SBI’s Nippon REIT Selling Two Tokyo Office Blocks, Nagoya Retail Building for $114M

Nippon REIT has agreed to sell two central Tokyo office buildings and a Nagoya retail property for a total of JPY 16.8 billion ($114.4 million), the TSE-listed trust announced this week.

A non-related domestic company is acquiring the trio of assets at a 16 percent premium to their combined book value of JPY 14.5 billion, the REIT sponsored by finance giant SBI Group said Wednesday in a stock filing. The transaction price of each property wasn’t disclosed.

The office properties — Forecast Sakurabashi in Chuo ward and Central Daikanyama in Shibuya ward — were tabbed for disposal due to their age of over 30 years and an expected increase in capital spending, according to the trust’s manager. The Nagoya retail facility, Become Sakae, was selected for its low occupancy rate after the exit of major tenants.

“After a comprehensive review of future internal growth potential, Nippon REIT decided that the termination of the management of the properties scheduled to be transferred and the realisation of unrealised profit at this time would contribute to the maximisation of unitholder value,” the trust’s manager said.

Ageing Assets Unloaded

Forecast Sakurabashi, the top asset by book value in the set of divested properties, has an appraised value of JPY 7.3 billion and 100 percent occupancy for its 6,567 square metres (70,687 square feet) of leasable floor space. The 1985-vintage property houses five tenants paying annual rent of JPY 382 million.

Central Daikanyama, appraised at JPY 3.7 billion, was built in 1991 and saw occupancy slip from 92.6 percent in February to 77.6 percent at the end of May for its 1,899 square metres of leasable floor space. Annual rent income is JPY 131 million.

The divestments of Become Sakae and Forecast Sakurabashi, deemed forward commitments, will take place in September and January, respectively, while the sale of Central Daikanyama is scheduled to close next month. Proceeds from the disposals will be kept as cash on hand and used for future measures to maximise unitholder value, the manager said.

Upon completion of the transactions, Nippon REIT’s portfolio will comprise 100 properties with a total acquisition value of JPY 242.1 billion ($1.7 billion).

Ultra-Tight Vacancy

While average rents in Tokyo’s office market remain below pre-COVID levels, vacancy rates in some areas have already returned to the ultra-tight level seen before the pandemic, according to Savills.

The average Grade A vacancy rate in the central five wards tightened 0.2 percentage points in the second quarter compared with the prior three months to reach 1.5 percent, the consultancy said in its office leasing report. Average Grade A office rents in the C5W rose 3.4 percent on a quarterly basis and 8.3 percent year-on-year to JPY 10,825 per square metre per month.

“With prime office vacancies continuing to tighten amid strong demand, attention is shifting to whether less accessible and older buildings can attract tenants through value-add repositioning and asset enhancement strategies,” Savills said.