Here we provide answers to frequently asked questions.
Japan Prime Realty Investment Corporation (JPR)
Q1What type of company is JPR, and how is it characterized?OPEN
Q2What is JPR's target portfolio in terms of asset class and geography?OPEN
Q3OPENWill JPR be investing in other types of assets such as residential properties going forward?
A.Under the basic concept of "investment in urban retail real estate," JPR primarily invests in prime office properties located mainly in Tokyo and urban retail properties (including hotels) and such located in bustling areas. As of now, JPR does not plan to invest in residential, logistics, industrial, or health care facilities, etc. except for residential properties that are ancillary to office properties.
Q4What is JPR's position on property transactions?OPEN
A.Acquisition: With a focus on stability of earnings, JPR conducts vigorously selective investment in the three metropolitan areas (including Osaka and Nagoya) and other major cities, with the first priority placed on the Tokyo metropolitan area.
Sale: JPR makes judgment in a comprehensive manner, taking into account analyses of the present status, forecasts of future potential and the asset composition of the entire portfolio.
Details are as follows:
For details, please refer to the "External Growth Strategy."
With regard to properties subject to sale, JPR makes judgment in a comprehensive manner, taking into account their present status, forecasts of increase or decrease in future earnings and asset value, etc. and the asset composition of the entire portfolio, among other factors.
As to the decision-making process for property acquisition and sale, please refer to the "Corporate Governance."
Q5What does "external growth" mean?OPEN
A.External growth means expanding the asset size by additionally acquiring properties and achieving growth through the added revenues from such properties.
Additional acquisition of properties has three growth factors, which increase cash flows.
Cost reductions from expansion of asset size (economies of scale)
As the standard for its asset management fees, the asset management company (TRIM) has adopted the scheme in which the expense ratio diminishes in accordance with the expansion of the asset size (which means expansion of revenues).
*For details, please refer to "Q14. Is TRIM's compensation strategy in the interest of unitholders?"
Additional acquisition of properties through debt financing (leverage effect)
Acquiring properties through debt financing does not require issuance of additional investment units. The lower the interest rate of such debt financing becomes, the more the leverage effect is enhanced, leading to an expanded profit per unit.
Enhancement of profitability through property replacement in the portfolio
JPR will acquire blue-chip properties that are anticipated to help maintain and expand stable earnings and lead to enhanced quality of the portfolio, while selling properties that are less competitive in terms of location and building specifications.
Q6What does "internal growth" mean?OPEN
A.For details, please refer to the "Internal Growth Strategy."
Q7What is JPR Brand Strategy?OPEN
A.The JPR Brand Strategy is a strategy that aims to enhance JPR's earnings and asset value by improving tenant satisfaction.
Concept is "A/3S"
The Strategy is designed to achieve the ultimate in "Amenity" (optimal space) by focusing on the three S's of "Service," "Safety" and "Save Energy" (environment), and to realize higher occupancy rates and increased rent revenues.
|Service||Renovation of common space (entrance lobbies, restrooms, etc.), seasonal events at the entrance halls, change of building names, prominent placement of JPR's corporate symbol on buildings and other measures|
*For more details, please refer to "SafetyImplementation of the JPR Brand Strategy - Service."
|Safety||Installation of security cameras, renovations to improve earthquake-resistance, installation of equipment to improve parking safety and other measures|
*For more details, please refer to "Implementation of the JPR Brand Strategy - Safety."
|Save Energy||Replacement of air-conditioning equipment, installation of water-saving devices in restrooms, "greening" of rooftops and other measures|
*For more details, please refer to "Implementation of the JPR Brand Strategy - Safety."
Q9Has JPR earned a credit rating?OPEN
Q10How does JPR view the leasing market of office properties and retail properties?OPEN
A.The leasing markets of office properties and retail properties are as follows.
The Office Property Leasing Market:
The occupancy rate has been kept at a low level in the office property leasing market. Close attention must be paid, however, as the figure is rising for the moment due to the impact of COVID-19.
