Wednesday, March 15, 2017

Caisse, CPPIB Invest in Asian Warehouses?

Reuters reports, Canada pension funds to invest in Singapore, Indonesia warehouses:
Canada's two biggest pension funds have agreed to partner with LOGOS, a real estate logistics operator, to invest in warehouses in Singapore and Indonesia, betting on demand from the rise of e-commerce and a burgeoning middle class in southeast Asia.

Canada Pension Plan Investment Board (CPPIB), the top pension fund of the country, said in a statement it will initially commit S$200 million ($142 million) for an about 48 percent stake in LOGOS Singapore Logistics Venture. It will also commit $100 million for a stake of about 48 percent in LOGOS Indonesia Logistics Venture.

CPPIB and Ivanhoé Cambridge, which is the real estate arm of Canada's second-largest pension fund manager Caisse de depot et placement du Quebec, will be equal partners in both joint ventures, the statement said.

LOGOS, which operates in Australia, China, Indonesia and Singapore, will hold the remaining stake in the ventures.

CPPIB said the deals would pave the way for its first direct real estate investments in Singapore and Indonesia.

Private equity firms and institutional investors are pouring billions of dollars into warehousing and logistics investments in Asia in recent years betting on a boom in demand from e-commerce in the region.

Warburg Pincus, Blackstone Group LP and Hopu Investments were among bidders short-listed to present a potential offer for Singapore-listed Global Logistic Properties , sources told Reuters late last month.

And in January, Warburg Pincus-backed warehouse operator e-Shang Redwood agreed to buy an 80 percent indirect stake in the manager of Singapore-listed Cambridge Industrial Trust (CIT).
CPPIB put out this press release to announce the deal:
Canada Pension Plan Investment Board (CPPIB) announced today that it has entered into two agreements to invest alongside Ivanhoé Cambridge with real estate logistics specialist LOGOS in the LOGOS Singapore Logistics Venture (LSLV) and LOGOS Indonesia Logistics Venture (LILV), which will focus on developing and acquiring modern logistics facilities in Singapore and Indonesia, respectively.

In Singapore, a key global logistics hub, CPPIB will initially commit S$200 million for an approximate 48% stake in the LSLV, which will be seeded by two fully-leased existing multi-storey logistics warehouse facilities as well as one development opportunity. All the seed assets are very well located in established industrial submarkets of Singapore.

Additionally, CPPIB will initially commit US$100 million in equity for an approximate 48% stake in LILV, which has an identified strong pipeline of development opportunities in Greater Jakarta, Indonesia. LILV will develop assets to meet the increasing demand for modern logistics facilities on the back of Indonesia’s compelling macroeconomic fundamentals, rapid e-commerce growth and a growing logistics sector.

“The logistics sector in Southeast Asia continues to grow as a result of the burgeoning middle class and the rise of e-commerce, and presents an excellent opportunity for a long-term investor like CPPIB,” said Jimmy Phua, Managing Director, Head of Real Estate Investments – Asia, CPPIB. “We are looking forward to making our first direct real estate investments in Singapore and Indonesia through well-established, like-minded partners like LOGOS and Ivanhoé Cambridge.”

CPPIB and Ivanhoé Cambridge will be equal partners in both joint ventures, with LOGOS, as the operating partner, holding the remaining stake in the ventures.

“Both Ivanhoé Cambridge and CPPIB are recognised as leading real estate investors around the world, and we are excited to expand our relationship with Ivanhoé Cambridge as well as attracting CPPIB into both our Singapore and Indonesia ventures,” said Stephen Hawkins, Managing Director of LOGOS South East Asia.

“Ivanhoé Cambridge welcomes CPPIB as our co-investment partner with LOGOS in Singapore and Indonesia,” said Rita-Rose Gagné, President, Growth Markets, at Ivanhoé Cambridge. “Increasing our allocation reaffirms our view of the growth potential in Southeast Asia and our confidence in LOGOS as a best-in-class logistics real estate specialist in Asia-Pacific.”
Ivanhoé Cambridge put out this press release on the deal:
For the Singapore venture, LOGOS will continue with its strategy of acquiring and developing high-quality, modern industrial and logistics properties in Singapore with over S$800M in investment capacity. To date LOGOS has acquired interests in three properties, consisting of two multi-storey logistics warehouse facilities and one development site, all of which are fully leased.

For the Indonesia venture, the strategy is to focus on developing and owning high quality, modern logistics properties in Greater Jakarta, Indonesia. The commitments will provide LOGOS with over US$400M in investment capacity. LOGOS has identified a strong pipeline of development opportunities to meet the increasing demand for modern logistics facilities on the back of Indonesia’s compelling macroeconomic fundamentals, rapid e-commerce growth and growing logistics sector.

Concurrent with the establishment of the Indonesia venture, LOGOS is pleased to announce the establishment of an office in Jakarta, expanding LOGOS offices to four countries (Australia, China, Indonesia, and Singapore).

