will be Laurent Fischler, head of investments for Asia Pacific at Ivanhoé Cambridge, as well as Joseph Chan, managing director and principal for investments at Gaw Capital Partners.

The forum will continue next week with a panel on the Korean logistics market on Tuesday, 23 May, with executives from ESR Kendall Square REIT, Hines and JLL providing the latest from Seoul and beyond.

Rounding out the annual forum will be a panel discussion on 25 May dedicated to Asia’s emerging markets in Southeast Asia and India.


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https://www.mingtiandi.com/real-estate/events/china-reits-offer-fresh-funding-flexibility-for-logistics-developers-mtd-tv/