Rental income from the JEI Building has fallen 7% since 2010
Japan Excellent Inc is selling a Tokyo office block for JPY 6.1 billion ($41 million) as the TSE-listed REIT anticipates an increase in repair expenses for the 1991-vintage building.
The office-focused J-REIT revealed in an investor disclosure on Monday that it has agreed to sell the JEI Hongo Building, an 8-storey commercial tower in Tokyo’s Bunkyo ward, to an undisclosed local company at a 3.6 percent cap rate.
JEI’s manager said that it decided to dispose of the asset since it expects the asset’s future growth “to be limited because of the location, and an expected increase in future repair and renewal construction expenses in light of the building being 33 years old.”
Work space in the Bunkyo ward and the adjacent Toshima ward recorded a vacancy rate of 4.3 percent as of September last year, up 2.4 percent from the same month in 2020 according to a report from office leasing firm Sanko Estate.
Full Occupancy, Less Rent
Located around 15 minutes’ walk from the Tokyo Dome, the JEI Hongo Building in Bunkyo’s Hongo district has a total leasable area of 4,078 square metres (43,895 square feet). Occupying a 985 square metre site, the property includes space for retail and parking in addition to is office accommodation.
Japan Excellent executive director Shuichiro Kayama
The property’s four tenants provided the owner with monthly rent of JPY 20.4 million as of December 2023, down from an average of JPY 28.3 million from January to June 2010. The commercial tower was fully occupied at the end of last year, having maintained that level in every semi-annual report since June 2022.
The building had an appraised value of JPY 4.5 billion at the end of last year, which was JPY 9 million less than what JEI paid to acquire the asset in 2006.
Separating the handover of the building into pieces, JEI’s manager expects to dispose of 40 percent of the asset for JPY 2.5 billion in July this year, with the remaining portion set to be sold for JPY 3.7 billion in January next year.
The property recorded a book value of JPY 4.9 billion last December, meaning the transaction represents a gain of JPY 1.3 billion for the trust.
“The proceeds of the transfer of the property are planned to be used for the acquisition of treasury investment units, repayment of loans and other uses to improve the cost of capital,” the trust’s manager said.
The REIT’s manager revealed on Monday that it plans to raise its net asset value per unit by purchasing up to 18,000 of its own investment units, or investing up to JPY 2 billion in the buy-back scheme.
As of Tuesday, equity in JEI was trading for JPY 121,600, up 3.2 percent from its price at the start of the day the managers announced the deal.
Post-disposal, JEI’s portfolio will comprise 34 office properties in Japan’s major cities including Tokyo, Osaka, and Nagoya, totalling a JPY 289 billion commitment in the sector.
Tokyo Office Trades Continue
JEI’s sale of its Bunkyo office follows a series of Tokyo workspace deals, with the trust’s latest transaction being announced six days after Mitsubishi Estate agreed to sell a 22 percent stake in Toyosu Foresia, a commercial tower in the capital’s Koto ward, to its REIT for JPY 19.8 billion.
Earlier this month, major Japanese developer Tokyu Land announced that it was selling a 49 percent interest in a set of office floors in the newly-built Shibuya Sakura Stage for over JPY 100 billion. Completed in November of last year, the two-building complex in Shibuya has a total floor area of 254,700 square metres and has 95 percent of its office space leased by the end of last year.
In January, a fund managed by Goldman Sachs agreed to buy four floors in GranTokyo South Tower from Nippon Building Fund for JPY 41.2 billion. The sixth to ninth floor in the 42-storey building in the Chiyoda and Chuo wards had a book value of JPY 37.9 as of June last year.
Major players continued to trade Japanese office buildings despite the asset class seeing the largest decline of all sectors in the country last year. Investors committed JPY 1.6 trillion in income-earning office properties across Asia’s second largest economy in 2023, which was down 39 percent from a year earlier according to data from MSCI Real Assets.
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