"LOGOS has subsequently established ventures in Singapore and Indonesia which is testament to the growth being experienced in both of these markets and LOGOS’ ability to secure an attractive pipeline of opportunities,” commented John Marsh, Joint Managing Director of LOGOS. “We are also excited that LOGOS is increasingly able to offer its customers a high quality solution across Asia Pacific.”

Stephen Hawkins, Managing Director of LOGOS South East Asia added, “Expanding our relationship with Ivanhoé Cambridge as well as attracting CPPIB into both our Singapore and Indonesia ventures is very exciting. Both Ivanhoé Cambridge and CPPIB are recognised as leading real estate investors around the world.”

"Ivanhoé Cambridge welcomes CPPIB as our co-investment partner with LOGOS in Singapore and Indonesia," said Rita-Rose Gagné, President, Growth Markets, for Ivanhoé Cambridge. “Increasing our allocation reaffirms our view of the growth potential in Southeast Asia and our confidence in LOGOS as a best-in-class logistics real estate specialist in Asia-Pacific.

“The logistics sector in Southeast Asia continues to grow as a result of the burgeoning middle class and the rise of e-commerce, and presents an excellent opportunity for a long-term investor like CPPIB,” said Jimmy Phua, Managing Director & Head of Real Estate Investments – Asia. “We are looking forward to making our first direct real estate investments in Singapore and Indonesia through well-established, like-minded partners like LOGOS and Ivanhoe Cambridge.

Macquarie Capital (Australia) Limited (together and through its affiliates, Macquarie Capital) acted as exclusive financial adviser to LOGOS for the transaction and as sole lead manager and arranger for both the LSLV and LILV capital raisings.

About LOGOS

LOGOS is an integrated investment and development logistics real estate specialist with operations in Australia, China, Indonesia and Singapore. LOGOS currently has approximately AUD$3.0 billion in assets under management including end values for projects under development. For further information: www.logosproperty.com
So what is this deal all about and why are Canada's pension giants teaming up with LOGOS to make investments in warehouses in Singapore and Indonesia?

I think it's pretty self-explanatory. The Caisse and CPPIB are betting on the demand from the rise of e-commerce and a burgeoning middle class in southeast Asia. This is a long-term bet and if you've been paying attention to e-commerce trends in North America, you can bet the exact same thing will happen in Asia but with exponential growth.

Canada's large pension funds are competing with large private equity firms for these logistic warehouses. They not only provide great growth potential, they are pretty much all leased up and will provide stable cash flows (rents) over a very long period.

When I went over HOOPP's 2015 results last year, Jim Keohane told me that HOOPP is building industrial warehouses in the UK and Amazon will be one of its tenants. I asked Jim back then why Amazon wouldn't simply invest its own money to build these warehouses and he told me "because it can get a better return on investment elsewhere."

Other large Canadian pensions (PSP, bcIMC, OTPP, etc.) have also been investing heavily in these industrial warehouses in North America, Europe and Asia typically alongside strategic partners.

Remember, pensions are all about managing assets and long duration liabilities. Real estate and infrastructure are long duration assets. They do carry risks, like illiquidity, currency and political/ regulatory risk in the case of infrastructure, so they're not a perfect substitute for ultra long bonds, but they generally provide stable yields in between stocks and bonds over a very long period.

And since pension funds are not in the business of flipping real estate and infrastructure assets and have a very long investment horizon, they can easily hold these assets on their books over an economic cycle and ride out any rough patch along the way.

Are there short-term risks to investing in Asia? Of course, I'm worried the Fed might make a policy error and hike rates more often than what the market anticipates, fueling the 2017 US dollar crisis I warned of late last year. This can unleash another Asian financial crisis.

In a CFA luncheon I attended last month, PSP Investment's President and CEO André Bourbonnais said PSP was "underweight emerging markets" and taking a more cautious stance in both public and private investments there. I agree with Mr. Bourbonnais's cautious stance on emerging markets.

More locally, Singapore's growth shock is masking a duller economy and the government recently eased its property rules, diverging path from Hong Kong, a move that was applauded by businesses but shows that policymakers are still concerned about property bubbles there.

Having said this, there are always macro and financial risks involved in these transactions but it's also important to note the secular trends behind the decision to invest in these industrial warehouses. Even if CPPIB and the Caisse take a short-term hit -- a real possibility -- over the long run these investments will prove to be very profitable and provide both these large pensions with stable cash flows. And like the Ivanhoé Cambridge press release states, all these warehouses are already fully leased, which shows you demand for these logistical warehouses is extremely strong.

Below, Bloomberg's Mark Cranfield reports on why Singapore's growth might not last as oil and gas prices head south and a major trade war with the US looms large.

And CNBC's Jackie DeAngelis looks at the latest data from CNBC's exclusive Global CFO Council Survey to get a read on what an elite group of financial executives think about President Donald Trump's trade proposals. Nothing like a looming trade war to hamper global growth prospects.


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