REIT Issuer: ORIX JREIT Inc. (TSE: 8954) Teruo Ozaki Executive Director
Asset Management Company: ORIX Asset Management Corporation Yoshitaka Kamemoto President and CEO Inquiries: Shinji Yamana Executive Officer and CFO ：
ORIX JREIT Announces Property Acquisition
1. Real estate trust beneficial interest ( co -ownership interest of 50% ) co- ownership interest of 49.5% co- ownership interest of (Note 4) (Note 5)
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2. OJR aims to achieve stable growth of unitholder value through careful selection in properties from the perspectives of growth potential, profitability and stability by leveraging our strength, “ORIX Synergy (Note1) ,” “Direct PM (Note2) ” and “Diversified REIT (Note3) ”. OJR has currently been reshuffling properties to improve the quality of the portfolio by disposing regional suburban retail facilities and acquiring properties that can leverage our strengths. As part of this asset reshuffle strategy, OJR has decided to acquire this property after assessing its stability and future rent growth potential as stated below:
Note: 1. The “ORIX Synergy” refers to the cooperative relationship between Sponsor and OJR. 2. The “Direct PM” refers to the supplemental work of property management operations including leasing activities and activities to improve property value by OAM, while utilizing the ORIX Synergy. 3. The “Diversified REIT” refers to real estate investment incorporations that invest in various types of property such as offices, retail facilities, residential properties, logistics facilities, hotels and others.
Key points in assessment Office and hotel complex jointly developed by ORIX Group and Daiwa House Group. High familiarity with the Property and the market by ORIX Group. Approximately 5-minute walk from Omoromachi Station on the Okinawa Urban Monorail (Yui Rail). Located in an integrated area where large facilities such as administrative agencies, cultural facilities, financial institutions, and commercial facilities are situated. There is potential for further rent growth in the existing offices after considering neighboring office rents and recent transactions, as well as our estimate based on rent affordability at the current hotel.
Key characteristics The composition of office rent (including the retail sections on the first floor) and hotel rent is approximately 7:3.
The property is located on a convenient location where city traffic congestion can be avoided. The 250 parking lots can sufficiently meet demand from tenants for their business use and for their commuters. A standard floor area is approximately 650 tsubo which is scarce and can draw tenant demand who require large floor area, such as back offices of large companies. Current main tenants are large financial firms, IT companies and pharmaceutical companies. The majority of the tenants utilizes their office as call centers. Demand for call centers is high in Okinawa prefecture due to the government’s substantial subsidy program and large labor pool. In addition, call center businesses do not only provide traditional telephone operator services, but have been expanding to administrative operations to improve productivity with greater added value (business process outsourcing or “BPO”). We can expect stable demand and growth going forward. The current rent for this property has been low relative to recent market rent growth since 2011 after this property was completed. 【Chart 】 Given these points, we expect that there is potential for rent growth.
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Rent for the Property Assumed market rent
180
160 144
140
120 109
100 Property 80 completion 2011 2012 2013 2014 2015 2016 2017 2018 2019
High Tokyo 23 wards
Osaka Fukuoka Nagoya Sapporo Rent(tsubo) Naha Sendai Hiroshima
Low Average annual growth rate during the past 5 years (%) High
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Reference: Fluctuations in the number of staying guests The number of staying guests in Okinawa, where this property is located, has been increasing and recent growth rate has exceeded the national average.
Number of staying guests in Naha Japanese Foreigners Staying guests y-o-y: Okinawa Japan million Indexed by setting the figure for 2014 as 100 (right axis) Hotel rooms in Naha: persons 30 140 123 25 114 120 148 20 21 100 17 23% 13% 15 80
10 77% 60 87% 5 40
0 20 2014 2015 2016 2017 2018
The percentage of new supply compared to existing hotel rooms in Naha on a disclosed basis is currently lower compared to other cities.
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3. Summary of the Property Approx. 5-minute walk from ”Omoromachi” station on the Okinawa Toshi Monorail Full ownership (Co-ownership) Office, retail, hotel and other s Sectional ownership (Co-ownership)
（Note 4） （Note 4）
Hotel rent consists of fixed rent and variable rent. The fixed rent should be paid every month, while the variable rent (linked
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to sales of guest room fees) is calculated using a method* stipulated in the contract and paid every March and Septembe r.
The variable rent accounts for 10% of the hotel rent.
