Sojitz Corporation

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Japan/REIT Business

One solution for the sustainable growth of function-oriented trading companies

October 2014

*Affiliations and titles are current as of the time of the posting of this article

On April 24th, Nippon REIT was listed on the J-REIT section of the Tokyo Stock Exchange. Sojitz REIT Advisors, a Group subsidiary is responsible for managing assets for the company, and with this listing, Sojitz has begun their full-scale move into the REIT market. In this feature, we introduce the structure and vision of Sojitz’s REIT business, a project which is currently drawing considerable attention from private investors.

[News Release] NIPPON REIT Investment Corporation Shares Listed

What is a REIT?
REIT – Real Estate Investment Trust
Procures funds through loans and by gathering capital from investors
Invests primarily in real estate
Revenue received from the real estate is then distributed to investors (see diagram below)

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Funds Managed by Experienced Real Estate Investment Professionals

Sojitz started Sojitz REIT Advisors (67% ownership) in December 2013, in a joint venture with Cushman & Wakefield Asset Management K.K. (18% ownership) and Agility Asset Advisors Inc. (15% ownership).

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Fumihiko Mizuno
(Senior Managing Director)

We first asked Fumihiko Mizuno, Senior Managing Director of Investment Management Division for Sojitz REIT Advisors, to explain how REITs work:

“Even the cheapest real estate purchases or sales usually require tens to hundreds of millions of yen. The benefit of REITs, however, is that they allow investors to put in a million yen or less and have their assets managed by an experienced professional. By opening up the Japanese REIT market, Japan has pushed to create an environment which makes investment easy—even for those who lack real estate experience.

“The REIT business is also socially significant in that it contributes to the improvement of social capital by linking the real estate and equity markets to bring a wide range of funding into real estate. This is why it makes sense for Sogo Shosha to get involved in this business.” says Mizuno.

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Kanehisa Nango
(General Manager of Corporate Planning Dept.)

Next, we talked to Sojitz REIT Advisors General Manager of Corporate Planning Dept.,Kanehisa Nango for an overview of the REIT business. “Current listings for the Tokyo Stock Exchange’s J-REIT section comprise stocks for 46 companies including Nippon REITs, with the total value of assets (in other words, properties owned by REITs as of Sep. 2014) reaching 12 trillion yen. Most of this growth has been made in the last 5 years; the market totaled only about 7.5 trillion yen in 2009. REIT market capitalization once valued at roughly 3 trillion yen now fetches that of 9.0 trillion yen—nearly three times the original price. And the market is still growing.”

* Total value of the REIT units

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A Gateway to Borrowed Equity-based Business

Sojitz’s pre-merger companies, Nichimen and Nissho Iwai, each had over 40 years of  experience in the real estate industry and were pioneers in the condominium market.  However, their business consisted mainly of property development—just the  construction and sale of real estate. It wasn’t until later that the sub-prime mortgage  crisis dealt the industry a crippling blow.

“Projects that were scheduled for sale were cancelled, saddling us with massive  unsalable assets. Since we could not afford to burden the business divisions with these assets, they were transferred to the Asset Management Dept., to control at Company-level, so to speak,” says Mizuno. “The Asset Management Dept. went through countless discussions, trying to come up with a way to utilize these enormous assets to achieve stable growth and create a sustainable business model.We came to the conclusion that we would have to get into the listed REIT business.”

They started by putting up the four properties they held in 2011 (totaling 17.7 billion yen) as a private REIT. The opportunity to list the REIT on the stock market came after that, alongside the shift in Japanese politics that occurred in 2012. This turned the tide, opening the window of Japanese REIT market and affecting a positive trend in the real estate environment. Sojitz chose to partner with Cushman & Wakefield Asset Management given that the company had many years of experience in asset management, sufficient knowhow, and would be able to contribute human resources to the project.

Mizuno says: “We garnered internal support from a number of related parties, starting with the Corporate Planning Dept. and later moving on to the Risk Management, Finance, and Legal Departments. Corporate Planning put it best when they said, ‘This is a business based on borrowed equity, a so-called “low-overhead business” in the sense that separate entities are responsible for ownership and management of the assets. Since Sojitz does not technically own the property, the risks associated with real estate are separated from Sojitz. Being a functionoriented trading company may be just the thing that makes our entrance into this business possible.’ It was very reassuring to hear them position the business this way.”

