Japanese property and infrastructure company Ichigo Inc. is reshuffling its real estate portfolio, with one of its sponsored funds selling two office buildings to a Tokyo Stock Exchange-listed REIT under its management for a total of JPY 6.25 billion ($48 million).
Ichigo Office REIT Investment Corporation is buying the mid-size properties, which span a total leasable area of 6,546 square metres (70,461 square feet) in the central business district of Fukuoka, the capital of Fukuoka Prefecture. The REIT is managed by Ichigo Investment Advisors, a subsidiary of Tokyo-based Ichigo.
“As a specialized office REIT that delivers robust earnings stability via a diversified portfolio, Ichigo Office continues to execute on its strategy to grow shareholder value by focusing its portfolio on high-quality, mid-size office assets,” Ichigo Office REIT said in a filing on Tuesday, adding that the newly purchased assets have earnings growth upside.
The acquisition includes Ichigo Hakataeki Higashi Building, which is changing hands for JPY 3.5 billion, and Fukuoka Kensetsu Kaikan, which is being sold for JPY 2.75 billion, representing a price per square metre of JPY 973,112 and JPY 932,450, respectively. The seller, the Ichigo Office Bridge Fund, purchased the assets in January of last year.
The acquisition will boost the REIT’s portfolio to 84 office assets and is expected to increase its annual net operating income by about JPY 113 million, the trust said. Ichigo Office REIT plans to carry out value-add enhancements to the pair of properties.
Ichigo Office Bridge Fund acquired the buildings, together with two others – one in Fukuoka and one in Tokyo – in January 2022, with Ichigo Office REIT simultaneously investing JPY 50 million to buy a 0.94 percent equity interest in the fund. Through the deal, the REIT obtained preferential negotiation rights to acquire the bridge fund’s four underlying assets.
The two buildings now being acquired by the REIT are located roughly 600 metres apart in a bustling downtown area east of Hakata Station, Fukuoka’s main transit hub that connects the city on the northern shore of Kyushu Island to the rest of Japan.
Located at 1-13-9 Hakataeki Higashi in Hakata Ward, Ichigo Hakataeki Higashi Building was built in 1987 and was 96.8 percent occupied by 32 tenants at the end of last year. The eight-storey building has a leasable area of 3,597 square metres. The property sits along Nakahie Park Street, a major thoroughfare, less than a block away from Hakata Station.
Fukuoka Kensetsu Kaikan is just a 10-minute walk to the southeast at 3-14-18 Hakataeki Higashi. Built in 1997, the nine-storey building spans 2,949 square metres and was 100 percent occupied by 11 tenants at the end of 2022. The city of Fukuoka has partial rights to about 96 square metres of the land for the purposes of building a high-speed rail facility, the REIT noted.
Current tenants of the two buildings run the gamut from construction and real estate firms to IT companies and a medical clinic.
Ichigo Office REIT specializes in value-add investment in mid-size office assets, which are seen to provide stable cashflow and upside for shareholders. The REIT argues on its website that Japan is showing signs of emerging from decades of deflation, a trend that could boost rental income.
The trust’s portfolio of 86 assets as of year-end 2022 is concentrated in the Tokyo metropolitan area and was assembled at a total acquisition price of JPY 206 billion. Following a strategic portfolio restructuring that includes the most recent purchases in Fukuoka, the REIT expects to have an annual net operating income of JPY 11.24 billion.
As part of the same restructuring, Ichigo Office REIT sold Tokyo’s Ichigo Ikenohata Building in October and the following month bought the Ichigo Marunouchi South Building in Nagoya. The REIT said it is using the proceeds from its sale of the Ichigo Ikenohata Building to acquire the Fukuoka assets.
Chaired by American investor Scott Callon, Tokyo Stock Exchange-listed Ichigo focus on sustainable real estate, asset management, and clean energy. Callon also serves as chief executive of Ichigo Asset Management, which manages billions of dollars invested mainly on behalf of US and European charities and endowments.