June 19 (Bloomberg) -- Brookfield Office Properties Inc., the owner of New York’s World Financial Center, agreed to buy buildings in the City of London financial district for 518 million pounds ($812 million), its first U.K. deal in two years.
The office properties will be purchased from Hammerson Plc, a London-based real estate investment trust, the companies said today in separate statements. The transaction includes a 50 percent stake in a building near the Bank of England and a development site near Liverpool Street Station.
Brookfield, based in New York, is acquiring buildings in growing markets and areas where it is difficult to develop new ones. This month, the company bought two office towers in Seattle for $210 million, its first purchase in the West Coast city, and announced plans to build a second skyscraper at its Bay Adelaide Centre in downtown Toronto.
“London has been a rather obvious hole in their portfolio,” Alex Avery, an analyst with CIBC World Markets Inc. in Toronto, said in a telephone interview. “Given all the disarray in Europe and generally around the world, this is another example of Brookfield being opportune in acquiring a portfolio during a time of unsettled markets to gain a foothold in the London office market.”
The company will consider other buying opportunities “across all of the central London marketplaces,” Martin Jepson, Brookfield’s senior vice president for development and investment, said today by telephone. Jepson was hired from Hammerson in August.
Brookfield made its first U.K. investment in 2010 after agreeing to develop an office tower at London’s 100 Bishopsgate with Great Portland Estates Plc. The company plans to upgrade and expand some of the buildings it’s buying from Hammerson, taking advantage of rising prices in central London caused by a lack of top-quality office space.
Hammerson said the gross proceeds from the sale are 5 percent higher than the book value of the assets. The company rose 2.5 percent to 428 pence in London.
Brookfield gained 1.2 percent to $16.75 at the close in New York.
Brookfield will purchase 75 percent of Hammerson’s office properties. The buildings include 125 Old Broad Street, 99 Bishopsgate and Leadenhall Court, which have combined space of 776,000 square feet (72,000 square meters), according to the U.S. company’s statement.
The company plans to develop the Principal Place site between the Shoreditch area and the main financial district because it provides “the opportunity to cater to tenant space requirements in a market facing limited new supply in a three-to five-year time horizon,” Brookfield said in a presentation to investors.
The value of office buildings leased to tenants in the City of London rose 0.9 percent in May, led by overseas demand, Investment Property Databank Ltd. said yesterday.
Hammerson Chief Executive Officer David Atkins said in February that the company decided to focus on retail assets because they generate higher returns compared with office buildings. After today’s deal, 97 percent of the company’s properties will be shopping malls and other retail buildings.
The sale “is a logical move, but not a sign of strength,” Keith Crawford, an analyst at Peel Hunt, said in a note to investors today. He has a hold rating on the stock.
Jepson, who oversaw the properties as managing director of Hammerson’s London division, said links with his former company “helped us get the deal across the line reasonably quickly.”
Atkins, the Hammerson CEO, said his company had about 30 offers from prospective buyers for all or some of the properties for sale. Brookfield “was able to agree to a deal and sign it in two weeks,” he said in an interview.
The planned sale accelerates Hammerson’s transformation to a retail REIT and isn’t “a call” on the London office market, Atkins said.
Brookfield Asset Management Inc., which owns half of Brookfield Office, is planning a partial spinoff of its global commercial real estate holdings to shareholders.
The proposed company, Brookfield Property Partners LP, will include Toronto-based Brookfield Asset Management’s stake in Brookfield Office; a 21 percent share of General Growth Properties Inc., the second-largest U.S. mall owner; and 37 percent of Rouse Properties Inc., a shopping center owner that General Growth spun off, according to a regulatory filing.
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