Korean institutions to invest $53 mn to buy Tesco-leased UK warehouse

A consortium of South Korea’s Construction Workers Mutual Aid Association (CWMAA) and MG Non-Life Insurance Co. Ltd. will invest 60 billion won ($53 million) in acquiring a UK warehouse leased by retailer Tesco PLC, joining a growing number of South Korean institutional investors chasing logistics facilities for higher returns.

The warehouse in Avonmouth, a port of Bristol, is owned by NFU Mutual, a UK insurer. It is one of Tesco’s eight strategic warehouses in the UK.

CWMAA, a $3 billion retirement fund and MG Non-Life, a majority owned by MG Community Credit Cooperatives, will put 40 billion won and 20 billion won each in a fund of South Korea’s Capstone Asset Management Co. Ltd. to buy the equity interests in the facility.

They will borrow an additional 47.1 billion won from PGIM, an asset management arm of US life insurer Prudential Financial, to fund the 107.1 billion acquisition. It will close by the end of this week.

Rental incomes from Tesco are expected to translate into an annual return of 7% for the tentative investment period of five years, according to sources with knowledge of the transaction on Oct. 18. Including capital gains from a future sale of the asset, the return would rise to the 9% range.

Tesco will continue to use the warehouse with around 50,000 square meters of floor space for the next 12 years, in a contract which cannot be terminated before the end of the lease period.

The Korean investors also expect an easy exit from the warehouse, given the size of the asset.

It stores fresh food for distribution to 400-odd Tesco supermarkets in South Wales and South West England in the UK.

“The UK office real estate market suffered a slight slump in the aftermath of the Brexit vote which, however, created a better environment to invest in strategic assets such as warehouses,” one of the sources told the Korean Investors. “The rate of returns including won/pound swap premiums is trending higher.”

In June, South Korean brokerage firms including KB Securities Co. Ltd. bought two logistics centers, leased to UK supermarket chain Sainsbury’s and BAE Systems, a British defence and aerospace company, respectively, for around 250 billion won.

In May, another consortium of South Korean institutional investor acquired Accolade Park in Bristol, Europe’s largest wine warehouse, for £62 million through Capstone Asset Management. For the transaction, Roebuck Asset Management, a UK real estate investment firm, worked as the Korean investors’ UK asset manager.

CWMAA sourced the Tesco warehouse deal directly from Roebuck Asset, in a rare case for a South Korea retirement fund to secure an investment asset directly from a foreign asset manager.

Former National Pension Service (NPS) investment managers are working as investment team heads of the CWMAA, headed by ex-NPS domestic equity head Jung-su Han who took over as CIO in July of last year.

By Daehun Kim

daepun@hankyung.com