Make The World
More Sustainable
[Provisional Translation Only]
This English translation of the original Japanese document is provided solely for information purposes. Should there be any discrepancies between this translation and the Japanese original, the latter shall prevail.
April 26, 2024
Issuer
Ichigo Office REIT Investment Corporation ("Ichigo Office," 8975) 2-6-1Marunouchi, Chiyoda-ku,Tokyo
Representative: Keisuke Chiba, Executive Director
www.ichigo-office.co.jp/en
Asset Management Company
Ichigo Investment Advisors Co., Ltd.
Representative: Hiroshi Iwai, President
Inquiries: Yuji Kamo, Head of Ichigo Office
Tel: +81-3-4485-5231
Sale of Two Portfolio Assets
(Ichigo Ofuna Building, Ichigo Kudan 2 Chome Building)
Ichigo Office decided today to sell two assets, the Ichigo Ofuna Building and Ichigo Kudan 2 Chome Building.
1. Asset Sales Summary
(Total Appraisal Value: JPY 3,360 million, Total Sale Price: JPY 4,470 million)
Asset Number | O-56 | O-18 |
Ichigo Kudan 2 Chome | ||
Asset Name | Ichigo Ofuna Building | |
Building | ||
Asset Type | Office | Office |
Date Built | April 3, 1973 | November 6, 1997 |
Legal Form of Asset | Trust beneficiary interest in real estate (juekiken) | |
Date Acquired | December 5, 2014 | November 1, 2011 |
Buyer1 | Third-Party Japanese | Third-Party Japanese |
Company | Company | |
Broker | Third-Party Broker | Third-Party Broker |
Sale Price2 (A) | JPY 2,420 million | JPY 2,050 million |
Book Value3 (B) | JPY 1,981 million | JPY 750 million |
Sale Price vs. Book | ||
Value 4 | JPY 438 million | JPY 1,299 million |
(A) - (B) | ||
Gains on Sale | JPY 260 million | JPY 1,060 million |
Appraisal Value5 | JPY 2,180 million | JPY 1,180 million |
Contract Date | April 26, 2024 | April 26, 2024 |
Closing Date | April 26, 2024 | October 31, 2024 |
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- The buyers, third-party Japanese companies, did not provide consent to disclose their names.
- Sale Price is the sale price of the asset excluding incidental expenses such as fees and property, city planning, and consumption taxes.
- Book Value is an estimate based upon the most recent book value (October 2023 fiscal period-end), adjusted for expected capital expenditures and depreciation through the Closing Date.
- The difference between the Sale Price and Book Value is not equal to the gains on sale from today's sale.
- Appraisal Value is calculated by Tanizawa Sogo Real Estate Appraisal as of October 31, 2023, pursuant to the appraisal guidelines stipulated in Ichigo Office's Articles of Incorporation and the rules of the Investment Trusts Association of Japan.
2. Sales Rationale
Ichigo Office continues to work to improve the quality of its portfolio and drive earnings by focusing its portfolio on high-quality,mid-size office assets that generate stable cash flow.
Of the two assets being sold today, the Ichigo Ofuna Building is an office building located in Kamakura City in Kanagawa Prefecture near Yokohama, and is a three- minute walk from Ofuna Station on the JR and Shonan Monorail Lines.
Since Ichigo Office's acquisition in 2014, the building had been fully occupied due to its attractive location near a train station. Although a major bank tenant departed on December 31, 2022 due to a branch reorganization, Ichigo Office successfully leased up part of the vacant space to a new store tenant searching for a convenient location and has maintained 85% occupancy since re-tenanting.
After exploring options to sell the building based on the policy described above, Ichigo Investment Advisors ("IIA") decided to accept an offer from the buyer for a price that exceeds book value and the recent appraisal value. The buyer recognized the building's convenient location and potential to attract retail tenants in the service industry.
