Korea Post has invested a total of 998.6 billion won ($888 million) in overseas commercial buildings since 2013, the vast majority of which involved equity purchases made jointly with other institutional investors, and expects to earn steady annual returns of 4~7% from the investments, data from the postal service provider showed.
Since the start of this year, Korea Post has diversified into Austria, Paris and Poland, and bought a combined 479.0 billion won worth of equities in five office buildings in Europe and the United States, including the 188.6 billion won ($167 million) purchase of the headquarters building of France’s Natixis in Paris last month.
Between 2013 and September 2016, the state-run agency had generally bought a 40 to 90% stake in overseas buildings in consortium with other investors. In contrast to the investment patterns, however, the agency secured the whole ownership of Natixis’s head office building on its own: it committed 93.6 billion won in capital, and borrowed 95 billion won from two European banks to finance the acquisition.
A Korea Post source told the Korea Economic Daily on Oct. 13 that its single-handed investment in the French office building was because of its relatively low price. “We had thought about sell-down in the bidding stage, but we decided not to do so,” he said.
The data from the Korea Post was prepared at the request of a ruling party lawmaker for an annual parliamentary audit. The lawmaker asked about details on Korea Post’s overseas real estate investments of the past 10 years. The postal service provider oversees 100 trillion won in assets from both savings and insurance accounts, the second biggest assets under management after the National Pension Service among domestic public institutions.
For the next 10 years, Korea Post expects its investments in the 10 office buildings to deliver returns of 4.7% to 7.6% a year, translating into accumulated profits of 71.4 billion won by the end of this year.
In particular, the Washington Harbour building in Washington D.C. is poised to make an annual return of 7.1%, or an income of 21.0 billion won to represent the biggest single-investment income for Korea Post. (For further details, see the table below)
“To lower investment risks, we generally make a joint investment, rather than doing it alone,” an unnamed Korea Post source was quoted as saying by the Chosun Ilbo daily on Oct. 12. “We are investing in a conservative manner where, as in the case of Amazon and AT&T buildings, long-term profits will be guaranteed.”
The source also said that intense competition in the crowded domestic property market has driven investment costs sharply higher, adding that the agency was seeking to earn stable incomes by making diverse investments in broader overseas markets.
Korean institutional investors, previously overshadowed by Chinese or Japanese buyers, are expanding their presence in overseas real estate markets. They are pooled together to make larger investments and share risks, driven by growing money inflows to pension funds.
According to JLL, a real estate services firm, outbound South Korean property investment has increased by 200 percent in the last five years alone, including a record total of $1.9 billion into U.S. commercial real estate in 2015.
Estimated returns on Korea Post’s offshore real estate investments: (click to see a bigger image)
Note: * The estimated average annual returns are based on expected rent increases in accordance with projected inflation during the investment period and subject to change.
** Projected incomes are after management fees and based on accumulated incomes earned through May, 2016.
*** KFCC refers to the Korea Federation of Community Credit Cooperatives.
(Source: Korea Post)
<Edited by Yeonhee Kim>