Keppel Reit enters Japan office market with 8.8 billion yen purchase in Tokyo

THE manager of Keppel Reit is acquiring a 98.47 per cent effective interest in a freehold boutique office building in Tokyo for 8.83 billion yen (S$84.4 million).

The property, Ginza 2-chome, has eight storeys of office space and a retail unit on the ground floor, with net lettable area of 3,427.1 square metres.

It is located in the Ginza district within the Chuo ward, one of Tokyo’s core three wards and home to major Japanese corporations, the Bank of Japan and the Tokyo Stock Exchange, said Keppel Reit Management.

It noted that Japan’s low interest rate environment provides an attractive net property income yield spread. Tokyo also has the largest central business district office market in Asia – 2.6 times larger than the Singapore office market – and is leading in office investment volume in the Asia-Pacific with transaction value of US$15.6 billion in 2021, the manager said.

Koh Wee Lih, chief executive of the manager, said the acquisition strengthens the Reit’s geographical and income diversification and provides greater stability.

“In addition, the well-located freehold asset in Tokyo’s prime Ginza district will enhance the visibility of Keppel Reit in the Japanese market and pave the way for the Reit’s future expansion in the well-established and scalable investment-grade office market in Japan,” he added.

The property is anchored by Netyear Group Corporation, a subsidiary of NTT Data Corporation, and is not fully leased. It had a weighted average lease expiry of 3.4 years as at Oct 28.

When fully leased, the property is expected to bring a net property income yield of about 3.1 per cent and pro forma distribution per unit accretion of 0.5 per cent.

The remaining 1.53 per cent effective interest in the property will be held by Keppel Capital Japan, an indirect wholly-owned subsidiary of Keppel Capital Holdings, which in turn wholly owns Keppel Reit’s manager. The total purchase consideration for Ginza 2-chome is 8.97 billion yen.

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Keppel Capital Japan will be appointed as the local asset manager for the property. The team has 17 years of experience in investing and managing various assets worth more than 180 billion yen, said the manager.

The acquisition will be funded by yen-denominated borrowings. Post-acquisition, Keppel Reit’s aggregate leverage will increase from 38.4 per cent to 39 per cent.

Assets under management (AUM) will be about S$9 billion across 12 properties in Singapore (representing 77.8 per cent of AUM), Australia, South Korea and Japan.

Units of Keppel Reit closed flat at S$0.92 on Friday (Oct 28).