China Minsheng Sells Stake in London Office Projects at 50% Discount

SRE Group’s former chairman He Binwu

China Minsheng Investment Group’s Hong Kong-listed real estate arm SRE Group has offloaded a half-stake in a pair of London properties for a total of £29.5 million ($40 million), six months after the company’s chairman stepped down following reports of an investigation.

SRE Group has entered an agreement to sell a 50 percent stake in Profit Concept Investments, which owns a pair of office buildings in London, to Hong Kong-based real estate investment firm Ronghe International Group, a filing to the Hong Kong Stock Exchange on Thursday shows.

The deal comes after SRE Group was able to secure debt financing against the value of the London assets, which it purchased for a combined £117 million in 2016.

The two office properties 41 Tower Hill and 12 Moorgate are SRE’s only operating commercial properties overseas. The subsidiary of privately-owned investment group China Minsheng scooped up the pair of buildings within two weeks in September 2016.

China Minsheng Refinances London Assets

41 Tower Hill, located at the east side of the City of London near The Tower of London, sits on a 7,000 square metre site. Known as SG House, the property comprises a nine-storey, 15,509 square metre (166,940 square foot) office building and an adjoining car park. SRE bought the building from Société Générale in September 2016 for £84.5 million ($112.8 million), and the French financial group is now leasing the property, with the lease set to expire in March 2020.

41 Tower Hill — one of the London office buildings SRE holds

The other office tower, 12 Moorgate, is located in the core of the City of London financial district, just a five-minute walk from the Bank of England. Completed in 1998 with six floors and one basement level, the property has a rentable area of 3,151 square metres (33,941 square feet) for office use and is currently leased to British wealth management company Schroders PLC through June 2023.

SRE purchased the property, just a week after buying 41 Tower Hill, for a reported £32.5 million ($42.5 million) from German fund manager AIK.

Collectively, the pair of 2016 transactions valued the office buildings at around £117 million. SRE Group’s 2017 annual report shows RMB 796 million in debt, and the company is said to have secured £70.5 million (RMB 608 million) in debt financing for the assets, which could push the project value up by more than 60 percent since SRE acquired the London properties.

The mainland investment firm chalks up the stake sale as a win. “The proceeds from the disposal will enhance the company’s cash flow position and provide additional capital resources for the company to capture other investment opportunities,” the Hong Kong-listed firm said in the statement. The deal also serves as a valuable opportunity for SRE to have Ronghe International Group as a partner in the development of the properties, the company added.

SRE Chairman Stepped Down 6 Months Ago

The sale of the properties comes six months after SRE’s former chairman He Binwu abruptly resigned in late October — on the same day that He’s former employer China Jinmao Holdings revealed that it had been raided by Hong Kong’s Independent Commission Against Corruption.

The executive stepped down from SRE after holding a job there for less than two years. He had previously worked as an executive director and vice president at Shanghai-based developer China Jinmao — then known as Franshion Properties — from 2004 to 2015. The firm’s CFO was called into the offices of Hong Kong’s anti-graft body in October following an earlier search of the company’s offices.

No More Global Acquisitions

Apart from the pair of office buildings in the UK, SRE Group owns a development project in Sydney, and a residential project with retail facilities along with a hotel project in San Francisco, the firm’s annual report shows. The real estate company acquired an 80 percent interest in the luxury residential site in San Francisco for approximately $100 million in May, 2017.

In its interim report from June 2017, SRE indicated interest in further expanding its overseas portfolio, saying it planned to acquire high-quality assets in markets such as Sydney, London and San Francisco.

However, in the latest annual report published in late April, the company made no mention of expansion plans. Instead, SRE would “explore new ideas in respect of financing to further expand the source of funds,” including converting assets into cash flow through asset securitisation, REITs and commercial mortgage-backed securities (CMBS).