The second asset being sold today is the Ichigo Kudan 2 Chome Building, a highly visible office building located an eight-minute walk from Ichigaya Station on the JR Sobu Line and a nine-minute walk from Kudanshita Station on the Tokyo Metro and Toei Subway Lines. After the building's sole tenant occupying the entire building departed in February 2022, Ichigo Office conducted value-add renovations of the entrance and common areas on each floor, and successfully leased up the building to a new tenant in August 2022 with a 38.5% increase in rent.
As a result, the building's appraisal value increased by 25.9% from JPY 937 million as of April 30, 2022 to JPY 1,180 million as of October 31, 2023. Please refer to Driving Growth via Value-AddCapex (Ichigo Kudan 2 Chome Building)on the next page for details.
Given that the new tenant's rent is near the upper limit of rent in the area, IIA determined that it would be difficult to further increase rent. As such, after exploring options to sell the building based on its policy described above, IIA decided to accept an offer from the buyer for a price that is 2.7 times book value and 1.7 times recent appraisal value. The buyer recognized the building's convenient location in a quiet neighborhood in central Tokyo.
IIA decided that the sale of this asset would drive long-term shareholder value in light of anticipated increases in capital expenditures required for repairs and facility upgrades to maintain and drive the building's competitiveness, and the uncertain outlook for rent
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levels in the area.
With these asset sales, Ichigo Office's post-transaction portfolio will be 97.6% office assets. Ichigo Office will use the proceeds from the asset sales for strategic investments such as asset acquisitions and value-add capex.
Driving Growth via Value-Add Capex (Ichigo Kudan 2 Chome Building)
- February 2022: Departure of sole tenant that occupied the entire building since Ichigo Office's acquisition due to tenant moving to its parent company office
- Ichigo Office conducted value-add to renovate building entrance and common areas to achieve re-tenanting at a higher rent (Value-add capex: JPY 34 million)
- August 2022: Leased up entire building to a new tenant occupying the entire building with a 38.5% increase in rent
Entrance (Before)
Elevator Hall (After)
Outcomes
Entrance (After)
Occupancy
Feb 28, 2022 | 100% |
Mar 31, 2022 | 0% |
Aug 31, 2022 | 100% |
Mar 31, 2024 | 100% |
NOI
2021 | JPY 45M |
(Before | |
p.a. | |
Re-tenanting) | |
2023 | JPY 63M |
(After | |
p.a. | |
Re-tenanting) | |
Appraisal Value
Apr 2022 | JPY 937M |
Oct 2022 | JPY 1,160M |
Apr 2023 | JPY 1,160M |
Oct 2023 | JPY 1,180M |
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3. Asset Details
(1) Ichigo Ofuna Building
Asset Overview | |||||||||||||
Asset Name | Ichigo Ofuna Building | ||||||||||||
Form of Ownership | Trust beneficiary interest in real estate (juekiken) | ||||||||||||
Location | 1-26-29 Ofuna, Kamakura City, Kanagawa Prefecture | ||||||||||||
Trust Beneficiary | Sumitomo Mitsui Trust Bank, Limited | ||||||||||||
Trust Beneficiary Period | September 30, 2004 to September 30, 2024 | ||||||||||||
Property Right | Freehold | ||||||||||||
Land | Area | 1,461.04m2 | |||||||||||
Zoning | Residential | ||||||||||||
Coverage Ratio | 60% | ||||||||||||
Floor Area Ratio | 200% | ||||||||||||
Property Right | Freehold | ||||||||||||
Use | Office/Parking Lot | ||||||||||||
Building | Structure | Reinforced Concrete, B1F/8F | |||||||||||
Total Floor Area | 3,323.93m2 | ||||||||||||
Date Built | April 3, 1973 | ||||||||||||
Number of | Tenants | 10 (as of March 31, 2024) | |||||||||||
Monthly Rental Income | JPY 8.970 million (as of March 31, 2024) | ||||||||||||
Tenant Security Deposits | JPY 89.054 million (as of March 31, 2024) | ||||||||||||
Leasable Area | 2,176.47m2 (as of March 31, 2024) | ||||||||||||
Leased Area | 1,884.05m2 (as of March 31, 2024) | ||||||||||||
Occupancy | Apr 2022 | Oct 2022 | Apr 2023 | Aug 2023 | Mar 2024 | ||||||||
100% | 100% | 94.3% | 83.3% | 86.6% | |||||||||
Acquisition Price | JPY 2,000 million | ||||||||||||
Appraisal | Appraiser | Tanizawa Sogo Real Estate Appraisal Co., Ltd. | |||||||||||
Appraisal Date | October 31, 2023 | ||||||||||||
Value | |||||||||||||
Appraisal Value | JPY 2,180 million | ||||||||||||
Monthly rental income and tenant security deposits are based on the monthly rental income (including common area service income) and tenant security deposits pursuant to tenant rental contracts.
