Notice of Acquisition and Disposition of Assets and Lease Contract with New Tenants
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November 29, 2019 FOR IMMEDIATE RELEASE Activia Properties Inc. 21-1, Dogenzaka 1-chome, Shibuya-ku, Tokyo Kazushi Sato Executive Director (Code: 3279) Asset Management Company TLC REIT Management Inc. Hiroyuki Tohmata President & CEO Inquiries Kazuyuki Murayama General Manager of Strategy Department Activia Management Division (Tel: +81-3-6455-3377) Notice of Acquisition and Disposition of Assets and Lease Contract with New Tenants Activia Properties Inc. (“API”) announces that TLC REIT Management Inc.(“TRM”), to which API entrusts its asset management operations, decided to acquire (the “Acquisition”) and lease an asset (the “Lease”), and dispose of an asset (the “Disposition”) (hereinafter the Acquisition and the Disposition are collectively referred to as the “Replacement”) today. Under Article 201-2 of the Act on Investment Trusts and Investment Corporations (“ITA”) and the internal rules regarding transactions with related parties of TRM, TRM has obtained API’s approval for the above transactions at API’s board of directors meeting. Details are as follows. 1. Overview of the Replacement (1) Overview of the Acquisition ① Property name : Ebisu Prime Square ② Asset to be acquired : The 51% co-ownership trust beneficiary interest in a property (Ebisu Prime Square) as a trust asset (the “Anticipated Asset”) ③ Acquisition price : ¥30,700 million (excluding expenses for the acquisition, consumption tax, etc.) ④ Date of purchase : November 29, 2019 (plan) contract ⑤ Date of acquisition : January 10, 2020 (plan) ⑥ Seller of property : Rouge LLC ⑦ Funds for acquisition : Borrowings (plan) (Note) ⑧ Settlement method : Total amount to be paid at the time of delivery (Note) Details of the borrowings will be announced upon determination. 1 (2) Overview of the Disposition ① Property name : A-PLACE Shinbashi Ekimae ② Asset to be disposed of : The trust beneficiary interest in a property (A-PLACE Shinbashi Ekimae) as a trust asset (the “Asset to be Disposed of”) ③ Disposition price : ¥21,000 million (excluding expenses for the disposition, consumption tax, etc.) ④ Book value (Note) : ¥20,824 million ⑤ Difference between : ¥175 million anticipated disposition price and book value ⑥ Date of sales contract : November 29, 2019 (plan) ⑦ Date of delivery : March 19, 2020 (plan) ⑧ Acquirer of property : ASUNARO Limited Liability Company ⑨ Purpose of use of funds : Funds will be used for repayment of the borrowing related to the raised by the Acquisition and for distributions (plan) Disposition ⑩ Settlement method : Total amount to be received at the time of delivery (Note) Anticipated book value as of March 19, 2020. 2. Reasons of the Acquisition, the Lease and the Disposition In accordance with the subjects and policies of asset management stipulated in its bylaws, API will conduct the Replacement with aim to reinforce its portfolio. Following the Replacement, the portfolio will consist of 44 properties with an approximate anticipated total acquisition price of ¥509.2 billion (plan) which will contribute to increase our unitholder value through DPU and NAV growth. Furthermore, API judges that the lessees of the Anticipated Asset satisfy the criteria for the selection of tenants stated in the “Report on the Management Structure and System of the Issuer of Real Estate Investment Trust Units and Related Parties” set by TRM on August 30, 2019. For the details of the Acquisition, the Lease and the Disposition, please see below. (1) Acquisition and Lease of Ebisu Prime Square ① Location The property is a 6-minute walk from Ebisu Station on JR lines and the Tokyo Metro lines with a direct access to central Tokyo such as Shibuya, Shinjuku, Roppongi and other areas. The Ebisu area enjoys good location where office demand from diverse companies such as technologies firms and foreign capital companies can be anticipated and is well known and popular for commercial and residential purposes as it is adjacent to Daikanyama and Hiroo areas lined with high-end residences and apparel shops. API holds three office buildings namely TLC Ebisu Building, A-PLACE Ebisu Minami and A-PLACE Ebisu Higashi, and all of them contribute to increase the profitability of our portfolio with high occupancy and ability to lead to internal growth. ② Characteristics of the property The property is a multi-use complex with an aesthetic unity of stone architecture consisting of an office building with a standard floor area of approximately 300 tsubo enabling several layouts, a residential tower of total 62 condominiums of diverse types and a commercial building, extended in approximately 4,000 tsubo site area with a taste of European townscape. The office building, a 22-story skyscraper facing a main street, 2 enjoys high visibility and rarity value in the area. The property will belong in the “Tokyo Office Properties” as over 70% of the contracted rent of the property is derived from office. API considers that the property will be a key property in the