Japan Excellent REIT Buying Tokyo Tower for $120M, Selling Office Block for $62M

Japan Excellent Inc has agreed to buy a commercial tower in Tokyo’s central Minato ward from a unit of the office-focused REIT’s sponsor, Nippon Steel Kowa Real Estate, for JPY 17.3 billion ($120 million).

JEI is exercising its right of first refusal to acquire the 22-storey Ark Hills Front Tower, according to a filing by the REIT’s manager, which is majority-owned by the property affiliate of Japan’s biggest steelmaker. At the same time, the trust is transferring its 100 percent interest in the JEI Hamamatsucho Building, a 1991-vintage Minato office block, to an undisclosed buyer for JPY 9.3 billion ($62 million).

Ark Hills Front Tower consists of office, residential, commercial and car parking spaces and sits along the Roppongi Dori thoroughfare in the upscale Roppongi neighbourhood, an area thick with foreign embassies and global corporations.

“The decision to acquire the property was made in order to enhance the portfolio based on the investment targets and policies stipulated in Japan Excellent’s rules,” the manager said.

Asset Replacement

JEI’s acquisition of Ark Hills Front Tower involves the office and car parking spaces and corresponding right to use the grounds.

The 2011-era building contains 8,974 square metres (96,595 square feet) of leasable floor space, with several office floors and parking sections owned or co-owned by the building’s trustee, Mitsubishi UFJ Trust and Banking Corporation, or master-leased by Nippon Steel Kowa Real Estate. The leasable space was 94.4 percent occupied at the end of December.

Situated four minutes by foot from Tameike Sanno station of the Tokyo Metro, the tower offers divisible floor plates of 992 square metres, the manager said. Other features include ceiling heights of 2.8 metres (9.2 feet), a rooftop garden and low-emissivity glass and LED lights in common areas.

JEI anticipates net operating income of JPY 591 million from Ark Hills Front Tower for an NOI yield of 3.4 percent and NOI yield after depreciation of 2.9 percent. The transaction is scheduled to close on 15 April.

The trust’s sale of the JEI Hamamatsucho Building is to be completed in two stages in which the buyer will pay JPY 4.2 billion on 28 November of this year and JPY 5.1 billion on 16 January of next year. JEI cited the property’s age, lack of flexibility and expectations of future repair and renovation work in making the decision to dispose of the three-decade-old asset that the REIT acquired in 2006 for JPY 8.4 billion.

“Through the transaction, we will strive to improve the quality of our portfolio through asset replacement, and use a portion of the gain on transfer as distributions while also using them to stabilise distributions over the medium to long term,” the manager said.

Upon completion of the transactions, JEI’s portfolio will hold interests in 32 assets with a total acquisition value of JPY 285.1 billion ($1.9 billion).

Roppongi Heats Up

JEI’s newest addition is less than a minute’s walk from a rental apartment building recently acquired by local investment manager Alyssa Partners.

The Tokyo-based firm teamed with Malaysia’s LGB Group to purchase the 134-unit Grand Concierge Roppongi for a consideration of more than JPY 10 billion ($65 million), according to market sources who spoke to Mingtiandi. The 20-storey building was completed in 2017 and sits opposite the ANA InterContinental Hotel on Roppongi Dori.

JEI previously announced the sale of the Kowa Kawasaki Higashiguchi Building in Kawasaki and the land beneath the Kogin Building in Osaka to the trust’s sponsor for a total of JPY 12.3 billion ($78 million), with those transactions having closed in December.