Sekisui House REIT Selling Tokyo Office Building for $530M

Sekisui House REIT has agreed to sell an office building in Tokyo’s Shinagawa special ward to local IT firm TIS Inc for JPY 70 billion ($530 million), with the trust also set to acquire a stake in a separate office property in the capital.

TIS will pay for the Gotenyama SH Building in 10 annual instalments of JPY 7 billion each, with the first due this October and the last in April 2028, the REIT sponsored by developer Sekisui House said in a stock filing.

The trust’s manager said it was approached by TIS, which is the tenant of the 20,000 square metre (215,278 square foot) building, about an acquisition and the parties agreed on a price exceeding the appraisal value of JPY 61.7 billion.

“Considering the challenge for SHR regarding progression in office leasing, the uncertainty about the future of the office rental market due to the expansion of remote work following COVID-19, in addition to the rise in acquisition prices for both offices and residences in terms of the real estate trading market, SHR intends to improve the profitability of the portfolio while enjoying the effect of raising the distribution amount through the instalment disposition over the medium to long term,” the manager said.

Gain of JPY 20B Expected

Completed in 2011, the seven-storey Gotenyama SH Building is about 8 kilometres (5 miles) southwest of downtown Tokyo. Sekisui House REIT acquired the property in 2014 for JPY 51.5 billion, and the building accounts for 9.3 percent of the trust’s invested portfolio.

The REIT anticipates a gain on the sale of JPY 20.2 billion, according to the filing. TIS’s consideration works out to JPY 3.5 million ($26,000) per square metre of total leasable area.

Separately, Sekisui House REIT plans to acquire a 6.8 percent silent partnership equity interest in a 10-story office building in Tokyo’s central Chuo special ward for JPY 220 million ($1.7 million).

The trust’s manager said the interest in Ningyocho PREX, a 2021-vintage tower near Ningyocho Metro station, would contribute to strengthening the REIT’s earnings base from a medium- to long-term perspective.

Lion City Action

Trust sponsor Sekisui House is one of Japan’s largest developers. Founded in 1960, the group had built more than 2.5 million houses as of 2022, and it also has business lines in civil engineering and urban redevelopment.

Overseas, a joint venture of Sekisui House and Singapore builder Far East Organization emerged as the highest bidder last November for a 10,395 square metre residential site on Hillview Rise in the Lion City’s Upper Bukit Timah.

After outbidding tenders submitted by SGX-listed firms UOL Group, City Developments Ltd and Sim Lian Group, the JV partners plan to develop up to 335 new homes on the plot near Hillview MRT station on the Downtown Line.

The pair of firms previously worked together with Frasers Property to build the Watertown and Waterway Point mixed-use complex in Punggol in 2016. Currently the JV is working with Hong Kong’s Sino Group (which like Far East Organization is controlled by Singapore’s Ng family) to develop the 372-unit Reserve Residences in Jalan Anak Bukit.