KKR Japanese REIT Announces Eighth Apartment Acquisition of 2023

KKR’s TSE-listed REIT is almost doubling its Japanese apartments portfolio as its manager announced on Thursday the acquisition of an apartment building in Nagoya and a stake in a portfolio of multi-family assets.

“JMF determined this time to acquire one residential property, along with 12 residential properties as underlying assets, many of which are recently built properties, and that are prime rental residential properties located in the inner city and highly convenient for transport and living,” said the trust’s manager in the statement.

Japan Metropolitan Fund Investment Corporation said in an investor disclosure that it is purchasing the Dimora Meieki Minami complex and its retail podium for JPY 2.3 billion ($16 million). In the same statement, JMF revealed that it will acquire a 28.6 percent interest in a set of 12 rental residences across the country for JPY 1.5 billion.

Prior to the acquisition JMF counted 15 rental residential assets in its portfolio, including previously announced acquisitions which have yet to close. All eight of JMF’s announced acquisitions over the past year have been rental residential assets, amounting to a JPY 21.4 billion commitment to the sector.

Buying New Stock

Scheduled for completion by 22 December, the purchase of Dimora Meieki Minami will add a 9-storey apartment located a 20 minute’s drive from Nagoya castle. Built by Daiwa House Industry in 2019, the building measures 4,538 square metres (48,846 square feet) incorporating 47 residential units, retail facilities, and a fitness centre.

The REIT’s manager highlighted that the apartment generated a net operating income of JPY 98 million in the 12 months before its valuation on 1 December, with the transaction taking place at an NOI yield of 4.3 percent, or 3.1 percent after depreciation.

The asset has a total leasable area of 3,828 square metres, meaning that the trust will pay around JPY 600,836 per square metre to the undisclosed seller.

The 12 properties are located in Tokyo, Osaka, and Greater Tokyo, and will be held by three newly created vehicles. JFM’s manager noted that the move will provide them with preferential negotiating rights for the assets for future acquisitions of equity in the project.

“As a result, JMF is considering the possibility of acquiring the properties in the future and assessing the timing of acquisition by cash on hand or other funds procurement, with an eye on the further improvement of profitability of each property during the period of management by the relevant SPC,” said the trust’s manager.

Among properties generating the highest rents is the Splendide Esaka Ekimae near the Umeda Sky Building in Osaka, where rates for a 40 to 45 square metre unit can go as high as JPY 170,500, according to local rental housing website Shinwa Fudousan. The 15-storey building generated annual rent of JPY 209 million as of the end of October.

Ten of the 13 apartments in the target portfolio were completed in the last four years, according to the statement, with the oldest having been finished in 2015.

Apartment Focus

Manhattan-based KKR acquired JMF’s manager from Mitsubishi and UBS Asset Management in April of last year for $2 billion in an all-cash, balance sheet transaction, and renamed the manager KJR Management upon completion of the deal.

The trust’s latest acquisition takes place two months after it completed its purchase of the JMF-Residence Machidai apartment on the western edge of Tokyo. The deal with local developer Es-Con Japan was reported to be valued at JPY 4 billion in October 2022.

In July, JMF agreed to spend JPY 5.4 billion to acquire a trio of Osaka multi-family assets for JPY 5.4 billion, adding 292 residential units to the trust’s portfolio.

In April, the REIT’s manager agreed to acquire an apartment project under construction in Tokyo’s Taito ward for JPY 4.32 billion, with that 72-unit block expected to be completed in April 2024.

Zoe Ward, director of brokerage Japan Property central, said that rising rents have encouraged investors to acquire more Japanese multi-family assets this year.

“There’s an expectation of further rental growth in major cities, especially in Tokyo as it continues to attract new residents for work and education,” Ward said. “Overall, apartment rents in Tokyo have probably increased by 20 to 30 percent over the past 10 years.”

JMF’s portfolio comprises 133 assets across the retail, office, residential, hotel and mixed-use sectors with a total acquisition price of JPY 1.2 trillion ($8.4 billion).