The Retail Property Leasing Market:
Although a pickup was seen to take place gradually at urban retail properties which JPR targets for investment, the spread of COVID-19 infections expanded toward the end of the 38th fiscal period, causing concerns about negative impact mainly on restaurants and eateries.
Q11How does JPR view the for-sale real estate market?OPEN
A.In the for-sale real estate market, active transactions continued to take place against the backdrop of the recovery in the stock price and low interest rates, etc. Although investors' expected cap rate reflects their cautious attitude in some areas for hotels and urban retail properties that have been hard hit by COVID-19, blue-chip properties in which JPR targets to invest are still in short supply and, as investors both in and outside Japan show strong appetite to acquire them, low-yield transactions continue to prevail and the acquisition environment remains harsh. Accordingly, investors continue to look for ways to effectively acquire properties, such as diversifying the target assets for investment and conducting asset replacement.
Asset Management Company and Conflict of Interest
Q12How would you characterize the asset management company (TRIM)?OPEN
A.JPR's asset management company is Tokyo Realty Investment Management (TRIM) invested in by four companies centering on Tokyo Tatemono Co., Ltd., etc.
TRIM obtained license as asset management agent for investment corporations under the Investment Trusts Act in 2001, and is currently specialized in the asset management of JPR.
In addition, TRIM is sponsored by the four companies of Tokyo Tatemono Co., Ltd., Yasuda Real Estate Co., Ltd.,Taisei Corporation and Meiji Yasuda Insurance Company. By utilizing the multi-faceted and abundant know-how and information owned by these sponsors in such fields as real estate, construction and finance, TRIM endeavors to maximize unitholder value while working to expand the asset size and reduce risks for JPR.
Q13Are there rules for avoiding conflicts of interest?OPEN
A.In addition to being subject to certain restrictions under the Investment Trusts Act for transactions with related parties, TRIM has established its own rules for transactions with interested parties originally defined by TRIM.
The related parties and interested parties are as follows.
|Related parties, etc.||Majority shareholders of TRIM, their subsidiary companies, and all other parties closely related with TRIM as defined under the Enforcement Order of the Investment Trusts Act||Tokyo Tatemono Co., Ltd.|
|Interested parties||Interested parties are those that fall under any of the following items.
a. Parties that have equity interest in TRIM, dispatch officers to TRIM, or second employees to TRIM
b. Parent companies, subsidiary companies and affiliated companies of the parties that fall under the category of a. above.
c. Special purpose companies (including Tokutei Mokuteki Kaisha (TMK), limited liability companies and joint-stock companies), associations and other funds on which the parties falling under either one of the two preceding items can make a material impact due to having majority equity interests, etc.
d. Parties that can be practically treated like those listed in each of the preceeding items.
Tokyo Tatemono Co., Ltd.
The following rules have been established for transactions with related parties and interested parties.
- Acquisition of Properties and Assets from Interested Parties
a) Real estate and trust beneficiary interests in real estate may be acquired with the prior approval of JPR's Board of Directors
b) Other specific assets may be acquired at market value if applicable, and may be acquired pursuant to a) above if not applicable.
- Sale of Properties and Assets to Interested Parties
a) Real estate and trust beneficiary interests in real estate
The sales price per property (not including taxes and sales commissions) shall be greater than the appraised value. Prior approval from JPR's Board of Directors is also required.
b) Other specific assets
Other specific assets shall be sold at market value, if applicable, and shall be sold pursuant to a) above if not applicable.
- Property Leasing to Interested Parties
Properties may be leased to Interested Parties under appropriate leasing terms after comprehensively considering the overall market prices and standard leasing terms for similar properties. Prior approval from JPR's Board of Directors is also required.
- Consignment of Property Management to Interested Parties
Property management may be consigned based on the property-related business administration policies*. Prior approval is also required from JPR's Board of Directors.
(*) For the property-related business administration policies, please refer to (c) of b. Investment Attitudes, (1) Investment Policies, 2. Investment Policies in the securities report (Japanese).
