Message from Executive Director
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On behalf of TOKYU REIT, I would like to express my sincere appreciation to all of our REIT unitholders for their continued support and patient understanding. On April 14, 2011, TOKYU REIT held the Fifth General Meeting of Unitholders and the management status meeting. Many unitholders attended the events despite continued aftershock of the Great East Japan Earthquake and, thanks to their cooperation, the partial amendments to the Articles of Incorporation associated with the sponsor change and other agenda were approved. Moreover, many questions were asked by individual investors at the management status meeting. We at TOKYU REIT are sincerely grateful to you for your interest in us, and are resolved to reflect the comments as we implement asset management. The following pages provide an overview of our operating environment and results for the sixteenth fiscal period, February 1, 2011 to July 31, 2011. |
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Cash Distribution of ¥13,239 per Unit |
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For the current fiscal period (sixteenth fiscal period), TOKYU REIT posted ¥6,918 million in operating revenues and ¥2,242 million in net income. Operating income from property leasing activities increased by ¥218 million from the previous fiscal period due to the contribution of Tokyu Ginza 2-chome Building, which was acquired on February 15, 2011, included for almost the entire fiscal period. The net income figure was higher by ¥133 million than the forecast announced on March 15, 2011. Consistent with our distribution policy, 100% of unappropriated retained earnings were allocated for a cash distribution of ¥13,239 per unit. This was ¥1,194, or 9.9%, more than the ¥12,045 distribution in the fifteenth fiscal period, while being ¥839, or 6.8%, above the distribution forecast. In December 2009, we announced an EPS of ¥13,100 in a simulation in which gains from the disposal of Resona Maruha Building and Ryoshin Harajuku Building were re-invested, and we successfully surpassed the figure for the sixteenth fiscal period. Net assets (after deducting cash distribution) stood at ¥578,697 per unit. Accounting for unrealized gains (the difference between book value and period-end appraisal value), adjusted net asset value (NAV) per unit was ¥583,012, a decrease of ¥4,466 from the fifteenth fiscal period. |
Property Acquisition in the Sixteenth Fiscal Period (Ended July 31, 2011) |
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As previously mentioned, Tokyu Ginza 2-chome Building was acquired for ¥5.01 billion in the sixteenth fiscal period. The acquisition resulted in the portfolio as of the end of July 2011 being comprised of 26 properties amounting to ¥199.6 billion (based on acquisition price) and ¥190.7 billion (recorded on the balance sheet), with period-end appraisal value of ¥191.4 billion. The portfolio currently has a ratio of investment of 56% in office properties and 44% in retail properties (based on appraisal value as of the end of the sixteenth fiscal period). |
Leasing Performance for the Sixteenth Fiscal Period (Ended July 31, 2011) |
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As of July 31, 2011, 20 of the 26 portfolio properties had an occupancy rate of 100% and the occupancy rate for the entire portfolio was 98.5%, or up 2.2 percentage points from the fifteenth fiscal period. During the sixteenth fiscal period, five tenants vacated or decreased their leased floor space at such properties as Setagaya Business Square and Lexington Aoyama, but 16 tenants were either new or leased additional space. The total number of tenants as of the end of the sixteenth fiscal period was 172. Leasing activities were conducted for spaces that became vacant during the sixteenth fiscal period or that had been vacant as of the end of the previous fiscal period. As a result, Tokyu Ikejiri-ohashi Building and TOKYU REIT Kamata Building were fully occupied, and the occupancy rates improved at such properties as Setagaya Business Square and Lexington Aoyama. In the rent results (contracted rents for new tenants after tenant changes and revised rents for continuing tenants) for a total of 172 tenants, there was an increase in rent from the previous rent for three tenants and a decrease for 31 tenants. |
Leasing Policy for the Seventeenth Fiscal Period (Ending January 31, 2012) |
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The vacancy rate for TOKYU REIT was 1.5% at the end of July 2011, staying at a comparatively lower rate than the 7.7% vacancy rate for office properties in the Tokyo 23 wards and the 7.5% for office properties in the five central Tokyo wards at nearly the same time (as of July 2011) (both according to CB Richard Ellis - Japan). The result was primarily because of the suburban retail properties operating at full occupancy. In addition, lease agreements were newly signed with three tenants during the sixteenth fiscal period. These tenants are set to move into the properties during the seventeenth fiscal period. However, nine tenants are scheduled to leave during the seventeenth fiscal period. Advance notices of cancellation were received from large tenants at Kojimachi Square and TOKYU REIT Toranomon Building during the sixteenth fiscal period because of the impact of office integrations associated with budget screening by the government and other causes. The spaces occupied by the relevant large tenants will become vacant during the seventeenth fiscal period at Kojimachi Square and from the beginning of the eighteenth fiscal period for TOKYU REIT Toranomon Building. Assuming that the tenants leave as indicated in the received notices of cancellation, and if the circumstances remain the same without any replacement tenants being found, the occupancy rate will stand at 96.8% at the end of the seventeenth fiscal period and the occupancy rate will stand at 94.2% at the end of the eighteenth fiscal period. Earlier, there was a view that the vacancy rate of office properties in Tokyo would peak out by the end of 2011, but the impact of the Great East Japan Earthquake has raised the possibility of the peak being postponed to 2012 and after. On the other hand, the market environment is becoming more favorable for TOKYU REIT to conduct leasing activities compared to last year, as tenants housed in buildings that conform to the previous earthquake resistance standards or that are located in the bay areas have started to move. Taking this opportunity, we will keep bolstering leasing activities with the foremost aim of inviting tenants to the vacant spaces. |
Value Enhancement through Capital Investment in Retail Properties |
