Tokyu REIT Selling Shibuya Retail Building to Development Affiliate for $46M

Tokyu REIT has agreed to sell a nine-storey retail building in Tokyo’s Shibuya ward to Tokyu Land Corporation for JPY 6.5 billion ($46 million).

The TSE-listed trust will unload Conze Ebisu at a 38 percent premium to the asset’s book value of JPY 4.7 billion and an 18 percent premium to the September appraisal value of JPY 5.5 billion, according to an announcement late last week.

The disposal to developer Tokyu Land, an associate company of Tokyu REIT’s sponsor, railway conglomerate Tokyu Corporation, comes as Conze Ebisu’s annual rent has reached an all-time high of JPY 223 million and the trust’s manager has flagged the need for large-scale repair work to maintain and improve the 2004-vintage building.

“As a result of the bidding regarding the sale of the property based on the above circumstances, with the purchaser’s intent to purchase the property at a price exceeding the book value and the most recent appraisal value, Tokyu REIT decided on the disposition, judging that the disposition of the property in the current market environment was the best decision from the perspective of total return,” the manager said.

Tokyo Metro Access

Tokyu REIT acquired Conze Ebisu from Nomura Real Estate Development in 2006 for JPY 5.1 billion. The narrow building contains 2,327 square metres (25,048 square feet) of rentable area and is within a one-minute walk of Ebisu station on Tokyo Metro’s Hibiya Line.

The asset is fully occupied by eight tenants, including restaurants and a yoga studio, but with the company having pointed to the need for improvements to the building, there is concern about prolonged downtime in the event of tenants moving out “due to the characteristics of the property”, according to the manager.

Tokyu REIT expects to record a gain of JPY 1.9 billion on the sale at JPY 2.8 million per square metre of leasable space, with the transaction set to close on 30 September. The proceeds are to be used for loan repayment, share buybacks or new acquisitions, the manager said.

Upon completion of the deal, Tokyu REIT’s portfolio will comprise 29 retail, office, residential and mixed-use assets in Greater Tokyo with a total acquisition cost of JPY 252.6 billion ($1.8 billion).

Portfolio Optimisation

Tokyu REIT’s most recent transaction was July’s buyout of the 11-storey Tokyu Bancho Building in Tokyo’s Chiyoda ward for JPY 14.7 billion ($93 million).

The trust acquired the 47.4 percent stake it didn’t already own in the office building from its sponsor because of the fully leased asset’s potential to improve the portfolio’s cash flow in the medium to long term, according to the manager. The deal valued the 2011-vintage complex at JPY 31 billion ($200 million).

To help fund the acquisition of Tokyu Bancho, the REIT obtained JPY 7 billion in debt financing from domestic lenders and sold the land with leasehold interest of an asset, known as REVE Nakameguro, in Tokyo’s Meguro ward for JPY 1.2 billion.