Ichigo Office REIT Selling Greater Tokyo Buildings as Earnings View Brightens

Ichigo Office REIT has announced the sale of two ageing buildings to undisclosed buyers for a total of JPY 4.5 billion ($29 million), with the Tokyo-listed trust set to reap JPY 1.3 billion in gains from the disposals.

The REIT, which is managed by a unit of real estate and infrastructure group Ichigo, completed the JPY 2.4 billion sale of the Ichigo Ofuna Building in Kamakura City of Kanagawa prefecture last Friday, according to a stock filing. The trust is due to close on the JPY 2.1 billion sale of the Ichigo Kudan 2 Chome Building in Tokyo’s central Chiyoda ward on 31 October this year.

In a separate statement, Ichigo Office upgraded its net income forecasts for two fiscal six-month periods — to the end of April and to the end of November — by a combined JPY 1.35 billion, citing the boost from the two asset disposals.

“Ichigo Office continues to work to improve the quality of its portfolio and drive earnings by focusing its portfolio on high-quality, mid-size office assets that generate stable cash flow,” the trust’s manager said.

Greater Tokyo Disposal

The eight-storey Ichigo Ofuna Building provides 2,176 square metres (23,422 square feet) of leasable area and sits three minutes by foot from Ofuna station on the JR and Shonan Monorail lines, roughly 46.5 kilometres (29 miles) to the south of Tokyo station.

The building had been fully occupied upon Ichigo Office’s acquisition in 2014, but a major bank tenant departed at the end of 2022 due to a branch reorganisation. The REIT leased up part of the vacant space to a new store tenant and has since maintained an 85 percent occupancy at the 1973-vintage property.

The JPY 2.4 billion sale to a “third-party Japanese company” translates to JPY 1.1 million ($7,100) per square metre of leasable area and a JPY 438 million premium to book value, with an estimated capitalisation rate of 5.2 percent.

The $1.4 billion trust conducted value-add renovations at the seven-storey Ichigo Kudan 2 Chome Building in 2022 and fully leased the property to a single tenant. The 1997-era development offers 1,266 square metres of leasable area, with the agreed sale price spelling more than JPY 1.6 million ($10,000) per square metre.

The REIT is to receive JPY 1.3 billion above book for the building, which lies within a 10-minute walk of key railway and metro stations and about 2 kilometres from the Imperial Palace in Chiyoda ward. The asset’s cap rate is calculated at 4 percent.

Chaired by American investor Scott Callon, Tokyo-based Ichigo focuses on sustainable real estate, asset management and clean energy. Callon also serves as CEO of Ichigo Asset Management, which manages billions of dollars invested mainly on behalf of US and European charities and endowments.

Confidence Grows

Bloomberg reported last month that Tokyo office vacancy dropped to a three-year low in March as the rate in the city’s five central business areas fell to 5.47 percent. Citing data from local broker Miki Shoji, the news agency said rents also ticked up in each of the first three months of this year after falling through most of 2023.

Savills forecasts further gradual growth in Tokyo’s office market during 2024 in line with the positive performance of average rents and vacancy rates.

“The large supply from 2023 has been absorbed well and the small supply in 2024 should provide breathing room for further absorption,” the consultancy said in a first-quarter leasing report.