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Pension funds

CPPIB owns one-quarter of Korea’s listed logistics REIT

Jan 06, 2021 (Gmt+09:00)

ESR Kendall Square REIT's property portfolio 

The Canada Pension Plan Investment Board (CPPIB) has emerged as the top shareholder in South Korea’s only listed logistics real estate investment trust (REIT), which made its trading debut last month.

Of CPPIB's 24.85% stake in ESR Kendall Square REIT Co., around two-thirds of its holding was converted from bonds last year, meaning the Canadian pension must hold them until Oct. 26 of this year under the one-year mandatory holding requirement. Its ownership is expected to provide downside protection to the share price of the REIT, managed by a Korean unit of ESR, Asia’s largest logistics real estate investor.

CPPIB’s stake in the Korean REIT was worth 180.4 billion won ($166 million) as of the end of 2020. Its share price has remained slightly above its IPO price of 5,000 won since it was listed on the Korea Exchange Dec. 23.

ESR Kendall Square REIT is backed by 11 logistics facilities in Gyeonggi Province surrounding the capital city of Seoul. They are valued at a combined 1.4 trillion won, with Coupang Corp. and other Korea e-commerce platforms occupying half of them.

CPPIB’s investment in ESR Kendall Square REIT dates back to 2015.

At the end of 2015, CPPIB joined hands with ESR and the Dutch pension fund manager APG Asset Management to establish a $500 million joint venture to invest in logistics facilities in Korea. The properties acquired by the JV are managed by real estate funds of Kendall Square Asset Management, a Korean arm of ESR.

In April last year, the three companies launched their second JV with $1 billion in capital. CPPIB injected $450 million into the venture, the largest amount among the three firms.

CPPIB cashed out of investments in four Korean logistics centers it had made via a real estate fund of Kendall for around 160 billion won. ESR Kendall Square REIT acquired the properties to include them in its portfolio.

The Canadian pension fund reinvested some of the proceeds to buy shares and convertible bonds in ESR Kendall Square REIT.

“Kendall Square REIT drew interest from institutional investors before its IPO took place as they are investing in popular assets such as logistics centers and given the high ownership ratio of foreign investors like CPPIB,” said a Korean asset management CEO. “Those factors seemed to keep its share price stable above its IPO price.”

Shares in Kendall Square REIT closed flat at 5,230 won on Wednesday, compared to a slight drop in the broader Kospi index. 

The Hong Kong-listed ESR, with $26.5 billion in assets under management, has three wholly owned units in South Korea: logistics investment company Kendall Square Asset Management; the operator of the listed ESR Kendall Square REIT; and a logistics real estate developer.

By Seon-Pyo Hong 

Yeonhee Kim edited this article.

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