- Brokerage Fees for Buying, Selling and Leasing for Interested Parties
a) Buying and Selling
Brokerage fees shall be limited to 3% of the transaction price plus 60,000 yen, excluding consumption tax and other costs, and need the prior approval of JPR's Board of Directors.
Brokerage fees shall be up to the contract rent for one month.
- Placement of Construction Orders with Interested Parties
For construction in excess of 10 million yen, orders shall be placed with the prior approval of JPR's Board of Directors, after making comparisons with third-party cost estimates and terms, etc.
- Borrowing from Interested Parties
Borrowings shall be made based on prevailing market conditions. JPR's Board of Directors must also approve beforehand the financial plans (indicating plans for managing and procuring funds on a quarterly basis) including the said borrowings.
Q14Is TRIM's compensation strategy in the interest of unitholders?OPEN
A.TRIM adopts a highly transparent remuneration system that aims to align with the unitholders' interest.
The table below shows the compensations paid to TRIM. It is a compensation system designed to be easy to understand and align with the unitholders' interest.
|Type of Compensation||Calculation Method of Compensation||Alignment with Unitholders' Interest|
|Management Fee 1||Total acquisition price (*1) × 0.05%||Basic fee|
|Management Fee 2||Total revenue (*2) × 1.2%||Revenue-linked fee|
|Management Fee 3||Distributable base amount (*3) × 3.8% × fluctuation rate of distributable base amount per unit (*4)||Distribution-linked fee|
|Management Fee 4||
Acquisition price × 0.5%Appraisal value of assets inherited due to merger × 0.5%
|Acquisition and merger fee|
|Management Fee 5||
Sales price × 0.5%(Management Fee 5 will not incur when loss on sale arises after the deduction of Management Fee 5)
(*1)Total acquisition price is the total amount of acquisition price (excluding consumption tax, local consumption tax and expenses related to acquisition) of the assets under management owned as of the end of the immediately preceding fiscal period.
(*2) Total revenue represents the sum total of the following.
1. Rental revenues, common charges, parking revenues, incidental income, facility use fees, facility installation charges, delay damages, cancellation penalty associated with cancellation of lease contracts and similar types of income
2. Income from other leasing operations, interest and dividend income and similar types of income
(*3) Distributable base amount is the income before income tax before the deduction of Management Fee 3 and nondeductible consumption tax.
(*4)Fluctuation rate of distributable base amount per unit is calculated by dividing the distributable base amount per unit for the said business period by the average distributable base amount per unit for the most recent three business periods excluding the said business period, and the lower limit is set at 80% and the upper limit at 120%.
Q15What are the major risks involved in investing in J-REITs?OPEN
A.As there are risks of incurring losses, it is important to check the risk factors. The following table shows the major risk factors.
|Risk regarding price fluctuations||As J-REITs are traded on the stock exchange, the investment unit price fluctuates and the principal is not guaranteed.
The price fluctuates due to the supply and demand balance in the stock exchange as well as the impact of the interest rate situation, political and economic conditions, real estate market conditions and various other factors surrounding the market.
|Risk regarding fluctuations in earnings||There are risks that the balance of revenues and expenses worsens due to a decrease in rent revenues through a drop in the occupancy rate of properties, damages to the buildings due to earthquakes and other natural disasters, expenses for owning real estate and losses on sale of properties, among other factors. This may cause cash distributions to decrease.|
|Risk regarding fluctuations in interest rates||REITs procure funds not only by soliciting investors for equity investment but also by borrowings from financial institutions. Accordingly, a rise in interest rate increases the burden of expenses, which causes earnings to decrease.|
|Risk regarding transactions on the market||REITs may be delisted if they violate the delisting standards designated by stock exchanges, such as a decrease in total assets and a decrease in trade volume. If REITs are delisted, they may have to sell properties at extremely low prices and find it hard to sell properties.|
|Risk regarding changes to legal systems, etc.||Changes to the legal systems related to REITs or real estate may cause earnings to worsen or the value of assets and investment principal to decrease.|
*The table above does not cover all risks involved in investment, and there are risks other than those stated above.