Sunday 23 October 2016

Qatari sovereign wealth fund takes a slice of the Big Apple

David M. Levitt and Zainab Fattah

Published 01/09/2016 | 02:30

Qatar Investment Authority (QIA) has bought a 10pc stake in the Empire State Building and intends to invest further in the US
Qatar Investment Authority (QIA) has bought a 10pc stake in the Empire State Building and intends to invest further in the US

Qatar Investment Authority (QIA), the Middle Eastern country's sovereign wealth fund, bought almost 10pc of Empire State Building owner Empire State Realty Trust as it boosts investments in North America and the Asia Pacific region.

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The fund acquired 29.6 million newly issued Class A common shares at $21 each and will have a 9.9pc economic and voting interest in the real estate investment trust. The acquisition translates into a new $622m investment in Empire State Realty, the company said in a statement.

The cash infusion may signal that the Reit is ready to buy new properties, KeyBanc analyst Craig Mailman said in a research note.

"Acquisition activity may be on the horizon," he wrote.

"The direct investment further bolsters Empire State Realty's already ample balance-sheet capacity."

Empire State Realty president John Kessler said the investment will help it "plan for the future, now with more capital and one of the most sophisticated and reliable real estate investors in the world as our partner".

Following news of QIA's investment shares of Empire State Realty climbed as much as 3.3pc in New York trading and the stock was up 10 cents at $20.62.

The company didn't say how it will use the money raised from the stake sale. Chief Financial Officer David Karp said that the company recently expanded its revolving credit line to $1.1bn. Those funds, combined with Qatar's infusion, will enhance the company's "ability to drive long-term value", he said.

Empire State Realty Trust has been a publicly-traded REIT since October 2013, following two years during which Empire State Building supervisors Peter Malkin and his son Anthony battled with some of the tower's investors over going public.

The company owns 10.1 million sq ft (938,000 sq m) of office and retail properties, mostly in Manhattan, with the rest in New York's northern suburbs.

Since going public, the company has largely concentrated on renovating portions of its buildings, including the 2.8 million square-foot Empire State Building, and re-leasing them for higher rents, often by combining smaller offices.

Last October, QIA and Brookfield Property Partners LP formed a joint venture on Manhattan West, an $8.6bn mixed-use project on New York's far west side.

QIA, which was established in 2005, is the world's ninth-largest sovereign wealth fund with assets valued at $335bn, according to rankings by the Sovereign Wealth Institute.

The QIA "is re-balancing its geographical exposure towards the US and Asia because they were over exposed to Europe at one point", Fadi Moussalli, MENA head of International Capital Group at JLL, said in a phone interview. "When Qataris invest in the US they reduce their currency exposure because their riyal is pegged to the US dollar, which isn't the case with European investments."

More investments in US real estate are sure to follow, he said.

Arguably the most celebrated element of the QIA's European real estate portfolio is located in London. Among the assets it owns there are Harrods, which it acquired from Mohammed Al Fayed for Stg£1.5bn in 2010; Canary Wharf, which it bought in partnership with Canadian developers Brookfield Properties for Stg£2.6bn in 2015, and a 20pc stake in the famous Camden Market, for which it reportedly paid as much as €80m in 2008.

The QIA-owned Constellation Hotels, meanwhile, acquired full ownership of Coroin, which owns Claridge's Berkeley and Connaught hotels in London's exclusive Mayfair last year, after buying the 64pc stake which had been under the effective control of the billionaire Barclay brothers, and the remaining 36pc stake owned by Irish property investor Paddy McKillen. The Belfast-born businessman remains involved in the world-famous hotels, having been brought on board by the Qataris to manage their redevelopment.

The QIA also owns a Stg£400m share of the Intercontinental Hotel on nearby Park Lane.

Elsewhere in the UK capital, another QIA subsidiary, Qatar Holdings, bought a 20pc stake in Heathrow Airport for Stg£900m in 2012. QIA also owns a 26pc share of British supermarket giant Sainsbury's as well as 10pc of the London Stock Exchange.

QIA has been adding to its real estate assets this year. In June it agreed to buy Singapore's Asia Square Tower 1 from BlackRock Inc. in Asia Pacific's largest single-tower sale, according to JLL. The fund has invested about $40bn in property, with about $22bn in office transactions and $7.5bn for hotels, according to Real Capital Analytics Inc.


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