KKR Japan REIT Buying Greater Tokyo Mall, Three Other Properties for $390M

KKR’s Japan-focused commercial REIT plans to acquire four properties in Greater Tokyo and Osaka for a total of JPY 57.1 billion ($390 million), led by the purchase of a large mall in Chiba prefecture.

Japan Metropolitan Fund has agreed to buy Unimo Chiharadai in Chiba’s Ichihara city, lying east of the capital across Tokyo Bay, from an undisclosed domestic firm for JPY 30 billion, according to a Wednesday filing by the trust’s manager. The 2007-vintage mall has a total floor area of 70,429 square metres and a leasable area of 47,686 square metres (513,288 square feet), which is 98.2 percent occupied.

JMF is also picking up a retail building with event space in Tokyo’s central Shibuya ward for JPY 7 billion, a Yokohama mixed-use property for JPY 5.5 billion and an Osaka office block for JPY 14.6 billion. Transactions for all four assets are due to close by the end of October.

The $9.1 billion trust anticipates an average net operating income yield of 4.7 percent on the quartet of properties, with unrealised gains of JPY 9.9 billion and an average unrealised gain ratio exceeding 17 percent.

“In addition, with these properties located in urban areas where future cash flow is expected to increase, JMF aims to increase DPU and NAV, thus contributing to total return, through its internal growth initiatives such as an increase in fixed rents at the time of contract renewal or tenant replacement and an increase in revenue-based rent in line with higher sales,” said the manager, which is controlled by Manhattan-based private equity giant KKR.

University Expansion

One of the biggest retail properties in Chiba prefecture, Unimo Chiharadai shows upside potential from revenue-based rent clauses and can expect rising foot traffic from the planned expansion of nearby Teikyo Heisei University, according to JMF.

The trust is paying JPY 629,115 ($4,341) per square metre of leasable area for the four-storey mall, which completed its largest-ever renovation last year and counts Uniqlo, Muji and a 10-screen cinema as tenants. The surplus floor area of the existing site can potentially be put to use, and there is room for expansion through the development of an annex building, according to JMF.

Charmant Scena Tokyo in Shibuya spans 2,721 square metres of leasable space and features an event hall catering to weddings, corporate outings and other social occasions. JMF is acquiring the 2012-era building near Omotesando metro station at a more than 30 percent discount to appraisal value.

The mixed-use Premiere Yokohama’s seven floors comprise offices, retail shops, restaurants, clinics, a gym and a youth theatre. The 2013-vintage building’s 8,898 square metres of leasable area is 96.5 percent occupied.

KM Nishi-umeda in Osaka’s Fukushima ward is a fully occupied office building with 14,665 square metres of leasable area. The ground floor of the 1995-built property is tenanted to a luxury car dealership, and redevelopment projects around the nearby JR Osaka station are expected to drive further demand for office space.

To fund the acquisition of the four properties, JMF will raise JPY 20.6 billion from a public offering and third-party allotment of investment units and borrow JPY 37 billion from Japanese banks.

Beefed-Up Portfolio

JMF continues to add to its portfolio after agreeing earlier this month to acquire the Cross Mukogaoka mall in Kawasaki for JPY 4.8 billion. That deal coincided with the REIT’s JPY 9 billion disposal of the ageing Ito-Yokado Tsunashima mall in Yokohama.

In May, JMF purchased a 70 percent stake in a commercial building on the southern island of Okinawa for JPY 2.5 billion. Last December, the Tokyo-listed trust nearly doubled its apartment portfolio with the acquisition of an apartment building in Nagoya and a stake in a portfolio of multi-family assets for JPY 3.8 billion in total.

JMF’s manager also runs an industrial REIT, Industrial & Infrastructure Fund, which this month announced plans to buy an under-construction warehouse near Osaka from KKR-owned logistics firm Logisteed for JPY 9.24 billion.