Growth Potential of the J-REIT Market - jsda.or.jp · 5 Mitsubishi Corp UBS Realty Potential of...
Transcript of Growth Potential of the J-REIT Market - jsda.or.jp · 5 Mitsubishi Corp UBS Realty Potential of...
Mitsubishi Corp UBS Realty1
Japan Securities SummitMarch 11, 2010, Singapore
Mitsubishi Corp. - UBS Realty, Inc.The opinions expressed in the materials are solely the personal opinions of Fuminori Imanishi, and do not necessarily represent the opinions of MCUBSR.
Growth Potential of the J-REIT Market
F. Imanishi
Mitsubishi Corp UBS Realty2
Introduction : Mitsubishi Corp. - UBS Realty, Inc.Asset manager of two listed J-REITs
Joint venture company of Mitsubishi Corp. and UBS A.G.
J-REITs under management
Japan Retail Fund (JRF, TSE code:8953)
Portfolio size JPY 647 bn. ( USD 7.1 bn. , after merger with
LaSalle Japan REIT on 1 March 2010)
53 retail & 18 non-retail properties
IPO : Mar. 2002
Industrial & Infrastructure Fund (IIF, TSE code:3249)
Portfolio size JPY 98 bn. ( USD 1.1 bn. )
8 industrial & 2 infrastructure properties,
IPO : Oct. 2007
Mitsubishi Corp UBS Realty3
About JRF
Urban properties: 19
Suburban properties: 34
Second largest J-REIT in asset size
Retail sector focused (95% retail properties)
Just merged with LaSalle Japan REIT
Latest dividend forecast for Mar. to Aug.’10
Current yield ~ 7% (*)
FFO payout ratio is around 51%
Stable cash flow ~ 90% of rent is under
fixed rent structure
Total appraisal value
JPY 647 bn.
LTV ~ 59% (book value basis)
Locations of Retail Properties
* : Based on the unit price on Feb. 16 , 2010
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J-REITs: slowly recovering from difficult period
Prolonged property market downturn and few property transactions, but:
- Very limited “fire sales” or “bulk sales” from over leveraged funds/SPVs- Less affected than much of Japan’s financial sector by the global crisis
- Lack of potential bargain-price purchase opportunities - Listed J-REITs generally have difficulty raising equity finance withoutattractive acquisition targets lined up
- Market concern has been focused on debt refinancing issues rather than recapitalization
Growing sense of imminent market recovery, but expected to be gradual
- Increasing opportunities to acquire good quality property at higher yield- Equity raising by J-REITs got started in late 2009- Several planned mergers between J-REITs lead market reorganization
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Potential of J-REIT marketJapanese economy from macro viewpoint :
Large in size, mature market? But still lots of room for J-REIT market to grow
J-REITs : Market cap JPY 2.8 trillion (Oct.2009)
Still small compared to private real estate fund in JapanTotal Investment : J-REIT JPY 7.5 trillion (Sep.2009)
Private RE fund JPY 13.2 trillion (Dec.2008)
Lots of room for growth when compared to other REIT markets% of REITs market cap (estimate)
Japan USA Australia UK Singapore vs major index 1.4% 2.5% 6.2% 1.6% 6.3% vs GDP 0.6% 1.7% 6.8% 1.3% 10.3% vs Real Estate suitable for investment
3.1% 7.1% 36.9% 5.7% 9.9%
Source: Bank of America Merrill Lynch, ARES, Urban Research Institute
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Potential of J-REIT market (2)
Japanese commercial real estate by sector- Macro viewpoint : Mature, stable and moderate growth potential
generally, but…
Segmented basis : Big growth opportunities
<Examples>•Residential --- Demand for good quality urban rental apartments in growing cities
•Office ---------- Need for comfortable and high-tech offices with more space per employee, more efficient operations
•Retail ---------- Low share of large sized shopping center sales relative to total salesJapan 20% ⇔ US 58%, Australia 51% (*)
Strong control of SC operations by big retailers⇒ Need for independent and professional mall owners & operators
(*)Source: JCSC, UBS
Mitsubishi Corp UBS Realty7
Stability of J-REITVery limited development risk
J-REITs do not conduct big development projectsStable income flow based on high occupancy
J-REITs generally buy stabilized properties, very limited holdings ofvacant land etc.
