CPPIB seeking more Asia co-investments

The $208 billion Canada Pension Plan Investment Board wants to build its Asian asset portfolio via further joint ventures, as it allocates another $400 million to a China logistics JV.
CPPIB seeking more Asia co-investments

Canada's biggest state retirement fund is seeking further opportunities to invest in Asia through joint ventures after allocating another $400 million to its offshore China-focused JV with Australian property developer Goodman Group.

The Canada Pension Plan Investment Board (CPPIB) already operates JVs with Singapore-based real estate firms CapitaLand and Global Logistic Properties, Australian property developer Lend Lease and asset manager AMP Capital.

Goodman is contributing $100 million in the latest round of funding for Goodman China Logistics Holding (GCLH). The additional funds will be used to finance new developments and acquire land.

“We see continued opportunities in the China logistics market,” said Jimmy Phua, CPPIB's Asia head of real estate investments.

CPPIB, with C$234.4 billion ($208.6 billion) under management as of September 30, now has $1.6 billion and a 80% share of the $2 billion that has been allocated to the vehicle since its launch in 2009, and the JV aims to hit $3 billion within the next three years.

“Once we get there, we will sit down with shareholders and work whether we grow it in the current form or bring in other shareholders,” said Philip Pearce, Goodman’s Greater China head.

The JV's return for the year ending December 31 was in the high teens, which is indicative of its performance for the past five years, he noted.

This injection of funds is the fourth since the JV was set up in 2009, and almost all the capital from the third round has been committed.

GLCH has invested in 27 logistics projects in 10 areas in China, including Beijing, Chengdu, Jiaxing, Kunshan, Suzhou and Tianjin. It has a land bank of 4.3 million square metres, and 800,000sqm of developments under way.

Pearce said the country's expanding middle class, rising disposable incomes and continued urbanisation are drivers of the real estate sector.

But is China’s slowing GDP growth an issue?

Year-on-year GDP growth was 7.3% for the third quarter, and industry observers feel China will struggle to hit its GDP growth target of 7.5% for 2014.

In fact, some have argued that even these figures are way more positive than the true situation. Geoff Blanning, head of emerging market debt and commodities at Schroder Investment Management, said earlier this month that current Chinese GDP growth is close to zero.

However, the logistics sector doesn’t need turbo-charged GDP growth, said Pearce. "While GDP growth has been falling, retail sales – a big driver for us – have been good."

That said, China retail sales growth has been slowing. They grew 13.1% year-on-year in 2013, down from 14.3% in 2012 and 17.1% in 2011, according to analytics firm Focus Economics.

Pearce noted there was a lack of warehouse space in China that conforms to international standards. With the economy slowing, businesses are looking at making supply chains more efficient and focusing on cost, he said, adding that newer, more efficient warehouses are in demand.

Under China's past five-year plans (2001-2005, 2006-2010) Rmb13.1 trillion ($2.2 trillion) was spent on building logistics infrastructure in China, according to Insead graduate school.

Other foreign investors are also supporting the sector.

Bart Coenraads, Asia head of Aviva Investors’ real estate multi-manager unit, said last month he saw continued strong performance from logistics-sector investments in China, as well as Japan and Australia, for the next couple of years. The UK asset manager been investing in logistics assets in the mainland via the funds it allocates to.

And in February, Singapore-listed Global Logistic Properties, a provider of logistics facilities, struck a $2.5 billion agreement with several Chinese state-owned enterprises and financial firms to access strategic sites in the country.

With interest growing in China, some locations are seeing supply move ahead of demand, said Pearce.

“We’ve seen a lot of capital flow into the [logistics] sector, and a lot of new clients,” he noted. "Oversupply is evident in some inland second- and third-tier cities, where land is easily accessible." As a result, vacancy period in those locations are becoming longer, said Pearce.

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