CPPIB, ESR to double first Korean logistics JV to $1 bn

The Canada Pension Plan Investment Board (CPPIB) and Hong Kong-based logistics property developer ESR will expand their $500 million Korean logistics joint venture to $1 billion.  

CPPIB is contributing the majority of the additional capital to be injected into the Korea Income JV and the new capital will fund additional investments in South Korea, according to their joint statement on Apr. 22.

The JV was set up in 2015, along with the Dutch pension fund manager APG Asset Management. It has so far invested in 12 up-to-date distribution centers in the Seoul metropolitan area, which ESR said delivered solid performances.

The properties are leased to Korean e-commerce companies, including Coupang Corp. which raised a more-than-expected $4.6 billion in its public offering on the New York Stock Exchange last month. Coupang will invest part of the proceeds in logistics centers to expand its shipping network nationwide, its Chief Executive Kim Bom-suk told reporters following the IPO.

In April 2020, CPPIB, ESR and APG launched their second JV with $1 billion in capital. CPPIB injected $450 million into the second Korean venture, with APG and ESR ponying up $350 million and $200 million, respectively.

“Korea is already one of the most developed e-commerce markets in Asia and the pandemic has accelerated the growth in the past year, further fuelling demand for quality logistics facilities," Jimmy Phua, CPPIB's Asia real estate head, said in the statement.

Thomas Nam, CEO of ESR Kendall Square, said that the upsize of the Korea Income JV is a reflection of the solid performance the vehicle has achieved in the past several years.

"With the increased capital commitment, we will be in an even better position to respond quickly and strategically to opportunities as they arise,” Nam said in the statement.

The new supply of distribution centers over the past few years, however, has pulled their expected returns lower.

The gross yield of prime distribution centers in the Seoul metropolitan area, or their investment return before taxes and expenses, stands at 5.5% on average, according to CBRE, a real estate research firm. Their average cap rate, or the operating income against the property asset value, dropped to the 4% range, similar to that of office buildings.

Through the two JVs, CPPIB will have invested over $1 billion won in Korean logistics facilities. The Canadian pension plan is the single largest shareholder in ESR Kendall Square REIT Co., ESR's Korean arm, with a 24.85% stake.

The REIT had purchased six of the 12 distribution centers from the first JV of CPPIB, ESR and APG, and was listed on the Korea Exchange in December 2020.

Write to Jung-hwan Hwang at jung@hankyung.com
Yeonhee Kim edited this article.