greater Shibuya area (Note), one of API’s target areas, and contribute to strengthen its portfolio. (Note) The greater Shibuya area is Shibuya and its surrounding areas with distinctive characteristics connected to each other in multiple aspects, including Ebisu, Aoyama, Omotesando, Harajuku, Daikanyama, etc., attracting a considerable worldwide attention as a “mix-city” combining modern entertainment, work, and housing. (2) Disposition of A-PLACE Shinbashi Ekimae Since acquisition at IPO in June 2012, API has operated A-PLACE Shinbashi Ekimae, formerly named Shinbashi Place, as one of stable and profitable properties in API’s portfolio. The whole building had been leased to a tenant since the commencement of operation by API in June 2012, though it has departed in May 2018. And we succeeded to lease to new tenants all ten floors without down-time, taking advantage of the prime location of property, which is one-minute walk from Shinbashi Station. Although, the renovation work after the former tenant’s departure included specification change as the building had been designed to the tenant, and following the work, the property has suffered decrease in total leasable area and profitability. API deems therefore that it would be reasonable to dispose of the property as replacement to Ebisu Prime Square with aim to increase distributions per unit through improvement in the profitability of portfolio and to wipe out the unrealized loss on asset. 3. Overview of the Anticipated Asset and the Asset to be Disposed of (1) Outline of the Anticipated Asset and the scheduled lease Property name Ebisu Prime Square Specified asset category Trust beneficiary interest Trustee Mizuho Trust & Banking Co., Ltd. Trust establishment date March 21, 2001 Trust maturity date April 30, 2024 6-minute walk from Ebisu Station on the JR Yamanote Line and Transportation Saikyo Line, Shonan-Shinjuku Line and the Tokyo Metro Hibiya Line ① 1-39, Hiroo 1-chome, Shibuya-ku, Tokyo Location (address) ② 1-40, Hiroo 1-chome, Shibuya-ku, Tokyo ③ 1-7, Hiroo 1-chome, Shibuya-ku, Tokyo Location 48-2, 48-5, Hiroo 1-chome, Shibuya-ku, Tokyo (Note 1) Building to land ratio 70.00% (Note 2) Plot ratio 471.90% Land Usage restrictions Category 2 residential district Land area 12,179.49 m2 (Note 1) Ownership Ownership (51% co-ownership interest) Completion date January 31, 1997 (Note 1) ① Steel frame, reinforced concrete, steel-framed reinforced concrete / 22 floors above and 3 floor underground Structure ② Reinforced concrete / 2 floors above and 2 floors underground ③ Steel-framed reinforced concrete, reinforced concrete / Building 13 floors above and 2 floors underground (Note 1) ① Office, retail and parking Registered usage ② Retail and parking ③ Residence, sport club and parking (Note 1) Gross floor area 67,581.00 m2 (Note 1) (Note 3) Parking facilities 211 vehicles 3 Ownership Ownership (51% co-ownership interest) (Office, retail) Tokyu Community Corp. (plan) (Note 4) Property management company (Residence) Tokyu Housing Lease Corporation (Note 4) (Office, retail) Tokyu Community Corp. (pass-through)(plan) (Note 4) Master lessee (Residence) Tokyu Housing Lease Corporation (pass-through)(plan) (Note 4) Acquisition price ¥30,700 million Appraisal value ¥31,000 million (Date of value estimate) (October 1, 2019) Appraisal agency JLL Morii Valuation & Advisory K.K. 1.7% Earthquake PML (According to an earthquake PML report of Sompo Risk Management Inc.) Hypothecation None Lease overview (Note 6) Total leasable area 18,063.02 m2 (Note 5) Total leased area 17,578.15 m2 (Note 5) Occupancy rate 97.3% Number of tenants 100 Annual rent ¥1,457 million (Note 5) Expected NOI ¥1,148 million (Note 5) Tenant leasehold and ¥1,095 million (Note 5) security deposits Holders of the co-ownership interests in the property will agree the following: If a holder of the co-ownership interest in the property has intention to dispose of the interest, the party shall notify in advance other co-owners of its intention and, upon consent, may sell the interest to the co-owner with purchase intention. Remarks If there is no mutual consent and the said co-owner agrees that the disposition is held to a third party, the holder shall notice once again other co-owners the condition of the disposition. And in the case there is a co-owner who has intention to acquire the interest under the same condition, the interest is to be sold to the co-owner. (Note 1) The data is based on the registry. (Note 2) The figure includes the margin since the buildings receive the margin due to the fire-resistant buildings on fire prevention district. (Note 3) Total gross floor areas of the three buildings. (Note 4) Tokyu Community Corp. and Tokyu Housing Lease Corporation to which API outsources master lessee and property management, are related parties of TRM under “Rules Regarding Related-party Transactions”, the internal rules of TRM. Therefore, in accordance with the Rules Regarding Related-party Transactions, TRM has obtained resolution at the compliance committee and the investment committee, following deliberation of each committee.