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Malaysia’s EPF hits home run in UK

The $171 billion state investment fund has sold One Sheldon Square in central London for £210 million, 40 percent more than it paid for the prime office building in 2010.

The Employees Provident Fund (EPF) of Malaysia has made its first sale in London, offloading a prime office for a sizeable profit less than four years after buying it.

British Land announced it has purchased One Sheldon Square in Paddington for £210 million (€291.84 million; $309.47 million) from EPF.

Though unconfirmed by the UK REIT, the yield on the deal was reported to be about 4.5 percent.

EPF had acquired the 210, 000 square foot office for £150 million in 2010 as part of a £1 billion program of investments for UK real estate. The yield then was closer to 5.75 percent.

A sale at £210 million infers a capital gain of about 40 percent on the purchase price.

EPF had already vocalized how it expected the asset to turn for it a tidy profit. In PERE’s Blueprint interview with the state investor published in October last year, head of real estate Mohamad Hafiz Kassim singled out One Sheldon Place as an example of one of its better investments.

In the interview, Kassim talked through EPF’s reasoning for placing such an emphasis on UK investments. He said: “Before we go to any market we look at its legal system, its regulations and whether it is investor-friendly. If you look at the UK, you find a very transparent market. British rules and regulations are all very clear, and it is easy (for foreigners) to do transactions.”

At the time London prime yields were between 5 percent and 6 percent, according to the article, and that compared favorably with prime yields in core Asian markets like Singapore where yields were between 3 percent and 3.5 percent.

Indeed, Kassim described the decision to apportion such capital to UK property as a “no-brainer”. He said: “Even when we looked at it over a cycle the yield was still above average.”

In the article, sources said the total return on the building would be as high as 30 percent on the back of strong capital gains. A sale at £210 million actually is 40 percent more than the price EPF paid in 2010.

The EPF portfolio of UK property today comprises about 20 properties with a combined value of approximately £1 billion.

The divestment also serves to further demonstrate how large Asian institutional investors, once-widely perceived long-term holders of prime real estate, will trade.

For British Land, the purchase sees the firm consolidate its presence in the Paddington area of London. Including One Sheldon Square, it has amassed 800,000 square feet of office space and has a further 146,000 square feet under construction.

The firm said: “the acquisition is in line with our strategy of expanding in London and the South East including in and around our existing assets. Acquiring One Sheldon Square, which is prominently located at the entrance to Paddington Central, allows us to develop a wider vision for the campus as an attractive mixed-use destination.”