25th Fiscal Period Report
August 1, 2022 - January 31, 2023
Securities code: 3269
1-105Kanda-Jinbocho,Chiyoda-ku, Tokyo
Ⅰ . Fiscal Period Report
Management's Discussion and Analysis
1 Summary of Selected Financial Data
21st FP | 22nd FP | 23rd FP | 24th FP | 25th FP | |||||
Fiscal Period | Units | From: August 1, 2020 | From: February 1, 2021 | From: August 1, 2021 | From: February 1, 2022 | From: August 1, 2022 | |||
To: January 31, 2021 | To: July 31, 2021 | To: January 31, 2022 | To: July 31, 2022 | To: January 31, 2023 | |||||
Operating | Operating revenues | million yen | 17,014 | 16,884 | 17,313 | 17,253 | 17,868 | ||
results | (Rental revenue) | a | million yen | 16,718 | 16,884 | 16,871 | 17,253 | 17,357 | |
(Gain on real estate sales) | b | million yen | 295 | - | 442 | - | 511 | ||
Operating expenses | million yen | 8,500 | 8,659 | 8,603 | 8,941 | 8,917 | |||
(Rental business expenses) | c | million yen | 6,630 | 6,791 | 6,715 | 6,995 | 7,007 | ||
(Loss on real estate sales) | d | million yen | - | - | - | - | - | ||
(Impairment loss) | e | million yen | - | - | - | - | - | ||
Operating income | million yen | 8,513 | 8,224 | 8,710 | 8,312 | 8,950 | |||
Ordinary income | f | million yen | 7,549 | 7,294 | 7,813 | 7,488 | 8,074 | ||
Net income | g | million yen | 7,548 | 7,294 | 7,812 | 7,488 | 8,074 | ||
Balance | Total assets | h | million yen | 458,579 | 457,829 | 459,988 | 464,898 | 469,629 | |
sheet | |||||||||
Interest-bearing liabilities | i | million yen | 220,788 | 220,509 | 222,709 | 227,809 | 231,309 | ||
figures | |||||||||
Net assets | j | million yen | 230,966 | 230,491 | 230,562 | 230,253 | 231,357 | ||
Paid-in Capital | k | million yen | 139,034 | 139,034 | 139,034 | 139,034 | 139,034 | ||
Per unit | Total dividends | l | million yen | 7,756 | 7,819 | 7,883 | 8,013 | 8,088 | |
figures | |||||||||
Payout ratio | l/g | % | 102.7 | 107.2 | 100.9 | 107.0 | 100.2 | ||
Total number of units issued and | m | Units | 1,385,000 | 1,385,000 | 1,385,000 | 1,385,000 | 1,385,000 | ||
outstanding | |||||||||
Net assets per unit | j/m | yen | 166,763 | 166,420 | 166,470 | 166,248 | 167,044 | ||
Net income per unit | Note 2 | yen | 5,450 | 5,266 | 5,640 | 5,406 | 5,829 | ||
Dividend per unit | l/m | yen | 5,600 | 5,646 | 5,692 | 5,786 | 5,840 | ||
Dividend from earnings per unit | yen | 5,600 | 5,646 | 5,692 | 5,786 | 5,840 | |||
Dividend in excess of earnings per unit | yen | 0 | 0 | 0 | 0 | 0 | |||
Annualized dividend yield | Note 3 | % | 3.6 | 3.0 | 3.3 | 3.2 | 3.6 | ||
Financial | Return on investment (Paid-in Capital) | (g+q)/(k+i) | Note 3 | % | 5.7 | 5.7 | 5.9 | 5.7 | 5.9 |
indicators | |||||||||
Return on investment (market | (g+q)/(m×r+i) | Note 3 | % | 3.2 | 2.8 | 3.1 | 2.8 | 3.3 | |
capitalization) | |||||||||
FFO per unit | (g−b+d+e+q)/m | yen | 7,261 | 7,314 | 7,390 | 7,504 | 7,596 | ||
Annualized | n | Note 3 | yen | 14,403 | 14,749 | 14,660 | 15,133 | 15,069 | |
FFO multiple | r/n | times | 21.5 | 25.3 | 23.1 | 24.3 | 21.1 | ||
Ratio of ordinary income to total assets | f/h | Note 4 | % | 1.6 | 1.6 | 1.7 | 1.6 | 1.7 | |
Annualized | Note 3 | % | 3.3 | 3.2 | 3.4 | 3.3 | 3.4 | ||
Equity ratio | j/h | % | 50.4 | 50.3 | 50.1 | 49.5 | 49.3 | ||
Return on equity | g/j | Note 5 | % | 3.3 | 3.2 | 3.4 | 3.2 | 3.5 | |
Annualized | Note 3 | % | 6.5 | 6.4 | 6.7 | 6.6 | 6.9 | ||
Ratio of interest-bearing liabilities to total | i/h | % | 48.1 | 48.2 | 48.4 | 49.0 | 49.3 | ||
assets | |||||||||
DSCR | o/p | times | 14.4 | 14.7 | 16.0 | 16.6 | 17.1 | ||
Net income before interest and | o | million yen | 11,125 | 10,868 | 11,390 | 11,059 | 11,716 | ||
depreciation | |||||||||
Interest expenses | p | million yen | 773 | 737 | 712 | 666 | 683 | ||
