Ninth Period (Ended December 2010) Presentation Materials
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Ninth Period (ended December 2010) Presentation Materials 0 Table of Contents I. Highlights From the Period Reference Materials p. 3 1. Topics Revenue, Expenses and NOI Yield by Property p. 21 2. Financial Results p. 4 Portfolio Appraisal Value p. 22 Statement of Income and Retained Earnings p. 23 II. Results and Approach Moving Forward Balance Sheet p. 24 1. Management Discussion of the Environment p. 6 Balance of Interest Bearing Debt by Source of Financing p. 25 2. Overview of the Public Offering p. 7 3. Overview of Properties Bought and Sold Statements of Cash Flow and Profit Distributions p. 26 (1) Properties Bought p. 8 Financial Indicators p. 27 (2) Daiba Garden City Bldg p. 9 Portfolio Overview (as of Feb. 4, 2011) p. 28 (3) Bought Kowa Shirokanedai Bldg and sold No. 36 Kowa Bldg p. 10 Unitholders p. 31 4. External Growth What Makes Japan Excellent, Inc. Unique p. 32 (1) Leverage property acquisitions to grow and strengthen portfolio p. 11 Unit Price Performance and Overview of p. 33 (2) Policy for future property acquisitions p. 12 Japan Excellent Asset Management Co., Ltd. 5. Internal Growth (1) Maintain and raise occupancy rates p. 13 (2) Rent levels and rental revenue p. 14 (3) Future growth strategy p. 15 6. Financial Strategy (1) Achievements p. 16 (2) Financial policy p. 17 7. Performance Forecasts p. 18 8. Future Growth Direction p. 19 1 I. Highlights From the Period 2 1. Topics 1. Shifted to external growth with ¥18.1bn in property acquisitions and ¥15bn PO Assets up ¥14,095mn or 7.8% Grew assets 7.8% by reshuffling portfolio under improving investment market End of 8th Period Post-acquisition ¾ Starting in the 9th Period, spent a total ¥18.1bn (average NOI yield: 5.6%(※1)) buying the Total value (acquisition price) ¥181,023mn ¥195,118mn No 32 Kowa Bldg (30% share) and Kowa Shirokanedai Bldg from Kowa Real Estate(※2) and the Daiba Garden City Bldg from SEKISUI HOUSE. LTV down to about 45% ¾ The acquisitions(※3) increase asset size by 7.8% and stabilize the portfolio. End of 8th Period Post-acquisition Raised ¥15bn through a public offering to secure buying capacity LTV 49.0% 45.6%(※) ¾ The PO lowers LTV from above 50%(※4) to about 45%, securing buying capacity (※)See page 16 for calculation methodology. 2. Worked with sponsors to strengthen and stabilize our portfolio Area I (6 central wards) up 3.5% Working with Kowa Real Estate, we reshuffled assets to strengthen the portfolio End of 8th Period Post-acquisition ¾ Sold No. 36 Kowa Bldg, left completely vacant after departure of sole tenant. Area I exposure 51.6% 55.1% ¾ Bought Kowa Shirokanedai Bldg (fully occupied with multiple tenants) to strengthen earnings. ¾ Maintained our portfolio occupancy rate and dispersed tenant departure risk. Avg. building age: 0.4 years younger Forecast stabilized earnings under long-term fixed rent master lease with Sekisui House End of 8th Period Post-acquisition ¾ Signed 10-year fixed rent master lease for Daiba Garden City Bldg. Average building 16.8 years 16.4 years age (※) ¾ Mitigates mid- to long-term risk of rent cuts and tenant departures (※) End of 8th Period portfolio and post-acquisition portfolio values as of February 4, 2011. 3. Stabilized finances Fixed rates now more than 50% of debt Stabilized finances with refinancing End of 8th Period Post-acquisition th th ¾ In the 8 Period, we issued bonds twice, raising a total ¥17bn. In the 9 Period, we Fixed rate 44.2% 50.5% refinanced part of a current floating rate loan (¥6bn) into a 7-year fixed rate long-term loan. weight (※1) Total net operating income used in earnings estimates applying the direct capitalization rates set forth in the relevant real estate appraisals divided by the total acquisition price. (※2) Includes an SPC established at the behest of Kowa Real Estate. (※3) “The Acquisitions” refers to the acquisition of No 32 Kowa Bldg, Kowa Shirokanedai Bldg and Daiba Garden City Bldg and the sale of the No 36 Kowa Bldg. “Post-acquisition” refers to the point in time when the acquisitions and sale under The Transaction have all been completed. (※4) Numbers for the end of the 9th Period. 3 2. Financial Results (Unit: Million Yen) Comparisons to the Previous Period 8th Period 9th Period Difference ① Rental revenue declined 3%. 