Heiwa Real Estate REIT : Financial Statement
Semiannual Financial Report
The 41st Fiscal Period
(From December 1, 2021 to May 31, 2022)
HEIWA REAL ESTATE REIT, Inc.
5-1,Nihonbashi-kabutocho,Chuo-ku, Tokyo
Message from the Executive Director
To Our Valued Investors,
Thank you for your continued support.
Since its stock was first listed in 2005, HEIWA REAL ESTATE REIT (“REIT”) has been investing in and operating
medium-sized offices and single and compact residential properties primarily in the 23 wards of Tokyo.
Since the change of sponsor in 2009, the REIT has been pursuing the interests of investors and steadily grown its business with Heiwa Real Estate Group as its sponsor. Since 2020, the COVID-19 pandemic has been adding to the uncertainty in the real estate market. Amid these conditions, the REIT announced “NEXT VISION”, its new medium- to long-term targets, in July 2021. Under this, the REIT will aim for an asset size of 300 billion yen, distributions of 3,300 yen, an AA- rating, and 100% of the electricity it consumes being generated by renewable energy resources. Public interest in ESG has been growing rapidly in recent years. Responses to issues surrounding the environment, society, and corporate governance are important and significantly affect all of the management and business of the REIT. It recognizes that efforts to build a sustainable society contribute to the sustainable growth of the REIT. The REIT establishes ESG targets and strives to achieve them as one of its growth strategies.
The REIT aims to contribute to the interests of its investors and all other stakeholders while leveraging the sponsorship of the Heiwa Real Estate Group for both external and internal growth.
We earnestly ask for your continued support of our business.
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1. Overview of asset management
(1) Summary of asset management during the 41st fiscal period
The REIT is striving based on its Basic Philosophy of “Steady Growth of Assets Under Management” and “Stable Medium- to Long-Term Profits,” as well as “cooperation with and use of the Heiwa Real Estate Group” (below, collectively referring to Heiwa Real Estate Co., Ltd. and the subsidiaries of Heiwa Real Estate; the same hereinafter) to manage its assets with the purpose of maximizing investor’s value. Following is a summary of our asset management during the 41st fiscal period.
(i) Brief background of the REIT
Investment units in the REIT have been listed on the Real Estate Investment Trust Section (J-REIT Section) of the Tokyo Stock Exchange (below, TSE) since March 8, 2005 (Securities Code: 8966). Between then and the start of the current fiscal period, the REIT executed a capital increase through public offering and underwriting of new investment units issued through private placement on several occasions, an investment unit split and investment unit issuance through a merger with Japan Single-residence REIT Inc. on October 1, 2010 (below, this event is referred to as the merger), a cancellation of treasury investment units in September 2020 and public offering, etc. in June 2021. As a result, total investment units outstanding were 1,055,733 and unitholders’ capital was 90,063 million yen as of the end of the 41st fiscal period (May 2022).
(ii) Operating environment
There was a trend toward the recovery of economic activity in Japan in the current fiscal period, due to progress in adjusting to endemic COVID-19 despite the recurring waves of COVID-19 infections. However, there have been large roadblocks in the path of the economic recovery due to the implementation of quasi-state of emergency measures to prevent the spread of the Omicron variant of COVID-19, supply constraints and rising prices such as the soaring price of crude oil due to the economic sanctioning of Russia triggered by the Ukrainian crisis. Overseas trends also appear to require attention, given lingering uncertainty about overseas economies due to the prolonged stagnation of economic activities connected with U.S.-China trade friction and COVID-19’s spread.
In this environment, the TSE REIT index temporarily fell under 2,000 points, from 2,002.58 points at the end of the previous fiscal period (November 30, 2021), but recovered to surpass 2,000 points, rising to 2,006.03 points at the end of the current fiscal period (May 31, 2022).
(a) Office building leasing market
According to the latest office building market data from Miki Shoji Co., Ltd., the rise in the average office building vacancy rate in the five central wards of Tokyo (Chiyoda, Chuo, Minato, Shinjuku and Shibuya) slowed, reflecting observed moves to conclude contracts for purposes including office expansion and relocation, offsetting tenant contract cancellations as well as office downsizing and consolidation. The average office building vacancy rate leveled off from 6.35% at the end of the previous fiscal period (November 30, 2021) to 6.37% at the end of the current fiscal period (May 31, 2022). Meanwhile, the average rent fell for 22 consecutive months from August 2020, plunging from 20,686 yen/tsubo at the end of the previous fiscal period, to 20,319 yen/tsubo at the end of the current fiscal period.