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Appraisal Details
Asset Name | Ichigo Ofuna Building | ||||||||
Appraisal Value | JPY 2,180,000,000 | ||||||||
Appraiser | Tanizawa Sogo Real Estate Appraisal Co., Ltd. | ||||||||
Appraisal Date | October 31, 2023 | ||||||||
Amount (JPY) | Note | ||||||||
Calculated using an income approach, | |||||||||
Appraisal Value | 2,180,000,000 | with a DCF valuation as a basis and | |||||||
verified using a direct capitalization | |||||||||
valuation | |||||||||
Value by Direct Capitalization | 2,190,000,000 | ||||||||
Method | |||||||||
Income | 148,753,944 | ||||||||
Maximum Obtainable | Based on expected long-term, stable | ||||||||
158,532,047 | rental income, common area service | ||||||||
Rental Income | |||||||||
income, and other income | |||||||||
Vacancy Loss | 9,778,103 | Based on a vacancy rate of 5.0% | |||||||
Expenses | 31,477,829 | ||||||||
Administrative and | Based on management expenses | ||||||||
8,540,468 | pursuant to management agreement | ||||||||
Maintenance Expenses | |||||||||
and historical actual amounts | |||||||||
Utility Expenses | 10,264,233 | Based on historical actual amounts | |||||||
Based on engineering reports, | |||||||||
reference to similar assets, and a 3:7 | |||||||||
Repair Expenses | 1,660,000 | (Repair Expenses: Capital | |||||||
Expenditure) allocation based on the | |||||||||
Corporate Tax Law Basic Interpretive | |||||||||
Regulations | |||||||||
PM Fee | 2,770,992 | Based on existing contractual fees | |||||||
Leasing Brokerage Fees | 849,842 | Based on assumption that 10% of | |||||||
tenants will change annually | |||||||||
Taxes | 6,970,100 | Based on FY2023 actual amounts | |||||||
Insurance Premiums | 273,440 | Based on quotes from insurance | |||||||
companies | |||||||||
Other Expenses | 148,754 | Based on historical actual amounts | |||||||
Net Operating Income | 117,276,115 | ||||||||
(NOI) | |||||||||
Income on Investment of | 820,383 | Based on a 1.0% investment yield | |||||||
Deposits Received | |||||||||
Based on engineering reports, | |||||||||
reference to similar assets, and a 3:7 | |||||||||
Capital | 4,150,000 | (Repair Expenses: Capital | |||||||
Expenditure | Expenditure) allocation based on the | ||||||||
Corporate Tax Law Basic Interpretive | |||||||||
Regulations | |||||||||
Net Profit | 113,946,498 | ||||||||
Based on transactions of similar assets, | |||||||||
Cap Rate | 5.2% | while taking into account the discount | |||||||
rate |
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Value via DCF Method | 2,180,000,000 | |||
Discount Rate | 5.1% | Base rate adjusted for individual risks | ||
assuming a holding period of ten years | ||||
Terminal Cap Rate | 5.4% | Cap rate adjusted for uncertainties | ||
Value via Cost Approach | 2,130,000,000 | |||
Based upon the value recorded in the | ||||
Ratio of Land | 86.1% | government land assessment | ||
(koujikakaku) and transactions of | ||||
similar assets | ||||
Based on current replacement costs | ||||
Ratio of Building | 13.9% | and depreciation due to building age | ||
from engineering reports | ||||
Notes | ||||
Given that demand for the building comes primarily from investors making decisions based on profitability, Ichigo Office believes the price has been determined based on profitability in light of the building's current condition and competitiveness.
