KKR REIT Buys Fuji Soft Japan Office Portfolio for $463M

Japan Metropolitan Fund has acquired a 14-asset portfolio of office properties for JPY 68.7 billion ($463 million) from Fuji Soft, the systems developer owned by the Tokyo-listed REIT’s sponsor, KKR.

The portfolio comprises 12 office buildings and land leaseholds held by Fuji Soft and two office blocks held by Fuji Soft’s Cyber Com subsidiary, according to a filing by JMF’s manager, which is controlled by Manhattan-based buyout giant KKR. The top assets by value are the Fuji Soft Shiodome Building in Tokyo’s central Minato ward and the Fuji Soft head office in Yokohama.

The deal closed on Wednesday and marks JMF’s first corporate real estate carve-out with KKR, which won a battle with Bain Capital to take Fuji Soft private earlier this year and delisted the company in May. Fuji Soft is leasing back the disposed assets under agreements that will see the rents revised in step with fluctuations in office market rates or, in the case of the land leaseholds, in line with changes in roadside land prices.

“Given that office market rents are expected to increase at a pace exceeding CPI, this mechanism is expected to provide upside potential that surpasses inflation,” the manager said. “Furthermore, a rent floor has been set to ensure that the revised rent will not fall below the initial rent, thereby eliminating downside risk in the event of a decline in office market rents.”

Young and Versatile

The portfolio changed hands at a 23.8 percent discount to the total appraised value of JPY 90.1 billion, representing a net operating income yield of 4.7 percent and NOI yield after depreciation of 4.1 percent, according to the manager. The buildings have an average age of 10.5 years.

The purchase of the Fuji Soft Shiodome Building for JPY 25.1 billion gives JMF a 2024-built office property within a five-minute walk of Shiodome station on the Oedo line of the Toei subway. The nine-storey building — part of a Minato precinct known as Italian Town for its distinctive architecture — has 12,755 square metres (137,294 square feet) of leasable space and is 99.2 percent occupied by three tenants.

The Fuji Soft head office in Yokohama’s Naka ward, traded for JPY 17.8 billion, stands 21 storeys high and within a one-minute walk of Sakuragicho station on the JR Keihin-Tohoku commuter line. The 2004-completed tower’s 16,366 square metres of leasable space is fully occupied by five tenants.

“While the main tenants for the properties are the Fuji Soft Group, all properties (excluding land with leasehold interest) are versatile buildings that can be operated as multi-tenant offices,” the manager said.

For KKR, the disposal aligns with the private equity major’s plans for Fuji Soft after acquiring the software maker in a deal valuing the company at north of $4 billion. KKR had nodded to Fuji Soft’s property holdings when the US fund manager made its original offer in August of last year.

“KKR is considering the securitisation of real estate held by the target company and implementing measures to improve sales growth and profitability after the completion of the transaction,” the firm said at the time.

Beefed-Up Trust

JMF will finance the acquisition of the Fuji Soft portfolio with JPY 20.5 billion in loans from Japanese banks and the proceeds from the divestment of assets including interests in two Osaka malls for JPY 25.8 billion.

KKR acquired JMF’s manager in 2022 from Japan’s Mitsubishi Corp and Swiss banking heavyweight UBS in a $2 billion balance sheet transaction using no client funds. Since then, the JMF portfolio has grown from 128 properties to the current 159 with a total acquisition value of JPY 1.33 trillion.

JMF’s manager also runs an industrial REIT, Industrial & Infrastructure Fund, with a portfolio of 110 properties acquired for a total of JPY 507.6 billion.