1. Capitalization Method
The capitalization method determines the fair market value of a property assuming present value of the future income the property is expected to produce (calculated based upon leasing rates, occupancy rates and management costs).
Under conventional methods, the value of a property is estimated based on a comparison with similar properties in close proximity (Market Comparison Approach). More recently, valuation methods focus on the merits of profitability and investment returns.
2. Low Cap Rate
An abbreviation for Low Capitalization Rate. The capitalization rate is used to calculate the market value of a property by utilizing cash flows from operating activities over a fixed period. When this rate is low, the term low cap rate is used. A low capitalization rate generally signifies stable income and little fluctuation in future income.
TOKYU REIT aims to acquire low-cap-rate properties that are low risk in terms of future vacancy rates and future declines in leasing rates, and which hold high potential for increases in leasing rates.
3. Risk and Return
Return in this context refers to forecast or anticipated earnings.
Risk in this context refers to discrepancy between forecasts and results, namely, the level of uncertainty.
Risks and returns for financial instruments are correlated. In general, when the risk is low, so is the return (low risk, low return), when the risk is high, so is the return (high risk, high return).
4. Conflict of Interest
Under the real estate investment trust market of Japan (J-REIT), a company (Investment Management Company) other than the Investment Corporation is charged with the responsibility of managing investment assets (external management). A transaction is determined to be in conflict of interest when the profits of the Investment Corporation and the Investment Management Company (including shareholders of the Investment Management Company) conflict. For instance, inappropriate price of a property owned by a shareholder of the Investment Management Company or the payment of an inappropriate fee for property management services to a shareholder of the Investment Management Company. Tokyu REIM(the Investment Management Company) adheres strictly to property management measures to prevent conflicts of interest (Rules on Related-Party Transactions).
For additional information, please refer to this page.
5. Multi-Level Check
In principle, transactions that occur between TOKYU REIT and members of the Related Parties are completed at market price and subject to full disclosure.
- TOKYU REIT shall not acquire a property with an acquisition price that exceeds the appraisal value provided by a qualified appraiser. TOKYU REIT shall commission a second opinion from a qualified third-party to verify the validity of the appraisal value.
- TOKYU REIT shall not sell a property unless the sale price exceeds the appraisal value. TOKYU REIT shall commission a second opinion regarding the validity of the appraisal value.
- In the event leasing properties, TOKYU REIT shall impose appropriate terms and conditions consistent with market data prepared by a third-party.
- In appointing a property management company, TOKYU REIT shall consider market standards, service details, and the volume of operations. TOKYU REIT shall obtain a third-party opinion regarding the validity of property management fees to be paid. Payment shall be approved by TOKYU REIT's Board of Directors. In the event the Asset Management Company determines that property management services do not meet accepted standards, the property management contract shall not be renewed.
TOKYU REIT implements the following multi-level check procedures to ensure compliance:
- Deliberation by the Compliance Risk Management Committee *
- Prior approval by TOKYU REIT's Board of Directors
* A committee that includes two individuals of experience and academic standing that are not executive officers of the Related Parties in the last five years.
For additional information, please refer to this page.
Collaborative structure among Tokyu Corporation and its subsidiaries(Note). In specific terms, collaboration encompasses "Pipeline Support," "Property Management," "Warehousing" and "Brand Licensing."
(Note) "Tokyu Corporation and its subsidiaries" refers to any entity that falls under the following (i) to (iii):
- Tokyu Corporation
- A consolidated subsidiary of Tokyu Corporation
- A tokutei mokuteki kaisha (TMK) or special purpose entity (SPE) that was established based on the intention of Tokyu Corporation or a consolidated subsidiary of Tokyu Corporation and where the share of investment by undisclosed associations or other investment shares in that entity by the respective company exceeds 50%.
7. Pipeline Support
Pipeline Support is underpinned by a memorandum executed on March 4, 2011. Under the memorandum, Tokyu Corporation and its subsidiaries undertake to provide TOKYU REIT a first priority in the event of real estate sale owned by them. In addition to property acquisition from third parties, TOKYU REIT works to diversify its real estate acquisition channels through the use of Pipeline Support.
For additional information, please refer to this page.
8. Property management
Property management refers to the management of a property's revenues, repairs and maintenance, and leasing. As a matter of policy, TOKYU REIT will appoint Tokyu Corporation and its subsidiaries in principle on an individual property basis to undertake property management services for its investment portfolio, leveraging the know-how of Tokyu Corporation and its subsidiaries.
In the context of the acquisition of a property from a third party, the temporary acquisition of that property by a sponsor company or the others, and the subsequent purchase at an appropriate time of the property from the sponsor company or the others by a REIT.
One collaborative initiative between TOKYU REIT and members of the Tokyu Corporation and its subsidiaries. The opportunity to acquire properties does not always occur at a time that is appropriate to TOKYU REIT in the context of its overall financial policy. Warehousing allows TOKYU REIT to take advantage of opportunities to acquire properties irrespective of the current status of its financial policy.