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(2) Ichigo Kudan 2 Chome Building
Asset Overview | ||||||||||||
Asset Name | Ichigo Kudan 2 Chome Building | |||||||||||
Form of Ownership | Trust beneficiary interest in real estate (juekiken) | |||||||||||
Location | 2-8-4 Kudan Minami, Chiyoda-ku, Tokyo | |||||||||||
Trust Beneficiary | Resona Bank | |||||||||||
Trust Beneficiary Period | June 29, 2011 to June 30, 2031 | |||||||||||
Property Right | Freehold | |||||||||||
Land | Area | 322.74m2 | ||||||||||
Zoning | Commercial | |||||||||||
Coverage Ratio | 80% | |||||||||||
Floor Area Ratio | 500% | |||||||||||
Property Right | Freehold | |||||||||||
Use | Office | |||||||||||
Building | Structure | Steel/Reinforced Concrete, B1F/7F | ||||||||||
Total Floor Area | 1,664.79m2 | |||||||||||
Date Built | November 6, 1997 | |||||||||||
Number of | Tenants | 1 (as of March 31, 2024) | ||||||||||
Monthly Rental Income2 | JPY 6.891 million (as of March 31, 2024) | |||||||||||
Tenant Security Deposits2 | JPY 53.6 million (as of March 31, 2024) | |||||||||||
Leasable Area | 1,265.76m2 (as of March 31, 2024) | |||||||||||
Leased Area | 1,265.76m2 (as of March 31, 2024) | |||||||||||
Occupancy | Apr 2022 | Oct 2022 | Apr 2023 | Aug 2023 | Mar 2024 | |||||||
- | 100% | 100% | 100% | 100% | ||||||||
Acquisition Price | JPY 763 million | |||||||||||
Appraisal | Appraiser | Daiwa Real Estate Appraisal Co., Ltd. | ||||||||||
Appraisal Date | October 31, 2023 | |||||||||||
Value | ||||||||||||
Appraisal Value | JPY 1,180 million | |||||||||||
Monthly rental income and tenant security deposits are based on the monthly rental income (including common area service income) and tenant security deposits pursuant to tenant rental contracts.
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Appraisal Details
Asset Name | Ichigo Kudan 2 Chome Building | ||||||||
Appraisal Value | JPY 1,180,000,000 | ||||||||
Appraiser | Daiwa Real Estate Appraisal Co., Ltd. | ||||||||
Appraisal Date | October 31, 2023 | ||||||||
Amount (JPY) | Note | ||||||||
Calculated using an income approach, | |||||||||
Appraisal Value | 1,180,000,000 | with a DCF valuation as a basis and | |||||||
verified using a direct capitalization | |||||||||
valuation | |||||||||
Value by Direct Capitalization | 1,100,000,000 | ||||||||
Method | |||||||||
Income | 69,112,419 | ||||||||
Maximum Obtainable | Based on expected long-term, stable | ||||||||
72,748,020 | rental income, common area service | ||||||||
Rental Income | |||||||||
income, and other income | |||||||||
Vacancy Loss | 3,635,601 | Based on a vacancy rate of 5.0% | |||||||
Expenses | 20,836,171 | ||||||||
Administrative and | 5,307,060 | Based on historical actual amounts | |||||||
Maintenance Expenses | |||||||||
Utility Expenses | 3,377,220 | Based on historical actual amounts | |||||||
Repair Expenses | 1,817,417 | Based on the average of the past 12 | |||||||
years of engineering reports | |||||||||
PM Fee | 1,869,973 | Based on existing contractual fees | |||||||
Equivalent to 1.0 month rent for a new | |||||||||
Leasing Brokerage Fees | 556,539 | tenant based on tenant acquisition | |||||||
costs at similar assets | |||||||||
Taxes | 7,397,900 | Based on FY2023 actual amounts | |||||||
Insurance Premiums | 164,500 | Based on current actual amounts | |||||||
Other Expenses | 345,562 | 0.5% of rent revenue as reserves | |||||||
Net Operating Income | 48,276,248 | ||||||||
(NOI) | |||||||||
Income on Investment of | 556,539 | Based on a 1.0% investment yield | |||||||
Deposits Received | |||||||||
Capital | 4,930,500 | Based on the average of the past 12 | |||||||
Expenditure | years of engineering reports | ||||||||
Net Profit | 43,902,287 | ||||||||
Cap Rate | 4.0% | ||||||||
Value via DCF Method | 1,210,000,000 | ||||||||
Discount Rate | 3.9% | Based on transactions of similar assets | |||||||