NOI | a−c+q | Note 6 | million yen | 12,891 | 12,928 | 13,020 | 13,163 | 13,307 | |
Annualized NOI yield | Note 3, 7 | % | 5.6 | 5.7 | 5.6 | 5.7 | 5.6 | ||
Depreciation and amortization | q | Note 8 | million yen | 2,802 | 2,835 | 2,865 | 2,905 | 2,958 | |
Reference | Number of properties under management | - | 271 | 272 | 272 | 277 | 277 | ||
information | |||||||||
Number of leasable units | Units | 21,552 | 21,569 | 21,643 | 21,853 | 22,021 | |||
Leasable floor area at end of period | Note 9 | m2 | 800,789.34 | 802,185.16 | 807,050.70 | 814,648.31 | 824,479.81 | ||
Occupancy rate at end of period | Note 10 | % | 96.0 | 95.9 | 96.9 | 96.6 | 96.7 | ||
Unit price at end of period | r | yen | 310,000 | 373,500 | 338,500 | 367,000 | 317,500 | ||
Notes 1. Amounts are rounded down to the nearest specified unit. Percentage figures are rounded to the first decimal place. The same applies hereafter.
- The net income per unit is calculated by dividing net income by the daily weighted average number of units issued and outstanding.
- The annualized figures are calculated using 184 days for the 21st FP, 181 days for the 22nd FP, 184 days for the 23rd FP, 181 days for the 24th FP, and 184 days for the 25th FP.
- Ratio of ordinary income to total assets = Ordinary income ÷ {(Total assets at beginning of period + Total assets at end of period) ÷ 2} × 100
- Return on equity = Net income ÷ {(Net assets at beginning of period + Net assets at end of period) ÷ 2} × 100
- In the calculation of NOI, the depreciation and amortization is limited to what is included in rental business expenses.
- Annualized NOI yield = Total annualized NOI ÷ Total property acquisition price
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Ⅰ . Fiscal Period Report
(The annualized NOI yield is calculated by taking into account the actual number of days of operation for each property.)
- Depreciation and amortization include amortization of intangible assets in addition to depreciation of property, plant and equipment.
- "Leasable floor area at end of period" refers to the leasable floor area for each building as stated on the lease agreement or indicated on its official floor plan. The leasable floor area of land such as parking lots is not included.
- "Occupancy rate at end of period" is calculated by using the formula: "Leased floor area" ÷ "Leasable floor area" × 100.
2 Investment Environment and Operating Performance
With the aim of realizing a stable distribution of earnings over the long term, we carried out the following initiatives during the 25th Fiscal Period (FP).
1. Internal Growth
While maintaining high occupancy rates (the average occupancy rate for the FP under review was 96.6%), Advance Residence Investment Corporation (hereafter, "ADR") increased the rent level, improved the balance of earnings and expenses related to its offering, raised rents at the time of contract renewal, and strengthened its property competitiveness through renovation.
2. External Growth
ADR decided to acquire three properties during the FP under review and acquired two of the three from third parties (total acquisition price of 4.5 billion yen); in addition, it disposed of an additional two properties (total acquisition price of 1.2 billion yen).
3. Finance Policy
ADR promoted its efforts to strengthen the financial foundation, such as reducing the average interest rate and extending the remaining duration of its interest-bearing liabilities.
4. Sustainability
To contribute to the achievement of a sustainable and decarbonized society, ADR set targets and KPIs concerning sustainability and raised targets to realize carbon neutrality by 2050.
By executing these initiatives, we were able to attain the following FP results.
