Realization of Stability and Growth by Three Investment Targets
Kenedix Residential Next Investment Corporation (“KDR”) is committed to maximizing the profits of unitholders by accurately grasping change in social / economic structure, realizing stable rental revenues and steady growth of the asset size with investment in a broad range of properties from residential to healthcare and accommodations (“spaces where people live and stay”)
Investment in residential facilities
The favorable rental market environment continues against the backdrop of population inflows into the Tokyo metropolitan area and central areas of other major cities and limited supply of rental housing particularly in Tokyo metropolitan area. Recent changes in Japan's social environment have led to "diversification of lifestyles, such as the decrease in the proportion of owned house among young people and the preference for flexible lifestyle that is not restricted to residential ownership." The Investment Corporation believes that portfolio of rental housing is highly attractive in light of these changes in Japan's social structure.
Residential facilities such as rental housing are generally less susceptible to the effects of economic fluctuations in comparison with other facilities and diversified tenants are expected to be stable and profitable. In addition, because the scale per property is small, it is easy to diversify risks and it has a high level of liquidity.
nStability of rental housing
Source ： Bank of Japan. Corporate Service Price Index. Ministry of Internal Affairs and Communications. Consumer Price Index.
Note ： The residential rent figures are from the Consumer Price Index; the office, retail and hotel rent figures are from the Corporate Service Price Index. The rent levels for 1990 are given a value of 100 for comparison purposes.
As for the Investment in residential facilities, KDR place emphasis on investment judgments that focus on the potential profitability of the land itself, the power to attract residents (the ability to make people feel they want to live in). In evaluating “the power of land to attract people” and investing in the property, we use the following three metrics:
Measure of the "power of land to attract people"
■ “Distinguished Neighborhoods“ or “Jigurai”
The land of Distinguished Neighborhoods or “Jigurai” means mature residential neighborhoods with attractive reputations or histories, as well as more recently developed planned communities designed to be attractive residential area and those desirable location can provide long term competitiveness.
The land with high levels of lifestyle convenience means not only the land has "proximity to the nearest station" and "easy access" to major terminal stations and business districts, but also the land has "lifestyle facilities" such as surrounding commercial facilities, educational facilities, and parks.
■Presence of market characteristics
A land with a special market refers to land in the vicinity of factories, laboratories, schools, etc., where more stable demand for rental housing from the users of these facilities are expected in addition to the general demand for rent.
KDR targets properties consisting of "housing types appropriate to the characteristics of the land" after the assessment of the potential profitability of the land based on the above criteria.
Housing type classification
18 ㎡ or more and less than 30 ㎡ /room :Single-person-centered
■Small Family Type
30 ㎡ or more and less than 60 ㎡/room :Households consisting of households with married couples, infants, etc.
More than 60 ㎡ / room :Household-centered with a family of 3 or more people
Investment in residential facilities
Japan has reached the world's highest life expectancy for both men and women, and is expected to continue the "aging" of its population, the increase in the ratio of the elderly population against total population and the increase in elderly population itself.
The Healthcare facility is a class of assets that has great social significance among real estate properties, and KDR believes that by investing and operating healthcare facilities, we can expect to be an investment destination for ESG (Note) funding, which has been expanding in recent years.
The Healthcare facility is a class of assets that has great social significance among real estate properties, and by operating the investment of healthcare facilities, it can be expected to be a source of funding for ESG (Note) investment, which has been expanding in recent years.
(Note) ESG refers to Environment, Social and Governance.
nDomestic demographics by age
(Source) Cabinet Office “White Paper on Aging Society 2017”
Since it is common for healthcare facilities to conclude a fixed-rent long-term lease agreement with operators, the healthcare facilities is less susceptible to economic conditions and fluctuations compared with other properties.
By selecting operators with high credibility and track record of operation, KDR aims to achieve a stable cash flow by concluding a fixed-rent long-term lease agreement.
The source of the rent for operators at senior living facilities consists of the user fee (private pay) paid by the residents and the fee of the nursing care insurance/ the health insurance (public-sector payments) at the nursing care facilities. In light of the operator's revenue structure, KDR believes that the higher the percentage of public payments, the lower the revenue of operators, due to changes in the national social security system.
Accordingly, when investing in healthcare facilities, the investment decision will be made not only based on the location characteristics of the property, but also taking into consideration the range of the expenses paid by the residents and the level of the nursing insurance fee for the operator's revenue (the ratio of public and private payments).
nTrend in Inbound visitors
Source: Japan National Tourism Organization(JNTO). Visitor Arrivals.
Note: The figure of December 2018 is a preliminary figure
The facilities such as hotels etc. have a wide variety of types of services, and their profits are greatly influenced by individual factors. KDR carefully selects the areas where business or tourism demand can be expected with highly specialized our skills, and assessing the service type, grades, room prices, etc. that suit the type of accommodation demand, and invests in accommodation facilities that are expected to be stable operations.
Regarding the lease agreement with operators, in general, variable rents for hotel linked to sales and operating income are often adopted.
KDR places emphasis on the stability of cash flows in investments in accommodation facilities, and therefore invests in long-term rental accommodation facilities with a high credibility, management ability and a high ratio of fixed rents.