1. Revenue 7,302 7,094 -208 ② Property management fees shrank. Rental revenue 6,616 6,380 -235 ① ③ Other expenses declined on lower market interest rates and the disappearance of one-time costs associated with bond Revenue for utilities expenses 510 555 45 issuances implemented in the 8th Period. Other rental revenue 175 158 -17 2. Operating expenses 4,050 4,040 -9 Distributions per unit: ¥14,353 (down ¥962) Property management fees 1,082 1,005 -76 ② Comparisons to the initial Forecast Utilities expenses 582 649 67 ① Revenue was boosted by an earlier-than-planned acquisition Taxes 540 550 9 of the No 32 Kowa Bldg and the acquisition of the Kowa Repairs and maintenance 130 108 -22 Shirokanedai Bldg. Other expenses for rental operations 186 187 0 ② Expenses were lower than planned. ③ (NOI) 4,778 4,593 -185 Posted future borrowing costs this period on the early repayment of debt. Depreciation 992 993 0 (Profits from rental operations) 3,786 3,599 -186 ¥14,353 DPU is ¥353 higher than initial guidance. Sales and administrative expenses 533 546 12 (Unit: Million Yen) Operating income 3,252 3,053 -198 Initial Forecast Results Difference 3. Other income 24 3 -21 Revenue 7,063 7,094 30 ① Rental revenue, broken out 4. Other expenses 909 838 -71 ③ 6,355 6,380 24 Expenses from rental operations 3,546 3,494 -51 ② Income before income taxes 2,367 2,219 -148 NOI 4,507 4,593 86 Net income 2,366 2,218 -148 Other expenses 800 838 37 ③ Net income Distributions per unit (yen) 15,315 14,353 -962 2,163 2,218 54 Distributions per unit (yen) Note: Amounts are rounded down. 14,000 14,353 353 4 II. Results and Approach Moving Forward 5 1. Management Discussion of the Environment Economic Environment, Office Leasing Market, Real Estate Investment Market, Financial Markets Economic Environment 9th CorporateCorporate earningsearnings areare graduallygradually recoveringrecovering onon thethe effectseffects ofof econoeconomicmic stimulusstimulus measuresmeasures implementedimplemented inin JapanJapan andand thethe USUS andand grgrowthowth inin Period emergingemerging economies.economies. ThisThis trendtrend waswas helpedhelped byby factorsfactors includingincluding thethe decisiondecision toto extendextend taxtax cutscuts inin thethe USUS andand thethe settlementsettlement ofof Ireland’sIreland’s fiscalfiscal woes.woes. ConcernsConcerns ofof aa doubledouble dipdip recessionrecession shouldshould subsidesubside asas corporatecorporate eaearningsrnings andand personalpersonal consumptionconsumption continuecontinue toto recover.recover. AlthoughAlthough thisthis year’syear’s Future global economic growth forecast was revised upward, the risk remains that growth in emerging economies could be dampened by inflated global economic growth forecast was revised upward, the risk remains that growth in emerging economies could be dampened by inflated commoditycommodity inputinput costscosts drivendriven byby actualactual demanddemand andand geopoliticalgeopolitical risks.risks. Office Leasing Market 9th VacancyVacancy ratesrates inin manymany areasareas roserose onlyonly moderatelymoderately asas corporatecorporate cocostst cuttingcutting andand officeoffice consolidationconsolidation effortsefforts havehave runrun theirtheir courcourse.se. Period UpwardUpward trendstrends inin vacancyvacancy ratesrates weakenedweakened inin thethe broaderbroader TokyoTokyo memetropolitantropolitan areaarea asas well.well. TheThe leasingleasing marketmarket improvedimproved asas tenantstenants soughtsought toto increaseincrease officeoffice spacespace oror movemove toto betterbetter locationslocations andand vacancyvacancy ratesrates inin largelarge andand centrally-locatedcentrally-located TokyoTokyo buildingsbuildings declined.declined. InIn Osaka,Osaka, NagoyaNagoya andand otherother regionalregional cities,cities, vacancyvacancy ratesrates ininremaremainedined atat aa plateau,plateau, butbut marketmarket rentrent levelslevels continuedcontinued toto fall.fall. InIn thethe TokyoTokyo metropolitanmetropolitan area,area, marketmarket rentrent levelslevels shouldshould followfollowoccupancyoccupancy ratesrates intointo aa moderatemoderate recoveryrecovery asas tenantstenants leaselease moremore spacespace oror movemove toto Future largerlarger officeoffice locations.locations. In Osaka and Nagoya, demand for office space remains stagnant, and occupancy rates and market rent levels will continue their decline. In Osaka and Nagoya, demand for office space remains stagnant, and occupancy rates and market rent levels will continue their decline. Real Estate Investment Market 9th TheThe realreal estateestate investmentinvestment marketmarket isis becomingbecoming moremore activeactive asas ththee financingfinancing environmentenvironment improvesimproves andand investorsinvestors showshow anan appetiteappetite ttoo buy.buy. Period Investors’Investors’anticipatedanticipated yieldsyields trendedtrended flatflat inin mostmost areasareas asas thethe correctioncorrectionenteredentered itsits finalfinal phase.phase. The financing environment should continue to improve as demand for investing in real estate recovers. Real estate transactions should increase Future The financing environment should continue to improve as demand for investing in real estate recovers. Real estate transactions should increase