Japan’s Samty Residential REIT Buying Nine Properties for $59M to Replace Cast-Offs

Samty Residential Investment Corporation is buying nine apartment buildings across Japan’s Honshu island for JPY 8.7 billion ($59 million) and discarding an equal number of ageing assets.

The TSE-listed REIT will acquire four properties in Greater Tokyo, four in Nagoya and one in the western city of Okayama with a total of 541 rental units, according to a filing. Samty Residential enjoys preferential negotiating rights for the target assets, which are held in a private fund and managed by the trust’s sponsor, developer Samty Holdings, a portfolio company of Hillhouse Investment’s Rava Partners.

The nine disposal assets, all situated in Kyushu island cities except for a single property in Nagoya, are to be sold to non-related domestic firms as Samty Residential seeks to enhance its portfolio under a three-pronged strategy of stability, growth potential and profitability.

“Although all of the assets to be disposed have maintained stable occupancy and have contributed to Samty Residential’s operation, Samty Residential had been considering a buyer given the older building age of the properties compared to the overall level of Samty Residential’s portfolio and the balance of the investment areas,” the trust’s manager said.

Western Frontier

The target assets, including properties under Samty’s S-Fort and premium S-Residence brands, have an average building age of 3.8 years, compared with 16.7 years for the disposal assets, according to an investor presentation. The occupancy rate across the target assets averaged 98.3 percent as of May.

Samty Residential is picking up the 84-unit S-Residence Omotecho for JPY 1.1 billion to mark the REIT’s first buy in Okayama, as the manager expands the portfolio’s geographic reach into the Chugoku region of western Japan.

“Okayama has features of a transportation hub for a wide area that is among the most extremely excellent in the nation and a concentration of advanced urban functions, making it an area where stable rental demand can be expected,” the manager said in the presentation.

The purchase of the nine properties from GK Iris 1, a vehicle in which Samty Residential and Samty Holdings hold respective stakes of 3.8 percent and 16.3 percent, is scheduled to be completed on 29 August.

Sales of the disposal assets, all of them rental apartment buildings under the S-Fort brand, are expected to close by the end of this month. The total disposition price of JPY 8.9 billion represents a 20.2 percent premium to the assets’ combined book value, with the trust anticipating a gain on sale of JPY 1.2 billion.

Upon completion of the transactions, Samty Residential’s portfolio will consist of 188 properties with a total acquisition value of JPY 170.6 billion ($1.2 billion). The investment ratio by area is projected to be 71.6 percent for regional cities and 28.4 percent for Greater Tokyo on the basis of acquisition price.

Funds Expansion Takes Flight

The listed trust’s portfolio revamp comes after Hillhouse and Rava Partners took full control of Samty Holdings earlier this year in a $1.1 billion buyout deal alongside Daiwa Securities.

Samty in July announced the JPY 58 billion ($391 million) final closing of its first dedicated hotel fund. The vehicle, Eastgate-Samty Hospitality Fund I LP, is managed jointly with local firm EastGate and seeded with 10 hotels across Tokyo, Nagoya, Kyoto, Fukuoka and Hiroshima.

The milestone followed through on a goal set by Hillhouse and Rava to bolster Samty’s existing capabilities while expanding its fund management business.