Tokyu REIT Buying Out Sponsor’s 47.4% Stake in Tokyo Office Building for $93M

Tokyu REIT has agreed to acquire the 47.4 percent stake it doesn’t already own in a Tokyo office building from its sponsor, Tokyu Corporation, for JPY 14.7 billion ($93 million).

The TSE-listed trust is buying out the 11-storey Tokyu Bancho Building in the capital’s central Chiyoda ward because of the fully leased asset’s potential to improve the portfolio’s cash flow in the medium to long term, the REIT’s manager said Friday in a release.

Tokyu REIT will take full ownership of the Tokyu Bancho Building upon completing the deal this Friday, according to the announcement, with the acquisition valuing the 2011-vintage office complex at JPY 31 billion ($200 million).

“The Bancho area of Chiyoda ward where Tokyu Bancho Building is situated offers excellent access to central business districts such as Otemachi, Marunouchi and Yurakucho,” the manager said. “Moreover, rent levels in the five central wards of Tokyo are relatively stable, broad demand across industries is anticipated, and the vacancy rate in the Kanda and Iidabashi areas, which include the Bancho area, remains low at 2.4 percent.”

Prime Location

The glass-and-steel Tokyu Bancho Building sits a three-minute walk from Tokyo’s Ichigaya railway hub and less than 2 kilometres (1.2 miles) from the Imperial Palace.

Standard floor area is 1,200 square metres for the building’s total leasable area of 12,269 square metres (132,062 square feet), with Tokyu REIT set to pay more than JPY 2.5 million ($16,000) per square metre to consolidate its ownership.

The asset is to be acquired at a price equal to its May appraisal value, carrying an initial net operating income yield of 3.3 percent.

To help fund the acquisition of the Tokyu Bancho Building, the REIT is obtaining JPY 7 billion in debt financing from domestic lenders and selling the land with leasehold interest of an asset, known as REVE Nakameguro, in Tokyo’s Meguro ward for JPY 1.24 billion.

Vacancy Tightening

The average office vacancy rate in Tokyo’s central five wards — namely Chiyoda, Chuo, Minato, Shibuya and Shinjuku — eased to 5.4 percent in March from 6.2 percent six months earlier, dropping below 6 percent for the first time in three years, according to DWS.

Average vacancy for newly constructed buildings fell from 42.7 percent to 23.7 percent during the same period, the German fund manager said. The tightening was driven in part by foreign firms relocating to newly opened buildings in Minato as IT and entertainment companies actively expanded in Shibuya.

Rents for prime office space in the Marunouchi business district and new Grade A offices throughout the Japanese capital continued their modest growth for a fifth straight quarter, DWS said.