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Tokyu Saginuma Building underwent the first major renovation since its opening and, with the floor composition completely renewed. More than 30 years have passed since the property was built. With its fundamental facilities aging, a shift of the business format to meet the needs of the times became a major issue for the property. In accordance with a request by Tokyu Store, the tenant, to shift the property into an NSC (neighborhood shopping center), TOKYU REIT conducted construction totaling ¥265 million with an aim to maintain functions, preserve the assets and enhance energy efficiency so that the long-term contract can be fulfilled. By implementing the construction simultaneously with the interior construction and other work conducted by the tenant, TOKYU REIT successfully reduced the construction costs. By shortening the construction timeline, it also minimized the period in which the store was closed to reduce inconvenience to the customers. The impact of the Great East Japan Earthquake delayed delivery of some materials for the construction, but thanks to the efforts of the people involved in the work, the reopening of the property took place less than one month behind schedule. Furthermore, as a result, store sales increased after the renovation, up by over 6% year on year through July 2011. Thanks to the enhanced property competitiveness and the reduced risk of aging of the facilities, the property's appraisal value at the end of the sixteenth fiscal period increased by ¥280 million to ¥8,160 million up from ¥7,880 million at the end of the previous fiscal period, realizing value enhancement that surpassed the relevant capital investment amount. For cocoti, too, TOKYU REIT is investigating in renewal, to be conducted in the spring of 2012, for the purpose of reinforcing the ability as a retail property to attract customers as well as invite future tenants. |
Impact of the Great East Japan Earthquake |
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The Great East Japan Earthquake that occurred in March 2011 caused no human casualties or property damage that might have a material impact on the operating results of the 26 properties owned by TOKYU REIT. Although there was slight damage that required repair work, such as cracks on the interior walls and other walls, at multiple properties, no negative impact was found with the building structures. The earnings forecast for the sixteenth fiscal period had included ¥60 million for repair and maintenance costs to cover these damages, but detailed estimates called for ¥49 million. TOKYU REIT recorded all the amount, plus allowances that were not actually spent, as extraordinary loss for the sixteenth fiscal period. Furthermore, no additional repair and maintenance costs related to the Earthquake are included in the earnings forecast for the seventeenth fiscal period. As an indirect impact of the Great East Japan Earthquake, restrictions on power consumption were imposed on large users with contract demand for electricity of 500kw or more from July 1, 2011 through September 9, 2011 pursuant to Article 27 of the Electricity Business Act. Ten properties of TOKYU REIT were subject to the restrictions, and were requested to reduce consumption by at least 15% from the maximum power consumption in the same period of last year. TOKYU REIT endeavored to save power in common areas of those properties through measures, such as reducing lighting fixture usage, adjusting air conditioning systems, and requesting the tenants, through the investment management company, to cooperate in the power saving measures in their exclusive areas. In addition, TOKYU REIT endeavored to reduce the burden on tenants by implementing such measures as installing ecological mirrors(*) and delivering circulators(**). (*)Ecological mirrors are “high-performance lighting reflection boards” that make lighting brighter and sharper by improving reflection rate without replacing existing fluorescent lamps. Installation of the equipment allows the illumination to be increased by about 1.6 times. This makes it possible to reduce the number of fluorescent lamps in use, leading to reductions in power consumption. (**)Circulators are blower equipment that efficiently circulates the air in the room. It increases cooling efficiency in summer and heating efficiency in winter, leading to reductions in power consumption. Furthermore, in the seventeenth fiscal period, TOKYU REIT plans to conduct additional work, such as replacement of LED lamps in the common areas of multiple properties, in an effort to reduce power consumption. This is intended to cope with power shortages and increased power rates in the future. |
Sponsorship Restructuring and New Management Structure |
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The amendments to the Articles of Incorporation associated with the cancellation of sponsorship involving Tokyu Land and establishment of sole sponsorship by Tokyu Corporation, which we announced in January 2011, were approved by the above-mentioned General Meeting of Unitholders. In accordance with this, the investment units owned by Tokyu Land (2.31%) were transferred to Tokyu Corporation in April 2011, and the transfer of the shareholdings of the investment management company was also completed in June of the same year. Upon the transfer of the investment management company's shareholdings, two officers (a representative director and vice president and an auditor) dispatched from Tokyu Land resigned and new officers (two directors and two auditors) from Tokyu Corporation took office. Moreover, two employees were seconded from Tokyu Corporation to facilitate smooth operations, reinforcing the business structure of the investment management company. Under the new management structure, we will work to further reinforce strategic relationship with Tokyu Corporation. |
Request for Answering Questionnaires |
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As I mentioned at the beginning of my remarks, we received many comments and questions at the management status meeting held after the Fifth General Meeting of Unitholders. We are resolved to remain committed to conducting management practices that comply with our fiduciary duties, in an effort to meet the expectations of unitholders concerning the operation of TOKYU REIT. We have included a questionnaire in this semiannual report, with the purpose of receiving opinions from those unitholders who were not able to attend the management status meeting. We would like to ask you the favor of replying to the questionnaire. The purpose of the questionnaires is to use the responses as references for future asset management. As such, let me add that all the expenses related to the questionnaires are borne by the investment management company, without posing any financial burden on TOKYU REIT. In addition, the website of TOKYU REIT (www.tokyu-reit.co.jp/eng/) also features an inquiry function, and we would like unitholders to take advantage of it along with the questionnaire. We would appreciate your understanding as we may need time to answer inquiries or we may not necessarily be able to accept the opinions as is depending on the content. |
| September 2011 |
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