and the yields of financial assets | |||||||||
Based upon current NOI adjusted for | |||||||||
Terminal Cap Rate | 4.2% | expected marketability at the end of | |||||||
ownership period. | |||||||||
Value via Cost Approach | 965,000,000 | ||||||||
Based upon the value recorded in the | |||||||||
Ratio of Land | 82.6% | government land assessment | |||||||
(koujikakaku) and transactions of | |||||||||
similar assets |
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Ratio of Building
17.4%
Notes
Based on current replacement costs and depreciation due to building age from engineering reports
Given that demand for the building comes primarily from investors making decisions based on profitability and investment returns, Ichigo Office determined that the value by direct capitalization method, which takes into consideration the market price from a profitability perspective, is more appropriate than the value via cost approach.
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4. Buyer Profiles
Ichigo Ofuna Building and Ichigo Kudan 2 Chome Building
Name | The buyers, both of which are domestic operating companies, did |
not provide consent to disclose their names. | |
Relationship to | The buyers do not have any material capital, personnel, or |
Ichigo Office or | transactional relationship with Ichigo Office or IIA. In addition, |
Ichigo Investment | the buyers are not related parties as defined in the Act on Trusts |
Advisors (IIA) | and Investment Corporations or the internal rules of IIA. |
5. Forward Commitment (Ichigo Kudan 2 Chome Building)
Because the contract date for the Ichigo Kudan 2 Chome Building is October 31, 2024, six months and five days from today, the asset sale constitutes a forward commitment by Ichigo Office as stipulated in the Comprehensive Guidelines for Supervision of Financial Instruments Business Operators by the Financial Services Agency1.
In the event of a violation of the provisions of the asset sale by Ichigo Office or the buyer, the other party shall have the right to terminate the sale and claim up to 10% of the sale price as a penalty.
Because Ichigo Office is the seller, it is highly unlikely that Ichigo Office will incur the penalty or suffer a negative material impact on its financial position.
1 Refers to a post-dated purchase and sales agreement under which payment and property delivery shall be made at least one month after the conclusion of the agreement, or any other agreement similar thereto.
6. Transaction Method
Lump-sum payments will be made for both the Ichigo Ofuna Building and the Ichigo Kudan 2 Chome Building at the time of each sale.
7. Use of Proceeds
Ichigo Office will retain c. JPY 100 million of the c. JPY 260 million of gains on sale for the Ichigo Ofuna Building and c. JPY 100 million of the c. JPY 1.06 billion of gains on sale for the Ichigo Kudan 2 Chome Building as retained earnings without incurring a tax burden, and distribute the remaining amounts as dividends to shareholders for the April 2024 fiscal period and the October 2024 fiscal period, respectively. Gains on sale is calculated by subtracting book value, brokerage fee, IIA's gains on sale performance fee, and other asset sale-related expenses from each building's sale price.
Ichigo Office will deploy the remainder of the sales proceeds towards strategic investments such as asset acquisitions and value-add renovations.
8. Earnings Impact
Today's sales have been factored into Ichigo Office's April 2024 and October 2024 fiscal period earnings forecast announced in today's release, "Upward Earnings Forecast Revisions for the April 2024 Fiscal Period & October 2024 Fiscal Period."
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Disclaimer
Ichigo Office REIT Investment Corporation published this content on 26 April 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 April 2024 14:36:13 UTC.