ESR Kendall Square REIT has sold a warehouse southeast of Seoul to Koramco Asset Management for KRW 81 billion ($63.4 million) as the REIT makes space in its portfolio for a pair of newly built facilities.
The Korea-listed REIT announced the sale of the 49,587 square metre (533,748 square foot) logistics centre in the Icheon suburb of Majang-myeon in Gyeonggi province on Wednesday, with a representative of the manager who spoke with Mingtiandi identifying Koramco as the buyer.
“This (disposal) will enable us to take advantage of increasingly more attractive pipeline opportunities in South Korea and build on the strength of our platform to deliver long-term sustainable growth,” Sanghwoi Bae, chief executive officer of ESR KendallSquare REIT, said in a statement.
The sale comes a month after the trust acquired Icheon Logistics Park 7, a newly built logistics facility in a neighbouring town which is already fully leased to local food distributor Team Fresh, with the REIT set to acquire another facility nearby within this year, according to its website.
Selling to REIT Pioneer
ESR Kendall Square exited Icheon Logistics Park 1 at a 23 percent markup from the KRW 66 billion valuation for the asset when the trust acquired it as part of its seed portfolio for its December 2020 debut on the Korean Exchange. Including dividends, the manager estimated the trust’s total return on its investment in the property at 30 percent.
The REIT manager said the sale was made at a 4 percent cap rate and highlights the resilience and profitability of the vehicle despite growing concerns over warehouse values against the backdrop of high interest rates. At the stated compensation the new buyer is paying more than KRW 1.63 million per square metre for the property.
“This achievement effectively allays any fears surrounding the depreciation of logistics real estate assets and provides clear evidence of the overall high value inherent in the REIT’s portfolio,” the manager said.
Located southeast of Seoul, the facility is accessible via the Yeongdong and Jungbu expressways, and about an hour’s drive from the Gangnam Business District.
Completed in 2017 the property is currently fully occupied by two local third-party logistics operators.
Founded more than 20 years ago, KORAMCO pioneered REITs in South Korea and now has 43 trusts holding assets worth KRW 25 trillion. In 2021 Koramco REITs & Trust reportedly acquired TJ Logistics Center, a seven-storey cold chain facility leased to Korean e-commerce giant Coupang for KRW 360 billion.
Adding Icheon Assets
Having raised cash from this week’s disposal, the ESR-backed REIT is set to acquire another dry logistics facility in Icheon within this year, according to information on its website.
ESR Kendall Square REIT’s next acquisition target is Icheon Logistics Park 6, a three-story block with two basement levels spanning 62,195 square metres. Located in the town of Baeksa-myeon to the north of Icheon Logistics Park 7, the facility was completed in January and has a master lease agreement with local logistics service provider Dakonet.
Acquiring the additional Icheon asset will bring the trust’s portfolio to 18 assets with a total gross floor area of 1.16 million square metres, comprising 14 assets in and around the Greater Seoul area, two facilities in Busan, and one property each in the cities of Bucheon and Goyang.
The manager noted that ESR Kendall Square is the only KRX-listed REIT where Korea’s $800 billion National Pension Service – the third largest public pension fund in the world – has a shareholding of over 5 percent.
Slowing Shed Sales
Having completed two deals this year with a third on the way, ESR Kendall Square REIT is sustaining an otherwise quiet logistics industrial market in the Greater Seoul area.
Trades of logistics assets in the Korean capital and surrounding provinces fell 59 percent year on year to KRW 788.6 billion in the first quarter as investors stayed on the sidelines amid a high interest rate environment, according to a report by JLL.
“After the drying up of domestic investors’ liquidity, transactions are being closed mainly for foreign investors who can take a low LTV (loan-to-value) or have abundant liquidity. These market conditions are expected to continue to be observed for the time being,” the property consultancy said.