Capturing Trust through Speed

Nippon REIT’s current holdings include 20 properties worth approximately 70 billion yen in assets. What Sojitz actually contributes to the project are equity interest for 10% of the firm’s investment securities (over 3 billion yen) and approximately 300 million yen in investments to Sojitz REIT Advisors. In essence, this business model allows Sojitz to expand the REIT and raise its revenue without increasing our total investment. “This business model is distinct from previous real estate business models from the vantage point of both cash-flow efficiency and earning efficiency,” stresses Nango.

Targets for investment include: office buildings, leased residential apartments, and retail facilities. The idea is that properties aimed at investors are generally purchased from third parties on a negotiation basis, allowing Sojitz to act in the best interests of investors. “What most sets this model apart is the way it develops the REIT by completely eliminating the conflicts of interest between the REIT and sponsors and taking the investor’s perspective into account when purchasing properties.” (Mizuno).

Nippon REIT is currently listed as 45th out of a total of 46 REITs (as of Sep. 2014) on the J-REIT market, coming in third from the bottom with 70.4 billion yen in total assets. Its presence is still small. The first order of business is to meet investor expectations by developing the REIT towards the new goal of 200 billion yen in assets as quickly as possible.

“Exceedingly important are the Guiding Principles of ‘trust’ and ‘speed.’ The challenge is to gain trust by harnessing speed as a decisive tool in meeting our growth trajectory. Both the market and the investors hold us to these expectations” (Nango). “That means comprehending precisely what the needs are of those looking to sell and serving those needs in a timely manner. In other words, we keep an ear to the ground. Only a few months have passed since our listing, but by continuing with this approach, our presence will grow and gradually permeate the REIT market as more and more people look to consult with Sojitz” (Mizuno). Sojitz REIT Advisors reportedly follow nearly all properties for sale within Japan.

The Nippon REIT project aims to create a single foundation for earnings in order to return domestic Japanese construction to the business divisions. This business has just begun, and Nippon REIT project members are united in their desire to work hard until the project can contribute to the company.

“We want to prove that this venture opportunity, born from the asset management business, can give back to the company in the future. This REIT business can serve as a model for function-oriented trading companies. In terms of future development, we could utilize a similar framework to the REIT as a basis for overseas infrastructure investment or investment in other projects. These second and third follow-up steps to the expansion model were carefully considered in the initial organization and formation of the REIT“ (Nango).

“We are eager to prove that the REIT can be one solution to the problem of sustainable growth for function-oriented trading companies. The big key word here is ‘sustainable growth.’ Everything we are doing is for the good of Sojitz. For the REIT, for the Sojitz Group,” concluded Mizuno.

A word from the project members… (Sojitz REIT Advisors)
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Koji Furuta
(General Manager, Investment Management Dept.)


REITs are different from other businesses in that we cannot amass equity. We are always procuring capital from the equity market. Although I understood this at an intellectual level, I now see how difficult and tense this can be due to my direct involvement with the financial institutions which represent both this equity market and our source of debt procurement.

Our investors are most concerned with asset expansion—in other words, the company’s ability to achieve outward growth. They always focus on the credibility of our sponsors and the management capability of the asset management companies. As a company which has decided to enter the borrowing business, the success of this project will serve as a litmus test for similar businesses in the future. This is why I want our company to expand the scale of our assets as soon as possible, and steadily raise our reputation among investors.

At the same time, I hope we can use Nippon REIT’s listing as an opportunity to develop a real estate value chain and devise a new business model for Sojitz.

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Shigeki Ootsuka
(Deputy General Manager, Investment Management Dept.)


Since this was Sojitz Group’s first time making an initial public offering, there were many doubts from inside the company about whether Sojitz would succeed in this new venture. I initially found myself spending each day answering to these fears, and after we got the go ahead from the company, I began working on preparations for the listing. While this work took its physical toll on me, I didn’t find it mentally fatiguing in the least. (laughs)

Although I mainly worked on the buying and selling of property, negotiations were always handled by the whole team. In business, it can be extremely difficult to get the other party to place their trust in you, but this experience really allowed me to understand the credibility our company has.

Now, our investors are eagerly anticipating the growth of Nippon REIT. The only thing left is to demonstrate our integrity towards meeting those expectations. In other words, we recognize that the management’s current mission is an incredibly simple one: keep buying up high quality assets.

A Look at Nippon REIT’s Properties

FORECAST Ichigaya Tower Court Kitashinagawa
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FORECAST Shinjuku South FORECAST Shinjuku Avenue

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