Japan Excellent REIT Sells Pair of Assets in Greater Tokyo, Osaka to Sponsor for $78M

Japan Excellent Inc has sold a pair of properties in Greater Tokyo and Osaka to the office-focused REIT’s sponsor, Nippon Steel Kowa Real Estate, for a total of JPY 12.3 billion ($78 million).

JEI transferred the Kowa Kawasaki Higashiguchi Building to the sponsor on Thursday for a consideration of JPY 9.25 billion, 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 transferred the land beneath the Kogin Building in Osaka for an agreed value of JPY 3.05 billion.

The building in Kanagawa prefecture’s Kawasaki, south of Tokyo, changed hands at a discount of 15.3 percent to book value, according to the manager. To offset the loss on transfer, the REIT made available the Kogin Building land at a 63.5 percent premium to book value.

“JEI considers it an important strategy to manage its portfolio from a medium- to long-term perspective,” the manager said. “This may necessitate the sale or replacement of properties if there is a concern over deterioration in their future competitiveness or earnings power.”

No Takers in Kawasaki

JEI struggled to find a buyer for the Kowa Kawasaki Higashiguchi Building because the property’s land is leased and the rights are complicated, according to the manager.

The asset ultimately traded at a fraction above the appraised value of JPY 9.23 billion. The 21-storey building’s 18,612 square metres (200,338 square feet) of leasable floor space is occupied by an unidentified single tenant paying an undisclosed monthly rent, per the filing.

“Of the properties to be transferred, the Kowa Kawasaki Higashiguchi Building has a risk of tenant concentration due to the building being leased in its entirety, and is expected to require an increase in expenditure for work in future due to 36 years elapsing since it was built, and it was also continuing to incur unrealised losses,” the manager said.

The Kogin Building land’s transfer value is roughly in line with the appraised value of JPY 3.04 billion. Nippon Steel Kowa Real Estate holds the lease on the land for the 3,158 square metre office block in Osaka’s Chuo ward, paying a monthly rent of JPY 6.7 million. The 30-year land lease runs to February 2043 and can be cancelled in writing with a one-year notice period.

Hongo Sale Pending

The Kawasaki transfer is JEI’s second disposal of an ageing Greater Tokyo building announced this year, following the JEI Hongo Building in the capital’s Bunkyo ward.

In February, an undisclosed local company agreed to acquire the eight-storey commercial tower near the Tokyo Dome for JPY 6.1 billion. The manager said it expected the 33-year-old building’s future growth to be limited by the location and a likely increase in repair and renewal expenses.

When the JEI Hongo deal is completed next month, the trust’s portfolio will comprise 32 assets acquired for JPY 276.2 billion.