By Makiko Yamazaki and Miho Uranaka
TOKYO (Reuters) – Japan’s Seibu Holdings 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, JFE Holdings and Hino Motors, 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)
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