(million yen) | |||||
Previous FP | Initial Forecast | The 25th FP | |||
Item | Results (ended | Difference from | Difference from | ||
Results | Note 1 | ||||
January 31, 2023) | the Previous FP | the Initial Forecast | |||
Operating revenues | 17,253 | 17,728 | 17,868 | +614 | +140 |
Operating income | 8,312 | 8,779 | 8,950 | +638 | +170 |
Ordinary income | 7,488 | 7,911 | 8,074 | +586 | +163 |
Net income | 7,488 | 7,910 | 8,074 | +586 | +163 |
Earnings per unit | 5,406 yen | 5,711 yen | 5,829 yen | +423 yen Note 2 | +118 yen Note 2 |
Dividend per unit | 5,786 yen | 5,725 yen | 5,840 yen | +54 yen | +115 yen |
Notes 1. The initial forecast refers to the earnings forecast for the 25th FP disclosed in the "Brief Summary of Kessan Tanshin" for the 24th FP, dated September 14, 2022. The same applies hereafter.
2. The numbers less than one are discarded in the EPU figures.
Earnings per unit (EPU) increased by 423 yen from the previous FP to 5,829 yen. This was mainly because of the recording of gains in property sales and an increase in NOI resulting from property acquisition.
The dividend per unit (DPU) was 5,840 yen, reflecting the reversal of the reserve for temporary difference adjustments (242 yen per unit) and dividends paid using retained earnings (137 yen per unit) after ADR had retained the gain on sales of properties generated during the FP under review (369 yen per unit).
1. Internal Growth
- Maintaining High Occupancy Rate -
ITOCHU REIT Management Co., Ltd., ADR's asset management company, collaborated appropriately with property management companies to manage and operate properties. As a result, ADR managed to record an average fiscal period occupancy rate of 96.6% (up to 0.3 percentage points year-on-year).
By controlling the relaxation of leasing terms for single-type units in the 23 wards of Tokyo, ADR was able to raise
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Ⅰ . Fiscal Period Report
rents for new contracts to one level higher than the previous FP, thanks to a solid demand for family type units, including in central Tokyo. As a result, the change in the replacement rent increased by 2.5% (up to 0.9 percentage points from the previous FP).
- Strengthening the Competitiveness of Our Properties by Renovating -
ADR conducts large-scale repairs of its properties on a scheduled basis to maintain their functionality and freshen their appearance. In addition, for individual units in properties that have recently undergone large-scale repairs, ADR conducts renovation work to maintain and enhance competitiveness in the leasing market. These entail equipment upgrades and floor plan changes, and are implemented when tenants are being replaced.
We conducted large-scale repairs on 11 properties during the FP under review at a cost of 1,190 million yen, including taxes. Moreover, we renovated 41 properties at the cost of 148 million yen, excluding taxes.
Of the residential units that underwent renovation during the FP under review, 20 signed new rental contracts as of January 31, 2023. These units saw increases in rent of 25.5% on average compared with the rents under previous contracts. Our renovation work effectively contributed to internal growth, as was the case during the previous FPs. In the future, ADR will endeavor to further enhance the competitive advantages of its properties through such measures.
2. External Growth
- Steadily Acquiring Properties -
We recognize that conditions for acquiring properties in the real estate trading market continue to be harsh, and transaction prices remain at high levels. Even in such an environment, ADR selected and invested in properties that contribute to the improvement in the quality and profitability of its portfolio, by utilizing the sponsor pipe lines and promoting the negotiation basis transactions in acquiring properties from third parties.
Of the three properties (total acquisition price of 6.4 billion yen) that ADR decided to acquire during the FP under review, two were acquired from third parties (total acquisition price of 4.5 billion yen). In addition, in the following FP, the ADR acquired one property from a third party (acquisition price of 1.9 billion yen) on February 1, 2023. Each of these properties offers excellent convenience for living, with good access to the main cities and major terminal stations in the areas in which they are located. In addition, ADR disposed of two properties at a total sales price of
1.6 billion yen and recorded a gain on sales of properties of 0.5 billion yen in total. This gain in property sales will be used to realize a stable distribution of earnings.
ADR steadily achieved its external growth despite severe competition in acquiring properties.
3. Finance Policy
-Lowering the Average Interest Rates and Extending Remaining Durations-
ADR's principal finance policy is to lower the interest rates of interest-bearing liabilities, extend remaining durations, fix interest rates, and diversify maturities while considering the financial environment. During the FP under review, ADR executed debt financing to the tune of 15.9 billion yen in total (at an average interest rate Note 3 of 0.69% and an average initial duration of 6.8 years). Consequently, the average interest rate at the end of the FP under review was 0.59%, which is the same as that in the previous FP. In addition, the average remaining duration changed from 5.1 years to 5.0 years.
