Japan's Seibu considers sale of Tokyo office building for $2 bln, sources say

SEIBU HOLDINGS

22/03/2024 06:10

By Makiko Yamazaki and Miho Uranaka
       TOKYO, March 22 (Reuters) - Japan's Seibu Holdings
 9024.T  is considering selling a high-end office building in
central Tokyo for at least $2 billion, people familiar with the
matter said, in what would be one of the country's biggest
property deals on record.
    The potential sale of the 36-storey Tokyo Garden Terrace
Kioicho office and hotel complex is aimed at helping Seibu free
up its balance sheet, something Japanese firms are increasingly
looking to do amid pressure from shareholders and regulators for
better use of capital. 
    A deal by the 111-year-old property and railway company
would also come as global demand for Japanese commercial real
estate remains robust, given attractive terms, including low
borrowing costs and stable rents. 
    That contrasts with the market globally, particularly in the
United States, where property prices have fallen sharply due to
higher interest rates and soaring vacancies. 
    While Japan just experienced its first interest rate
increase in 17 years, analysts say that will not deter property
investors, as long as the pace of further increases remains
gradual.
    The sale of Tokyo Garden Terrace Kioicho could be worth at
least 300 billion yen ($2 billion), two of the sources said. The
complex was launched in 2016 in a $690 million development
project at the site of the former Grand Prince Hotel Akasaka,
which Seibu also owned.
    At that size, the deal would be close to the 436 billion yen
sale by the government of its stake in the Otemachi Place office
tower in 2022, the biggest property transaction in Japan's
history.
    Seibu has approached around 10 potential buyers, including
Japanese real estate developers and global investment funds such
as Blackstone and GIC, said one of the people, all of whom
declined to be identified as the matter is private.
    The timeline for the potential sale is not clear. The talks
are still in early stages and the company could decide to keep
the building, the sources said.
    
    REDEVELOPMENT PROJECTS
    Selling the building would give Seibu funds needed to
finance high-yielding redevelopment projects planned in central
Tokyo in coming years, including Takanawa and Shinagawa, one of
the sources said.
    Seibu has been pursuing a so-called "asset-light" strategy
of having fewer assets on its balance sheet for higher capital
efficiency, a departure from the typical business model in Japan
where developers retain the properties they have built.
    Asked about the sale, Seibu said in a statement that the
company is in the process of selecting assets to be liquidated
under the strategy. Nothing has been decided at this point, but
the company is planning to announce a decision in May, it added.
    Blackstone and GIC declined to comment.
    "Japan remains attractive as an investment destination due
to ample liquidity owing to the size of its real estate
investment market and depth of market participants," Chinatsu
Hani, senior director at property research firm and broker CBRE,
said in a recent report.    
    Required yields on prime commercial properties in Tokyo
central business districts are as low as 3%, falling short of
what is generally expected as cost of capital for listed
companies.
    Seibu sold more than 20 properties, including some of its
Prince brand hotels and leisure facilities, to Singapore's
sovereign wealth fund GIC about two years ago for a total of
more than 120 billion yen. It continues to operate those
facilities after the sale.
    The company is aiming for a return on equity ratio of 10%,
up from 3.5% two years ago.
    Japanese companies have accelerated the shedding of property
assets cluttering up their balance sheets, as their use of
capital has faced greater scrutiny from shareholders.
    Recent transactions include the sale of former factory sites
by Mitsubishi Heavy Industries  7011.T , JFE Holdings  5411.T 
and Hino Motors  7205.T , giving property professionals access
to extensive property holdings in corporate Japan.
    Seibu, one of the property groups synonymous with Japan's
high-growth era, was delisted in 2004 for falsifying financial
statements. It was later acquired partially by private equity
firm Cerberus, which sold down its stake after the company
relisted in Tokyo in 2014.

 (Reporting by Makiko Yamazaki and Miho Uranaka; Additional
reporting by Junko Fujita and Yantoultra Ngui; Editing by David
Dolan and Stephen Coates)
 ((Makiko.Yamazaki@thomsonreuters.com; +81-3-4563-2805;))