China Life, the Beijing-based insurer with major property holdings in the US and Britain, is looking to ramp up its outbound real estate investments, the company told reporters late last week, on the heels of announcing a 67 percent plunge in profits in the first half of 2016.
“We will continue to increase our overseas holdings in the future, and make some adjustments in terms of real assets distribution,” China Life vice president Zhao Lijun told The Nikkei Asian Review. The executive, added that current overseas holdings for China’s largest insurer are “still very low” as a share of its total portfolio.
Nearly $50 Billion in Deals Could Be in the Pipeline
The insurer is reported to have $7.6 billion in overseas investments, which include real estate as well as investment trusts and other assets, representing two percent of its overall holdings. At the end of 2015, China Life had $362.1 billion in total assets, making it the largest insurer in China, and one of the top competitors globally. Should the Beijing-based firm distribute 15 percent of its assets to non-mainland holdings, it could mean an additional $46.7 billion in outbound investment.
In addition to shifting its portfolio to a more global footing, Zhao said that, “we will work towards more diversification, and move away from the heavily-weighted office assets to logistics, retail, hotel lodgings, et cetera.” The new strategy comes as lower borrowing costs and greater competition for assets has been driving down investment yields on core office properties in global gateway markets, and as China Life seeks more stable sources of investment income amidst lackluster returns and a sluggish Chinese stock market.
US Could Be Major Target for China Life’s Portfolio
Zhao’s statement could signal more US acquisitions by China Life, where it has made a series of major property investments. In May, the insurer took an undisclosed equity stake in the Manhattan office tower 1285 Sixth Avenue, partnering with New York developer RXR Reality for the $1.65 billion deal. Last November, China Life invested $1 billion in a US warehouse portfolio controlled by Singapore’s Global Logistics Properties.
Prior to this deal, China Life had made its first foray into the US market in April 2015, joining with mainland rival Ping An Insurance to take a majority stake in a $500 million mixed-used project being developed by Tishman Speyer in Boston, with each insurer committing a reported $167 million.
The company’s overseas property holdings also extend to London, where it bought 70 percent of an office building on Canary Wharf in a deal worth ₤795 million ($1.35 billion) in 2014. In November last year, China Life set a record for commercial property investment in Hong Kong’s Kowloon area when it acquired two buildings under development at Wheelock and Company’s One Harbourgate complex for HK$5.86 billion ($755 million).
Mainland Struggles Create Cross-Border Ambitions
Part of the reason for China Life’s growing cross-border ambitions lies in the challenges in generating positive return domestically as China’s economy cools and asset values continue to rise. The day before Zhao’s comments, the insurance group announced that net profits for the January to June period had fallen by nearly 67 percent to RMB 10.4 ($1.4 billion) from the previous year, driven by gross investment income plunging 49 percent and yields dropping 4.98 percentage points to 4.36 percent.
Zhao attributed the slump to “huge volatility in the capital market at the beginning of the year.” Turmoil in mainland China’s stock markets hit the company hard, as China Life in recent years has significantly boosted its exposure to equities. Two years ago, equities comprised eight percent of the company’s RMB 2.4 trillion of assets under management, a figure that climbed to 17.4 percent as of June.
Last week’s announcement followed a statement by Ping An Insurance Group the previous week that it would boost its overseas property investment by as much as 500 percent within five years, meaning it could hold more than $27.5 billion in overseas real estate by 2021.
Shenzhen-based Ping An has invested in real estate in Australia, Japan and the US, including a $1 billion investment in a US warehouse portfolio and the above-mentioned Boston project with China Life. Ping An this month also partnered with several Chinese investors led by Greenland Group to acquire a site in South San Francisco, California to build a $1 billion life sciences complex.
Other Chinese insurers on the hunt for overseas properties include Beijing-based Anbang Insurance, which gained notoriety for its $1.95 billion acquisition of New York’s Waldorf Astoria, among other investments, and is reportedly preparing a $7 billion bid for the Intercontinental Hotels Group. Anbang has so far splashed out on nearly $12 billion of overseas assets over the past two years.
The Chinese government first permitted mainland insurers to invest overseas in 2012, and current regulations allow for up to 30% of assets under management to be allocated to real estate and 15 percent to overseas investments.