ADR's issuer credit ratings as of the end of the FP under review are as follows.
Credit rating agency | Coverage | Rating |
Japan Credit Rating Agency, Ltd. (JCR) | Long-term issuer | AA |
rating | (Outlook: Stable) | |
Rating and Investment Information, Inc. (R&I) | Issuer rating | AA- |
(Outlook: Stable) | ||
Note 3. The "average interest rate" is the weighted-average interest rate on loans and bonds as of their respective borrowing or issuance date and as of the end of the FP under review. If the interest rates on the debts have been converted to fixed interest rates using swap agreements in order to hedge the risk of interest rate volatility, the average interest rate is calculated based on the interest rates reflecting the effects of such swap agreements.
4. Sustainability
- Sustainability Measures -
ADR works together with the asset management company to realize a sustainable society and to further increase its unit-holder value. To that end, we engage in the following ESG (environmental, social and governance) initiatives.
• Environmental initiatives
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Ⅰ . Fiscal Period Report
ADR identified and established ten material items and their KPIs as important issues to be solved in promoting sustainability and enhancing the effectiveness of such initiatives. Of the targets and KPIs regarding environmental performance, ADR raised targets to realize carbon neutrality by 2050.
In the GRESB real estate assessment, which was established primarily by European pension funds and is a benchmark to assess the consideration for the sustainability of real estate companies and management institutions, ADR was awarded the "Green Star" in 2022 for the seventh consecutive year. ADR was also chosen as the "sector leader" in the Asian listed housing sector for the third consecutive year. In addition, in the GRESB rating that presents comparative assessment based on the global ranking of overall scores, ADR received a "4 star" rating, a high rating on the scale of one to five. ADR was the first housing-relatedJ-REIT to receive the "4 star" rating.
ADR also acquired the DBJ Green Building Certification, CASBEE Certification, and BELS with respect to 24 properties, constituting 28.7% of its portfolio based on total floor area, as of the end of the FP under review.
As part of their energy-saving measures, ADR has introduced LED lighting in common areas of their properties. During the FP under review, ADR installed LED lighting in nine properties. At the end of the FP under review, ADR had completed the installation of LED lighting in 124 properties (representing 44.8% of its portfolio).
ADR has been striving to include green lease clauses in its lease agreements, and as of the end of the FP under review, ADR has introduced such clauses in approximately 64.4% of its lease agreements.
Note 4. Green lease clauses are provisions included in lease agreements with tenants and are designed to reduce environmental footprints through energy-saving and other measures concerning real estate.
• Social initiatives
ADR conducts educational activities for energy-saving by utilizing the digital signage installed in the common areas of its properties.
3 Management Policies and Challenges Going Forward
By diligently implementing the strategies outlined below, ADR aims to achieve solid EPU growth.
1. Internal Growth
Keeping a close eye on trends of the rental housing market, ADR will prioritize the maintenance and improvement of the occupancy ratio through measures such as the relaxation of leasing terms.
Meanwhile, we will keep raising rents associated with residential units that hold promise in that regard.
In addition, because the average building age for the entire portfolio is 16.3 years Note 5, rent declines due to degradation over time in individual apartment units are anticipated for the future. ADR will endeavor to maintain and improve its competitiveness by renovating with the intention of increasing rent on a scheduled basis.
Note 5. The building age presented is as of January 31, 2023. The average building age is the weighted average of the building ages of the owned properties based on their acquisition prices.
2. External Growth
ADR aims to acquire properties that will contribute to improving the quality and profitability of its portfolio. This will involve acquiring sponsor properties and utilizing information gained through sourcing initiatives of the Asset Management Company. In addition, ADR will keep tenants and geographic diversification in mind when undertaking investment and, accordingly, will not be susceptible to temporary market trends.
3. Finance Policy
ADR will procure funds considering fixed interest rates, while keeping a close eye on interest rate trends and striving for stable funding costs and diversified borrowing maturities. In doing so, we will endeavor to establish strong financial foundations that can weather future financial market volatility.
4. Sustainability
ADR will promote measures for energy-saving and reduction of greenhouse gas emissions in its properties to realize a sustainable society and further increase its unitholder value.
5. Dividend Payout Policy
In accordance with its basic policy of realizing a stable distribution of earnings over the long term, ADR will
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Advance Residence Investment Corporation published this content on 15 May 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 May 2023 07:47:16 UTC.