Focused on European warehouses, Elite Logistics Fund I benefited from a significant increase in investor demand for logistics and e-commerce assets

A European logistics real estate fund managed by the Singapore-regulated Elite Partners Capital has completed a EUR 520-million sale of its entire portfolio to a fund managed by the US private equity firm Blackstone Group. Launched in early 2020, Elite Logistics Fund I is a two-year, closed-end fund listed on the private market exchange ADDX. With its sale of all 18 properties to Blackstone, the fund by Elite has achieved annualised returns more than double its 12% per annum target. 

Individual accredited investors on ADDX had subscribed to the Elite fund in two separate offerings in June and December 2020. Fund units were tokenised by ADDX, and the efficiency of blockchain and smart contracts allowed ADDX to reduce the minimum investment size as set by Elite, to EUR 20,000 from EUR 1 million. ADDX investors have received 98% of the proceeds from the sale to Blackstone. The remaining funds will be distributed after the fund is formally concluded later this year.

The Elite fund was invested in mature, income-producing logistics warehouses in the UK, Poland, Germany, Czech Republic and Spain. Tenants consisted of large multinational corporations such as DHL, Pepsi, FM Logistics, Fiege, Havi Logistics and Next. 

Enoch Tan, Portfolio Director of Elite Logistics Fund I, said that with the pandemic, the demand for space in logistics and e-commerce facilities skyrocketed, as supply chain disruptions prompted companies to increase inventory levels for food, essential goods and other consumer products, to ensure they could meet demand consistently. The high-tech facilities at the cargo terminal at Prague airport were also involved in vaccine storage and delivery.

He said: “Our investment approach focused on well-performing logistics real estate in developed European markets. Even prior to the pandemic, we were bullish about logistics because of the broader expansion of the e-commerce industry and new demand for space in the UK arising from Brexit. This strategy paid off, as we acquired assets which were fully tenanted and achieved 100% rent collection throughout the pandemic. In contrast, rent collection for retail and office space plummeted to under 50% across Europe. In the past two years, the rate of rental collection became one of the key performance matrices for real estate investments, and because of this, logistics assets were highly sought after due to their consistently low rates of rental delays and defaults.”

The travel restrictions that began in early 2020 posed a challenge to real estate transactions in the early phase of the fund, when it was procuring warehouses. This was mitigated by two factors, noted Tan. First, the fund manager had viewed a large number of the properties physically by the end of 2019, before travel to Europe became difficult. Second, notwithstanding that Elite had full-time employees based in the UK and Europe, it  was able to rely on strategic partner Macquarie Capital Principal Finance, which was also a key investor in the fund, to follow up in person on transactions, as Macquarie had a network of offices and employees in Europe. The Singapore-based members of the fund manager had to follow site visits and meetings with tenants by way of Zoom, which was a novel method of real estate assessment made necessary by the pandemic.

According to Prologis Research, the global e-commerce penetration rate is projected to rise to over 25% in 2025, from around 15% in 2019.

As the pandemic wore on, wealth portfolios globally were rebalanced in favour of logistics real estate. Investor demand for assets rose significantly, leading to improved valuations and contributing to the higher-than-anticipated returns by Elite Logistics Fund I, Tan said.

He added: “As we approached the end of the fund’s two-year mandate, we considered all possible options, including an IPO for the fund, which would allow Logistics Fund I to follow in the footsteps of its sister company Elite Commercial REIT which completed its IPO in February 2020. Following a thorough assessment, we concluded that the private sale to Blackstone yielded the highest returns to investors, which made it the most attractive option.”

ADDX Chief Commercial Officer Oi-Yee Choo said: “Private real estate funds continue to look compelling in the current market, offering an income play along with the potential for asset appreciation. Investor demand for real estate offerings has therefore been robust over the past year, especially when they involve the logistics sector.”

She added: “The stellar performance of this fund also underscores the importance of investing with experienced, high-quality asset managers like Elite, who are equipped with a well-thought-out investment strategy as well as a proven ability to execute on it. The case for investing in a fund also becomes stronger when there is a strategic limited partner (LP) investor with global reach, such as Macquarie in the case of this fund.”

Elite is an alternative asset management company with more than SGD 1 billion of assets under management. Among the portfolios Elite has assembled is Elite Commercial REIT, which is currently listed on the Singapore Exchange.