Low volatility in rental incomeTraditional old-style leases still common in many sectors
Small rent changes (both upside and downside) when leases arere-signed
High transparency of J-REIT disclosure (appraisals every 6 months, etc.)
DPU FFO
◆Example Historical DPU & FFO per unit of JRF
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How can upside potential of J-REITs be realized?Deregulation and new frameworks needed-Increased variety of funding methods
Rights Issues, Free allocation (domestic vs. overseas) of new units in public equity offering,Unit buybacks,Preferred equity ….etc.
Convertible bonds in debt financing
More diversified investor base is required-More retail investors, Japanese pension funds – education needed
All Listed Japanese Corp. All J-REITs JRF
Source :Each J-REIT’s financial information and TSE
Mitsubishi Corp UBS Realty9
How can upside potential of J-REITs be realized? (2)Key factors for further growth ⇒ Asset management expertise1) Choices of investment targets and rental operation of them
Asset class or sector ---- in relatively underdeveloped sectors, qualitymanagement can add significant value
Individual property selection ---- Picking up “winners” in cyclical market2) Focus on longer term investment results
Market volatile currently, but based on stable rental cash flow, J-REITs can provide medium to long term attractive cash flow and capital gains
3) Achieving external growthBalance between support and independence from sponsor companies in acquisition activities are ideal ⇒ Good corporate governance of J-REITs
4) Flexible and dynamic growth strategy Flexible LTV control utilizing various financial methods and/or growth through M&A
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M&A case : JRF and LJRMerger Ratio : JRF:LJR=1 : 0.295 (before 4-for-1 unit split)
1 : 1.18 (after unit split)Unit split : Concurrent with the merger, JRF’s units were split 4-for-1Effective Date of Merger and Unit Split : March 1, 2010
NipponBuilding Fund
JRF(After Merger)
JapanRealEstate
JRF(BeforeMerger)
NomuraRealEstateOffice
JapanPrimeRealty
OrixRealEstate
DAOffice
NipponComm-ercial
KenedixRealty
UnitedUrban
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M&A case : JRF and LJR~ Primary Effects
Increased equity market cap/ liquidity
Improved income stability
Negative goodwill to allow flexible FFO payout ratio, smooth dividend growth
Efficient asset management
Cash management
Synergies of the Merger
Reduction of overhead costs
Latest Forecast for 2010/8 Period
(After Merger)
Previous Forecastfor 2010/8 Period
14,095 Yen(After 4-for-1 unit split :
3,523 Yen)
13,358 YenDividend per Unit
NAV per Unit
NOI Yield (book)
+5.52%
+2.23% 569,797 Yen(After 4-for-1 unit split :
142,449 Yen)
557,364 Yen
5.33%+0.15% 5.48%
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Disclaimer
The contents of this document, including summary notes, quotes, data and other information, are provided solely for informational purposes and not intended for the purpose of soliciting investment in, or as a recommendation to purchase or sell, any specific products.
Please be aware that matters described herein may change or cease to exist without prior notice of any kind. This document contains forward-looking statements and anticipations of future results, based on current assumptions and beliefs in light of currently available information and resources. Risks and uncertainties, both known and unknown, including those relating to the future performance of the retail market in Japan, interest rate fluctuations, competitive scenarios, and changing regulations or taxations, may cause performance to be materially different from those explicitly or implicitly expressed in this document.
With respect to any and all terms herein, including without limitation, this document, the information provided is intended to be thorough. However, no absolute assurance or warranties are given with respect to the accuracy or completeness thereof. Unless otherwise specified, this document was created based on Japanese accounting system.
Neither JRF nor Mitsubishi Corp.-UBS Realty Inc. (MCUBSR) shall be liable for any errors, inaccuracies, loss or damage, or for any actions taken in reliance thereon, or undertake any obligation to publicly update the information contained in this document after the date of this document.
Asset Management Company: Mitsubishi Corp.-UBS Realty Inc.(Financial Instrument Firm under License No. 403 of the Director of Kanto Local Finance Bureau )