Why CPPIB & Goodman are upping China logistics bet
Canada Pension Plan Investment Board (CPPIB) and property investor Goodman Group said on Thursday that they have committed an additional $1.75 billion of equity to the Goodman China Logistics Partnership (GCLP or Partnership), increasing their total equity commitment to $5 billion.
The additional equity will be made on an 80:20 basis, with CPPIB allocating $1.4 billion and Goodman $350 million, consistent with the partnership’s equity structure.
“The fundamentals of the Chinese logistics sector remain compelling, driven by domestic consumption growth in China, including e-commerce, which underpins the strong demand for prime logistics facilities,” Jimmy Phua, CPPIB’s head of real estate investments in Asia, said in a statement,
CPPIB and Australia's Goodman are adopting a development-led strategy centred on major gateway cities in China, such as Shanghai, Beijing and the Greater Bay Area comprising Shenzhen and Guangzhou.
"We are focusing on developments that are close to the consumer. These are typically in-fill locations with a tendency for high quality multi-level warehousing facilities," Kristoffer Harvey, chief executive officer of Goodman Greater China, told FinanceAsia.
According to British asset manager Schroders, Chinese cities are now best-placed globally to make the transition to fifth generation (5G) cellular technology, which will enable much faster transmissions of vast quantities of data and facilitate much more commerce over mobile phones.
“M-commerce can still grow rapidly, but [the] creation and adoption of other software and technology represents a new level of growth in data creation and processing. This is why the opportunity that 5G represents is so compelling,” said Hugo Machin, co-head of global real estate securities at Schroder Investment Management, also on Thursday.
And all that increased business will require the physical infrastructure to fulfil all those additional orders, which is why China's technology platforms are bulking up their logistics offerings and are big and growing clients for the likes of CPPIB and Goodman.
US giant Walmart and China's second largest e-commerce retailer, JD.com, both invested in Dada-JD Daojia earlier in August. Dada is a retail logistics firm that delivers goods and provides local one-hour delivery services to customers in approximately 200 Walmart stores across 30 major cities in China, as well as for JD.com.
A star-studded consortium involving Softbank, Alphabet, and Tencent also invested $1.9 billion in truck-hailing platform Manbang Group in April, while JD Logistics raised $2.5 billion in February.
"We are seeing a huge growth in demand from companies involved in e-commerce. This is mainly due to the rise in urbanisation and consumerism, which has made China one of the world’s largest e-commerce markets," Harvey said.
STIFF COMPETITION
To be sure, CPPIB and Goodman face stiff competition from the likes of Global Logistic Properties (GLP), which was taken private in 2017 by Chinese backers in a $11.6 billion transaction.
Property developers are also facing a shortage of suitable locations within China's cities.
CPPIB and Goodman’s partnership was established in 2009. The two partners now own 33 high-quality logistics properties comprising 2.5 million square metres of modern logistics space, with current occupancy levels put at 99%.
The portfolio's weighted average lease expiry is 3.5 years, with a weighted average capitalisation rate of 6.1% and a gearing ratio of 7.1%, Harvey told FinanceAsia.
The partners plan to grow the portfolio to more than 5 million square metres.
“We currently have a number of acquisition opportunities in due diligence. This equity commitment increase provides us with significant firepower to capitalise on these and other opportunities,” Harvey said.