10. Brand licensing
Brand licensing is underpinned by a trademark licensing agreement executed on July 4, 2003. Under the agreement, TOKYU REIT has received approval to use the "TOKYU" trademark (including such trademarks that appear in the Japanese language). This agreement does not however represent a partnership, agency or guarantor agreement.
11. DPS (DPU)
An acronym for Dividends Per Share (Unit). Net dividend per unit.
An acronym for Earnings Per Share. Net income per unit.
An acronym for Net Operating Income. Income before depreciation and amortization from rental services is revenue from property leasing less rental service expenses (management expenses, property tax, city planning tax, insurance premiums, other expenses). Income before payment of interest on loans procured for the acquisition of rental properties, general management expenses, and depreciation and amortization expenses.
NOI=Rental profit + Depreciation and amortization expenses
14. NOI Yield
NOI Yield=NOI/Acquisition Price
Indicates the return gained in proportion to the acquisition price.
An acronym for Net Cash Flow. NOI less capital expenditures. Indicates cash left in hand within the cash flow from rental revenues. Capital expenditure value here indicates capitalized portion within construction expenses and excludes repair, maintenance and renovation expenses.
An acronym for Funds From Operation. An indicator used to evaluate the profitability of a REIT. Net income plus non-cash expenses such as Depreciation. The amount of cash flow generated through the management of a real estate investment trust fund.
FFO = Net income + Depreciation and amortization + Other property related depreciation and amortization + Loss on sale of property - Gain on sale of property - Revenues from facility acceptance
An acronym for Adjusted Funds From Operation. FFO less capital expenditure.
AFFO=FFO - Capital expenditure
Not include capital expenditures, AFFO represents the cash flow of the real estate held by the Fund clearly.
Capital expenditure value here indicates capitalized portion within construction expenses and excludes repair, maintenance and renovation expenses.
18. External Growth
An increase in NOI or EPS (net income per unit) through an increase in the asset scale of the entire fund due to the acquisition of additional properties.
19. Internal Growth
An increase in EPS (net income per unit) through an improvement in the balance between income and expenses by increasing rental income from properties owned and reducing rental expenses.
An acronym for Loan to Value. The proportion of liabilities including bonds, debt financing and other interest- bearing liabilities to total asset value. A measure of safety and the ability to repay debt financing. The lower the figure, the higher is the ability to repay debt financing. Though TOKYU REIT calculates mainly LTV as Interest-bearing liabilities (interest-bearing debt + security and guarantee deposits not matched by cash) / Period-end appraisal value of properties (“LTV / Appraisal value (at the end of fiscal period)”), there are also many examples of LTV being calculated as Interest-bearing debt / Total assets (“LTV / Total Assets”), or as Interest-bearing debt / Total property acquisition price.
TOKYU REIT maintains a maximum LTV / Total Assets of 60% in financial policy. On the other hand, TOKYU REIT efforts to less than 50% about LTV / Appraisal value (at the end of fiscal period) in Operation and have achieved it.
21. Conversion to Long-Term Debt Financing
To undertake debt financing over the long term and at fixed rates of interest (long-term is defined as debt financing with one year or more remaining before repayment is due). Converting to long-term fixed rates enables TOKYU REIT to control excessive increases in interest payment burdens during times when interest rates are rising.
An acronym for Public Offering. The issue (public offering) of additional new shares by a publicly listed company, with the aim of increasing capital (investment capital). Capital raised through public offerings is often allotted for the financing of new property acquisitions or for the repayment of debt financing.
23. CapEx Control
An acronym for Capital Expenditure Control. As a property ages, TOKYU REIT is required to utilize funds for repairs and maintenance as well as capital expenditure for the purpose of improving facilities and functions, property value, and to extend useful life. In order to prepare for the aforementioned payments, TOKYU REIT records depreciation and amortization expenses, which are non-cash items.
Probable Maximum Loss (PML) refers to the expected maximum loss ratio caused by earthquakes. Although there is no single authoritative definition of PML, PML as used here is the percentage of expected damages caused by a small- to large-scale earthquake that happens within the next 475 years to the replacement value. This figure was calculated by a third party who possesses expert knowledge upon request from TOKYU REIT. Calculations also include data relating to individual property surveys, assessment of building conditions, conformity to architectural design, surveys of local areas and structural evaluation. Damages in this instance refer to property damage and do not include secondary damages such as loss of life and damages to fixtures. In addition, damages are limited to structural damage and damages to facilities and building interior and exterior, and do not cover damages caused by earthquake fire and fire damage from surrounding facilities.
25. Unrealized Gain/Loss
The balance after deducting the book value from the appraisal value (at the end of fiscal period) of properties at the end of the period
26. Adjusted Net Asset Value(NAV) per Unit
(Unitholdersʼ capital + Reserve for reduction entry (after appropriation of net income) ± Unrealized gains/losses) ÷ Outstanding Units
or (Net Assets – Scheduled Amount of Distribution ± Unrealized Gain) ÷ Outstanding Units