Kenedix Merging Three Japanese REITs into Single $8.2B Trust

Japanese fund manager Kenedix intends to merge three of its sponsored J-REITs into a single trust with assets under management totalling JPY 1.15 trillion ($8.2 billion).

Under the plan, Kenedix Residential Next Investment Corporation and Kenedix Retail REIT Corporation will be absorbed into the surviving trust, Kenedix Office Investment Corporation, Kenedix said Tuesday in a release. The new entity will boast a total of 350 properties after the execution of pending acquisitions and disposals, ranking third in the J-REIT market in terms of asset size.

The three trusts expect their merger to maximise unitholder value by sustaining growth, expanding investment target sectors and improving their presence and stability in the market.

“Having the largest expected number of properties in the J-REIT market will enhance diversification and contribute to improve the stability of the portfolio,” Kenedix said. “In addition, a property manager that leverages the advantage of its scale will contribute to increased resilience against the pressure of the rising costs.”

Investment Scope Widens

Kenedix Office Investment Corporation listed on the Tokyo Stock Exchange in 2005 and has since grown to 97 properties with a total acquisition price of JPY 453.3 billion.

The Kenedix residential REIT, listed in 2012, holds 182 properties acquired for JPY 304.2 billion, and the 2015-listed retail trust owns 70 assets acquired for JPY 270.3 billion.

The new super-sized REIT will continue to seek acquisitions of mid-sized office buildings, residential properties, healthcare facilities and shopping centres for daily needs, while also pursuing logistics facilities and hotels more aggressively.

To carry out the growth strategy, the trust will draw from a project pipeline of 21 properties worth more than JPY 80 billion, including residential (two assets), retail (seven), healthcare (three), logistics (seven) and hotels (two).

Kenedix aims to complete the merger by early November, with the combined REIT to be known as KDX Realty Investment Corporation. For the fiscal period ending on 30 April 2024, the trust is forecast to generate operating income of JPY 16.5 billion on operating revenue of JPY 38.8 billion.

Asset Reshuffle

To strengthen earnings power through the reshuffling of assets, the new trust plans to acquire four properties for a total of JPY 19.7 billion, led by a 25 percent interest in River City 21 East Towers II for JPY 9.2 billion.

The 2000-vintage residential building in Tokyo’s Chuo ward, to be purchased from sponsor Kenedix, has 642 units for rent and an estimated net operating income yield of 4.2 percent. The three other properties are a hotel and a distribution centre in Tokyo and a retail complex in Chiba.

The REIT will concurrently sell two office assets in Tokyo and Aichi for a combined disposal price of JPY 9.9 billion. Transactions for all six properties are anticipated to conclude by 1 November.