Wednesday 23 January 2019

Billionaires behind Lego buy London real estate as Brexit draws closer

The $16bn Kirkbi A/S Fund made its third acquisition in London on behalf of the billionaire owners of Lego A/S
The $16bn Kirkbi A/S Fund made its third acquisition in London on behalf of the billionaire owners of Lego A/S

Christian Wienberg

The fund managing the wealth of the billionaires who own Lego A/S wants to buy more London real estate.

Undeterred by Britain's plan to exit the EU, the $16bn Kirkbi A/S fund earlier this year bought the Porter's Wharf office property in London's King's Cross district, marking its third real estate investment in the UK capital, it told Bloomberg.

"Some investors, including us, are a bit nervous about the development in the UK," Soren Thorup Sorensen, Kirkbi's chief executive officer, said by phone. "But there are areas in London that aren't linked to the financial sector."

The Lego fund's latest purchase is in an area dominated by technology, media and telecom companies, which Sorensen is betting will probably be less exposed to the exodus that may hit the London banking community once Brexit takes effect. Sorensen also says Kirkbi is big enough to sit out the short-term jolts stemming from the uncertainty surrounding the UK's depature.

Buying up London property fits into the Lego fund's overall goal of expanding its real estate portfolio, which grew 14pc last year to $1.2bn.

"We very much hope we will do more in 2018," Sorensen said. "We will look at Germany, Switzerland and the UK."

"There may be more uncertainty in 2018 than we have seen in many years, but that also means that someone like us will be able to make good long-term investments," he said. The fund, based in western Denmark, prefers properties it can develop, he said.

Kirkbi Chairman Kjeld Kirk Kristiansen, the grandson of Lego founder Ole Kirk Kristiansen, is Denmark's second-richest man thanks to the popularity of the plastic bricks that have long been a staple of children's toy boxes. According to the Bloomberg Billionaires Index, he's worth about $5.3bn.

Kirk Kristiansen recently handed more control to his children Agnete Kirk Thinggaard, Sofie Kirk Kristiansen and Thomas Kirk Kristiansen, who each have a fortune of about $4.9bn.

The fund also owns properties in Denmark, but doesn't see much potential for more investment there in the near term.

"The property market in Copenhagen has seen a lot of demand, so we think it's difficult to find projects that will give the returns that we want," Sorensen said.

Kirkbi's main assets are a 75pc stake in closely held Lego, as well as the toymaker's trademarks. It also has a 30pc stake in Merlin Entertainments Plc (which operates the Legoland parks), stakes in Danish firms ISS A/S and Falck A/S as well as other stocks and bonds.

Sorensen says he plans to be opportunistic when it comes to Kirkbi's stock investments this year.

"We're seeing rising interest rates and possibly also higher inflation due to pressure on labour markets in the US and western Europe, and that gives more volatility in stock markets," he said.

"For investors like us, it means that companies we looked at previously have come down to a price level where they are attractive for investment."

Quite apart from its interest in London real estate, Kirkbi A/S is planning to step up its investments in renewable energy.

It's a strategy that started half a decade ago as an idealistic project to cancel Lego's carbon footprint, but is now beginning to make much more financial sense for the fund and its client. "We see this as an investment area. I'm very pleased that after beginning with this back in 2012, it's starting to show up on the profit line," Sorensen said.

Profits tripled

Profits from the fund's investments in renewable energy assets more than tripled in 2017, to 398 million kroner ($66m). Kirkbi already owns stakes in German and UK offshore wind parks, but Sorensen says it may expand into other areas.

"The competition for the good projects has grown a lot bigger," he said. "Therefore we may also look at other technologies, including solar energy, which has now become a lot more efficient."

Kirkbi met its goal in 2017 of matching Lego's energy consumption with an equivalent production of green electricity (and did so three years ahead of plan).

Generating electricity from fossil fuels is fast becoming less economically viable as renewable energy technology drops in costs, according to a report published last month by Bloomberg New Energy Finance.

In most places, wind and solar will be cheaper than coal by 2023, according to the research group.

"We started very early, but looking at renewable energy today, there are many, including pension funds, who are eager to invest," Sorensen said.

"We have now built up some expertise in this area at Kirkbi, and are now looking at whether this gives us the opportunity to make further investments."


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