*The calculation method for variable rent is not disclosed because the consent of the hotel operator could not be obtained. （Note 4 ） 537 million yen per annum for co-ownership interest of 50% (Note 4)
Estimated net operating income (NOI) represents the estimated revenue/ expenditure balance under stabilized occupancy, based on the terms of the lease contract comprehensively during the fiscal year of the acquisition, but excluding extraordinary factors that may occur during the first year of acquisition. The preconditions are as below; these figures are not what OJR expects for the current fiscal year. 1) Occupancy rate: 97% (Office and retail: 96%, Hotel: 100%) 2) Taxes: Taxes are calculated on the standard tax amount for fiscal year 2019. 1. 2. 3. PML (Probable Maximum Loss) shows the ratio of cost of recovering a building after it is damaged to its state before the damage occurred against replacement cost, when assuming an earthquake that may occur once in 475 years in average in probability statistics (recurrence interval of 475 years). The earthquake risk of a building is evaluated based on the event risk curve that shows the relationship of amount of expected loss (horizontal axis) and probability for the loss to exceed the year (vertical axis). However, the risk curve has variability because loss evaluation comes with uncertainties in earthquake resistance performance of the building, behavior of earthquake vibration, etc. Accordingly, the above PML figures use the risk curve with credibility level of 90%, and are rounded to the nearest whole number. 4. Figures are rounded down to the nearest million yen.
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4. Profile of Sellers a The TMK does not fall under a related party of OJR. However, ORIX Real Estate Investment Advisors Corporation (a “related party” of OAM as stipulated in the Investment Trusts Act) is contracted to provide asset management for the TMK. The TMK falls under “related party” as stipulatedin the “Affiliated Company Transaction Regulations,” which are internal rules of OAM.
The Company does not fall under a related party of OJR. As mentioned above, the Company falls under the “related party” of OAM as stipulated in the Investment Trusts Act.
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5.
6.
Settlement terms: 100% on delivery
7.
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8.
Name of asset Naha Shin-Toshin Center Building
Date of value November 30, 2019 Appraisal value (In thousands of yen) (Ownership) 11,100,000 Appraiser The Tanizawa Sogo Appraisal Co., Ltd. (In thousands of yen) Item Content Grounds We estimated the value indicated by the Income Approach mainly based on Income Approach Value 11,100,000 the value indicated by the DCF Method, also verified it by the value indicated by the DC Method. Valuation by the Direct Capitalization Method 11,600,000 (Ownership) Ownership ratio 50% Valuation by the Direct Capitalization Method 23,100,000 (The whole building)
(1) Gross Operating Revenue [(a)-(g)] 1,443,304
(a) Effective gross revenue 1,496,414 [(b) ＋(c) ＋(d) ＋(e) ＋(f)]
Assessed Rental income, which are considered to be stable levels, based on Office/Retail 932,584 the the competitiveness of subject property, the trends of track record, market trends, the lease evidences, and so on. (b) Rental income Assessed Rental income, which are considered to be stable levels, based on Hotel 362,744 the the competitiveness of subject property, the trends of track record, market trends, the lease evidences, and so on.
(c) CAM income 0 (b) Rental income includes CAM income.
(d) Utility reimbursement 158,524 Assessed based on the track record, and so on.
Assessed based on the existing contract, the track record, the lease (e) Parking Fee income 46,680 evidences, and so on.
(f) Other income 4,880 Assessed based on the existing contract, the track record, and so on.
Assessed based on the vacancy rate deemed to be a stable level, taking into (g) Vacancy loss 53,110 account the competitiveness of subject property, the trends of track record, market trends, and so on. (2) Operating Expenses 357,446
Maintenance Expense 92,203 Assessed based on the track record, and so on.
Utility Expense 148,819 Assessed based on the track record, and so on.
Assessed based on Engineering Report, the level of similar properties, and so Repair Expense 14,550 on. Assessed based on the property management outsourcing agreement, and so Property Management Fee 13,876 on. Assessed based on the turnover rate deemed to be a stable level, taking into Tenant Advertisement Cost 9,072 account the competitiveness of subject property, the trends of track record, market trends, and so on.
Tax and Public Dues 75,812 Recorded based on the actual amounts of taxes in 2019, and so on.
Assessed based on the insurance materiales obtained from clients, the level Casualty Insurance 1,669 of similar properties, and so on.
Other Expenses 1,443 Assessed based on the track record, and so on.
(3) Net Operating Income [(1)-(2)] 1,085,858
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(4)Profit from Managing Security Deposit 10,292 Assessed investment yield as 1.0%. Assessed based on Engineering Report, the level of similar properties, and so (5)Capital Expenditure 33,950 on. (6)Net Revenue [(3)+(4)-(5)] 1,062,200 Assessed by taking into account the use of the subject property, its location (7)Cap Rate 4.6% and building conditions, market trends, the comparable evidences, the type of lease, the relations of rights , and so on. DCF Method (Ownership) 10,900,000
Assessed by taking into account the use of the subject property its location Discount Rate 4.7% and building conditions, the level of funding costs, market trends, the type of lease, the relations of rights, and so on.
Assessed by taking into account future uncertainty and other factors in the Terminal Cap Rate 4.8% capitalization rate at the date of value.
Cost Approach (Ownership) 10,700,000 Ratio of Land 62.9% Ratio of Building 37.1%
The market participants make decisions focusing on the stability of income, growth potential, Additional considerations made in the reconciliation of liquidity at the resale, and other factors. The value indicated by the Income Approach evaluation reflected this process is highly normative. Accordingly, we determined the final opinion of value by the value indicated by the Income Approach.
Note:
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