Thursday April 11, 2013

M'sian funds buy two London property assets


Both are 2nd purchases by KWAP and LTH, having entered UK last year

KUALA LUMPUR: In the latest foray of Malaysian funds into the prime London property market, Kumpulan Wang Persaraan (KWAP) or Retirement Fund Inc and Lembaga Tabung Haji (LTH) have bought into trophy office building 88 Wood Street, London EC2 and 151 Buckingham Palace Road, respectively, sources said.

KWAP bought the Richard Rogers-designed skyscraper a few days ago from the National Pension Service of Korea for £200mil (RM927.11mil), reflecting a 5.8% yield.

It is understood that KWAP had been advised by CBRE Global Investors and RREEF. The 18-storey structure is tenanted by Mitsubishi, Hewlett Packard, Collins Stewart and National Australia Bank.

Pilgrim fund LTH, meanwhile, bought government building 151 Buckingham Place last month from vendor Ivanhoe Cambridge for £205mil, providing the fund with a yield of just under 7%.

Ivanhoe Cambridge is the real estate subsidiary of Caisse de dpt et placement du Qubec, one of Canada's leading institutional fund managers.

According to a government buildings website, 151 Buckingham Palace Road is tenanted by the Department of Health and its regulatory agency. CBRE is understood to be Ivanhoe Cambridge's adviser.

Both are second purchases by KWAP and LTH, having entered the London property market last year. KWAP bought 10 Gresham Street while LTH purchased office building 10 Queen Street Place in 2012 (see table).

Malaysian funds and its corporate sector have continued to show a strong interest in prime London assets for their rental yield.

The previous purchase so far this year was by the Employees Provident Fund (EPF), which forked out £700mil for 12 property assets under the Spire Healthcare group.

Malaysian pension and retirement funds have invested about £3.3bil (US$4.3bil) in London property assets from 2009 to date. Including purchases by the private corporate sector and government-linked companies, this would amount to nearly £4bil since 2009.

A report by Wall Street Journal (WSJ) yesterday said Malaysian funds “have taken over the country's hotel, office and retail properties since 2010, beating even China into second place”. The report quoted real estate specialist Jones Lang LaSalle Singapore's Chris Hahn, the director of Asia-Pacific Capital Markets.

Among the biggest investors in British properties are state-owned asset manager Permodalan Nasional Bhd, the EPF, KWAP and LTH.

“From an institutional point of view, the important thing for them is to have tenants that are not much to manage and who are secure it's like buying a government bond,” Hahn was quoted as saying.

Malaysian investors are fond of long-term tenancies that are typically renewed every 10 years, which make it more attractive for passive landlords compared to domestically where the leases are usually signed for three years, according to Hahn.

“For institutional investors, that's quite high-risk,” Hahn was quoted as saying.

The outflow of Malaysian funds, however, may hide a more pressing issue at home, the WSJ suggested, pointing to concerns by analysts over the oversupply of office space in Kuala Lumpur and low rents.

The daily noted that while the state funds were not “deserting Malaysia en masse”, they might have good reason to start spreading their money elsewhere.

The customary three-year leases signed now are not mandatory under Malaysian law, WSJ reported.

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