■Features and Advantages

1. summary

HEIWA REAL ESTATE REIT Investment Corporation (8966) is an office/residence complex REIT centered around the Tokyo metropolitan area. After being established as the predecessor Crescendo Investment Corporation in 2002/1, it was newly listed on the Tokyo Stock Exchange Real Estate Investment Trust Securities (J-REIT) market in 2005/3, merged with the Japan Single Residence Investment Corporation in 2010/10, and the name was changed to Heiwa Real Estate REIT Investment Corporation, and it continues to this day. Also, although the purpose is to mainly manage funds raised from investors as investments in real estate, etc., all actual asset management is outsourced to Heiwa Real Estate Asset Management Co., Ltd., and being able to obtain various support from the Heiwa Real Estate Group is a major advantage.

2. Building a strategic portfolio

The REIT has a major advantage in that it invests intensively in “offices and residences located in investment areas centered around the Tokyo metropolitan area” supported by high demand. The fact that portfolios are strategically diversified by investing in a large number of properties is a source of stable occupancy rates and profits. Looking at the breakdown of the REIT portfolio by application as of 2024/5/31, offices (mainly small to medium businesses are tenants) are 50.2% and residences are 49.8%. By investing in a large number of properties based on strict investment standards, uses, number of buildings, and tenants are diversified, and the risk of portfolio profit fluctuations is minimized. Whereas office rents have a high degree of economic sensitivity and high variability in earnings, residence rents are less susceptible to economic fluctuations and have high stability in earnings, we have constructed a portfolio that can pursue both profitability and stability by investing in both in a well-balanced manner.

Also, by investment area, the five central wards of the city (Chiyoda Ward, Chuo Ward, Minato Ward, Shinjuku Ward, Shibuya Ward) are 33.9%, the 23 other wards of Tokyo are 28.3%, the Tokyo metropolitan area (other than the 23 wards) is 11.6%, and the others are 26.2%. Regionally, the 1st investment area (23 wards of Tokyo) is positioned as the main investment area, and while taking into account the market conditions (stock volume of acquired properties, transaction price status, rental market conditions, etc.), it will also invest in the 2nd investment area (Tokyo, Kanagawa, Saitama, and Chiba prefectures other than the 23 wards) and regional investment areas (major cities nationwide, starting with government ordinance-designated cities, that is, regional large cities where support for Peace Real Estate can be obtained).

3. Heiwa Real Estate's strong sponsorship

The feature of this REIT is that it can make the most of Heiwa Real Estate's experience and know-how, and it can be said that it is a major advantage. Heiwa Real Estate leases stock exchange buildings in Tokyo, Osaka, Nagoya, and Fukuoka to stock exchanges, and in addition to owning office buildings all over the country, it is also developing a wide range of developer businesses such as redevelopment projects promoting the revitalization of Nihonbashi Kabutocho and Kayabacho and the commercialization of Sapporo redevelopment. Therefore, it is possible to utilize information sources such as properties owned and developed by Heiwa Real Estate, brokerage properties, and pre-acquired properties as external growth support for the same REIT. In fact, the total number of property acquisitions after the sponsor change has risen to 73 cases/150.3 billion yen as of 2024/7/17, of which the asset management company network is 32 cases/60.4 billion yen, direct acquisition/asset replacement from Heiwa Real Estate is 20 cases/39.4 billion yen, and warehousing (a method where a sponsor acquires a property from a third party and holds it for a certain period of time, and the same REIT acquires it by looking at the timing) is 21 cases/50.4 It accounts for billion yen. In this way, it has been shown as a result that sponsor support is the driving force behind the REIT's growth. Also, as internal growth support, it is possible to improve the operating rate by sharing information. Furthermore, as financial support, it is possible to seek support and guidance relating to financial policies, fund raising, etc.

4. Ample distributed capital and growth funds

The REIT secures stable distribution capital and growth funds over a long period of time by allocating part of transfer gains associated with asset replacement to distributions and the remainder to accumulation of internal reserves. At the end of the 2024/5 fiscal year, we have an internal reserve balance of 5.75 billion yen and an unrealized profit amount of 58.56 billion yen. Internal reserves enable stable distribution payments in the future. In other words, even when impairment losses are recorded due to the sale of the property, distribution payments based on competency are possible due to the cancellation of internal reserves. Also, in the same REIT, tax discrepancies have occurred in accepted assets due to mergers at the time of establishment, and it is also an advantage that internal reserves can be expanded utilizing tax discrepancies for transfer gains generated by property transfers. Generally, REITs pay almost all of their profits as distributions, so they cannot accumulate internal reserves, but the REIT has tools to accumulate this from past mergers. Furthermore, distributions are continuously increasing by manifesting part of unrealized gains due to asset replacement.

(Written by FISCO Visiting Analyst Shigeki Kuni)