The impact of COVID-19 on the office building market is still significant. However, with vacancy rates trending down since last autumn and more tenants starting to use the COVID-19 pandemic as an opportunity to review their office strategies, the REIT believes that uncertainty associated with cancellation by tenants due to business size reductions and cost-saving measures, among other factors, is declining. In the REIT’s portfolio, the occupancy rate is expected to stay at a high level as the impact of the COVID-19 pandemic has been subsiding.
(b) Residential leasing market
According to At Home Co., Ltd., as of May 2022, the average condominium contract rent in major cities across Japan (ten areas including the metropolis of Tokyo and the three surrounding prefectures, Sapporo City, Sendai City, Nagoya City, Osaka City and Fukuoka City), increased year on year for area zones ranging from less than 30 m2 to over 70 m2 in the metropolis of Tokyo outside the 23 wards, Saitama Prefecture, Chiba Prefecture and Osaka City, while it continued to fall for area zones smaller than 30 m2 in Tokyo’s 23 wards. In nine of these ten areas, all of them except Fukuoka City, the average condominium contract rent for area zones from 50 m2 to 70 m2 increased year on year. In particular, record highs since January 2015 were posted in Kanagawa Prefecture, Saitama Prefecture, Chiba Prefecture and Nagoya City. According to the Survey Report on the Statistics of
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Construction Starts published in May 2022, the number of new housing starts (rental housing) increased for 15 consecutive months from March 2021. Despite the supply continuously increasing from the previous period, the supply and demand trends remained stable. However, demand for rental condominiums in Tokyo’s 23 wards were somewhat weak, affected by people’s changing lifestyles which includes factors such as the increase in teleworking due to the COVID-19 pandemic. The occupancy rate for residential assets in the REIT’s portfolio remained stable in the current fiscal period attributable to various measures taken. The impact of deteriorating economic conditions was limited. Their effects on short-term operations are assumed to be insignificant.
(c) Real estate
According to publicly assessed land values as of January 1, 2022, which were published in March 2022, the average prices for all types of land, prices for land in residential areas, and prices for land in commercial areas in Japan’s three major metropolitan areas increased for the first time in two years. Prices for land in industrial areas rose for the eight consecutive years, and the rate of increase expanded. Similarly, the average prices for all types of land, prices for land in residential areas and prices for land in commercial areas increased for the first time in two years, while prices of land in industrial areas rose for five consecutive years, and the rate of this climb increased.
In government ordinance-designated regional cities, which the REIT considers to be investment targets, land prices continued to increase in both residential and commercial areas, and the rate of increase expanded.
The effects of the COVID-19 pandemic appear to have been reduced, and a general trend toward recovery has been observed since last year, but future market trends require careful consideration.
- Management performance
- External growth
To improve the profitability and quality of its portfolio, the REIT acquired one residence (Re-99 HF UENO IRIYA RESIDENCE [real estate, acquisition price: 900 million yen]) on December 22, 2021, one office building (Of-49 Inter Planet ESAKA Building [trust beneficiary right, acquisition price: 2,500 million yen]) on December 23, 2021 and one residence (Re-100 HF TSUJIDO RESIDENCE [real estate, acquisition price: 1,870 million yen]) on February 28, 2022, and sold three residences (Re-29 HF HAKUSAN RESIDENCE [real estate], Re-35 HF SHIBAKOEN RESIDENCE [trust beneficiary right] and Re-36 HF MITA RESIDENCE [trust beneficiary right], total acquisition price: 4,266 million yen) on May 27, 2022. Furthermore, the REIT additionally acquired one office building (Of-48 Faret East Building [real estate, acquisition price: 600 million yen]) on December 24, 2021, which resulted in a 23.06% building ownership ratio (site rights ratio).
As a result, portfolio assets as of the end of the period were 114 properties (total acquisition price: 196,394 million yen), including 36 office buildings (total acquisition price of 92,172 million yen) and 78 residential buildings (total acquisition price of 104,222 million yen).
(b) Internal growth
The REIT has consistently endeavored to increase profitability by improving and maintaining its occupancy rates. During the 41st fiscal period, the REIT continued to be engaged in tenant leasing activities, working to shorten vacancy duration as well as systematic efforts to increase its investment value based on tenant needs and the characteristics of each individual property. Supported by these and other initiatives for maintaining and improving the competitiveness of its assets, the occupancy rate for all properties held by the REIT came to 97.6% at the end of the current fiscal period. The REIT was able to stabilize the occupancy rate, which had reached 97.7% at the end of the previous fiscal period, at a high level throughout the current fiscal period. The average month-end occupancy rate for the period under review stood high at 97.5%.
