Samsung’s property fund reaps $84 mn profit from sale of London office building

  • 2017-01-20

A real estate fund of South Korea’s Samsung SRA Asset Management Co. Ltd. has secured 100 billion won ($84 million) in capital gains from the sale of a prime office building in London, delivering annual internal rate of return (IRR) of over 14%.    

The unit of Samsung Life Insurance Co. Ltd. recently sold 30 Crown Place, a 16-story office building, to a Chinese fund for 340 billion won ($289 million), according to investment banking sources on Jan. 19.

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The property deal came almost four years after the fund, raised for a five-year investment period, bought the building at 242 billion won ($205 million) in April 2013 from a German fund. It was the South Korean company’s first cross-border investment.  

The sale also happened as Britain is preparing to leave the EU after the Brexit vote last year, which prompted global companies to consider moving their operations to mainland Europe.

From the transaction, investors in the Samsung SRA Private Real Estate Investment Trust No. 2 made an annual dividend income of 6.9% and an additional profit equivalent to 35 to 45% of their investment principal, which translated into the annual IRR of over 14%. For an unidentified insurer which had put 22 billion in the real estate fund, the profit from the exit is more than 13 billion won, including capital gains and dividend incomes. It is known that the investment hedged against currency risk.

Major domestic insurance companies participated in the fund, including Samsung Life Insurance Co. Ltd., Samsung Fire & Marine Insurance Co. Ltd., Kyobo Life Insurance Co. Ltd., Shinhan Life Insurance Co. Ltd. and Hyundai Marine & Fire Insurance Co. Ltd.

The building, constructed in 2009, is close to the Liverpool Street station and has a gross floor area of 18,296 square meters. It is one of landmark buildings in London. An international law firm, Pinsent Masons LLP, occupies 85% of the building’s office space on a 20-yer lease expiring at the end of Dec. 2030.

Samsung Group’s financial services units, including Samsung Life, Samsung Fire and Samsung Securities Co. Ltd., have been in their hunt for overseas real estate via Samsung SRA Asset which was established in 2012. Last year Samsung SRA Asset acquired Commerzbank Tower in Frankfurt for 900 billion won, and bought So Ouest Tower in Paris for 400 billion won on behalf of its sister companies.

Samsung Life and Samsung Fire had also deployed unspecified capital to a 300-billion-won fund of Samsung SRA Asset launched last year to invest in mezzanine or subordinated debt backed by US commercial buildings.

South Korean insurance firms are expected to continue to chase offshore commercial real estate this year. They have been increasing the proportion of long-term, better-yielding assets such as offshore real estate ahead of the adoption of IFRS 17 from 2021.

“Core office buildings in the US and UK are generally leased on a long-term basis to global companies for over 10 years,” said a local insurance company source. “Such buildings generate steady rental incomes and are in high demand, so they are suitable assets for insurance companies to invest in.”

Samsung units’ cross-border property investment is compared with a string of the sale of their main office buildings in South Korea. Last year Samsung Group units, mostly financial services companies, reportedly unloaded 2 trillion won ($1.7 billion) worth of domestic office buildings, while buying offshore commercial real estate for more than 1 trillion won, raising market speculation that the country’s office building market might have peaked.  

By JiHoon Lee and Chang Jae Yoo

lizi@hankyung.com

<Edited by Yeonhee Kim>