The REIT has been advancing ESG-related initiatives with a focus on consideration for the environment and energy saving and contribution to communities.
(iv) Procurement of funds
The REIT took out Term Loan 56 (loan amount: 900 million yen) on December 22, 2021, Term Loan 57 (1) (loan
amount: 500 million yen), Term Loan 57 (2) (loan amount: 1,000 million yen) and Term Loan 57 (3) (loan amount:
1,000 million yen) on December 23, 2021, Commitment Line (loan amount: 600 million yen) on December 24, 2021,
Term Loan 59 (1) (loan amount: 700 million yen) and Term Loan 59 (2) (loan amount: 1,200 million yen) on February 28, 2022 with plans to use the funds for property acquisition and the like. In addition, the REIT took out Term Loan 58 (loan amount: 600 million yen) on February 24, 2022 to repay Commitment Line (loan balance: 600 million yen), the principal repayment of which was due on the same day, and also took out Term Loan 60 (Tranche A (loan amount:
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200 billion yen), Tranche B (loan amount: 950 million yen), Tranche C (loan amount: 864 million yen), Tranche D
(loan amount: 2,435 million yen) and Tranche E (loan amount: 1,400 million yen)) on May 31, 2022 to repay Term
Loan 34 Tranche B (loan balance: 2,880 million yen) and Term Loan 43 Tranche A (loan amount: 2,969 million yen), the principal repayment of which was due on the same day.
As a result, the average borrowing period as of May 31 was 7.2 years, the average remaining period was 3.9 years and the average borrowing interest rate as of May 31 was 0.74%.
Taking a further step, the REIT established a commitment line with a maximum loan amount of 7,000 million yen with Sumitomo Mitsui Banking Corporation, MUFG Bank, Ltd., Mizuho Bank, Ltd. and Resona Bank, Ltd. to secure financial creditworthiness by increasing the means of flexible and stable financing and liquidity on hand. (The original contract period was June 1, 2021 to May 31, 2022. The period was revised to June 1, 2022 to May 31, 2023 on May 26, 2022).
As a result, the total interest-bearing liabilities amount (Note) at period end was 96,757 million yen (Ratio of interest- bearing liabilities to total assets at end of period (Note): 46.12%).
(Note) Interest-bearing liabilities = Short-term debt + Investment corporation bonds due within one year + Long-term debt due within one year + Investment corporation bonds + Long-term debt
Ratio of interest-bearing liabilities to total assets at end of period = Closing amount of interest-bearing liabilities / Closing amount of total assets × 100
A rating for the REIT as of August 26, 2022 is presented below.
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Credit rating agency |
Issuer rating |
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Japan Credit Rating Agency, Ltd. (JCR) |
Rating: AA-; Rating outlook: Stable |
(v) Performance and distributions
The management described above led to 41st fiscal period results of 7,322 million yen in operating revenues, 3,609 million yen in operating income, after deducting interest expenses on loans, 3,193 million yen in ordinary income, and 3,193 million yen in net income. With respect to the distribution of monies (“distributions”) stipulated in Article 137 of the Act on Investment Trusts and Investment Corporations (Act No. 198 of 1951 and subsequent amendments), distributions shall be not more than the amount of unappropriated retained earnings at the end of the current fiscal period and are defined as anything in excess of 90% of the “amount of distributable income” stipulated in Article 67- 15 of the Act on Special Measures Concerning Taxation (Act No. 26 of 1957 and subsequent amendments; the “Special Taxation Measures Act”) in accordance with the stipulations of Article 32, paragraph 1 of its Articles of Incorporation (“bylaws”). Based on this policy, the REIT made a decision to pay out 3,219,985,650 yen as distributions from earnings by appropriating the reversal of reserve for adjustment of temporary differences of 42,229,320 yen (40 yen per unit) to the balance excluding the internal reserve of 15,565,364 yen, from the net income of 3,193,321,694 yen for the current fiscal period. As a result, distributions per unit have come to 3,050 yen.
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Disclaimer
HEIWA Real Estate REIT Inc. published this content on 26 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 August 2022 07:10:00 UTC.
Publicnow 2022
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Technical analysis trends HEIWA REAL ESTATE REIT, INC.
| Short Term | Mid-Term | Long Term | |
| Trends | Bullish | Bullish | Neutral |
Income Statement Evolution
| Mean consensus | – |
| Number of Analysts | 0 |
| Last Close Price | 157 400,00 |
| Average target price | |
| Spread / Average Target | – |