Results of Operations
for the Fiscal Year Ended December 31, 2010
Table of Contents
1. 2010 Results Highlights
2. Business Environment
3. Kenedix Strategic Objectives
1
1. 2010 Results Highlights
2
Summary of 2010
g goals for balance sheet restructuring
Nearing g g
Equity has increased due to a public offering of stock and a third-party allotment of stock to ITOCHU Corporation in July
and August 2010 respectively.
Extended the maturities of interest-bearing debt through measures that include a syndicated loan (approx. ¥14.6 bn, 3
Tokyo-Mitsubishi UFJ
years) arranged jointly by Sumitomo Mitsui Banking Corporation and Bank of Tokyo Mitsubishi UFJ, and a refinance loan
(5years) for the portfolio of operating gas stations.
Downsized the balance sheet and increased balance sheet liquidity, through measures that include establishing a private
real estate fund for Korean institutional investors and selling a portfolio of nursing homes.
Steady growth in AUM to current level of approx. ¥1.1 trillion
Consistently capturing earnings as a survivor in the market; increased AUM to ¥1,098 bn, well above the ¥1,035 bn target
in the medium-term plan announced in February 2010.
Group s
Succeeded in using the Kenedix Group’s sourcing expertise for business activities using innovative approaches; examples
include a J-REIT investment by acquiring the portfolio of Japan Retail Fund Investment Corporation, and a company
investment by acquiring Pacific Holdings, which is undergoing corporate reorganization proceedings.
y ,
Third consecutive year of losses, but the 2010 loss was much smaller
The outlook for the real estate market remains uncertain, but losses from the balance sheet, a major source of recent
losses, have become smaller, and the 2010 net loss was approx. ¥2.5 bn.
Kenedix is aiming for a profit in 2011 by utilizing various approaches in order to generate earnings, such as increasing
expenses,
sources of earnings through the achievement of new asset management contracts and cutting interest expenses which
hold down earnings.
3
Consolidated Income Statement
, g g ,
Net loss in 2010, following losses in 2008 and 2009. Having said that, the loss was much smaller due
to an improvement in market conditions from 2009.
Annual Earnings Summary
(Millions of yen)
(
(Millions of y )
yen) ( yen)
(Millions of y )
FY2008 FY2009 FY2010 10,000 160,000
137,431
5,316 140,000
YoY change 5,000 2,202
225 120,000
0
100,000
Revenue ¥137,431 ¥77,831 ¥38,589 -50.4% 2008/12 2009/12 2010/12
-5,000 77,831 -2,542 80,000
60,000
-10,000 38,589
-10,850 40,000
Operating Ordinary income
Income ,
16,267 ,
8,433 ,
7,331 -15,000
Net income 20 000
20,000
13 1%
-13.1%
(Operating Income (11.8%) (10.8%) (19.0%) Operating income
-20,000 -18,438 0
Margin)
Summary of Extraordinary Losses
Ordinary (Millions of yen）
Income ,
5,316 225 ,
2,202 0
877 2%
+877.2%
(Ordinary Income (3.9%) (0.3%) (5.7%) 2008/12 2009/12 2010/12
Margin) -5,000 -2,667
-10,000
Net Income -10,850 -18,438 -2,542
%
-% -11,804
(Net Income Margin) (-%) (-%) (-%) -15,000
Extraordinary losses
-17,046
-20,000
4
Business Segment Information
g g , g
Solid growth in asset management fees, along with an increase in AUM. This g g
growth is shifting Kenedix
to a profit structure centered on stable revenues that are less vulnerable to changes in market conditions.
(Millions of yen)
Breakdown of Gross Operating Income
FY2008 FY2009 FY2010
(Millions of yen)
YoY change 100% 5%
Gross Operating Income 26% 21% 13%
¥22,413 ¥13,514 ¥11,411 -15.6%
Real Estate Investment Advisory 80%
Business 2,025 1,243 562 -54.8% 8%
9%
Fee Income 1,881 953 1,213 27.3% 60%
Dividend Income from
Investment in TK 143 289 -651 -%
Real Estate Investment Business 17,392 9,962 7,184 -27.9 % 40% 82%
71%
64%
Rental Revenue 11,829 6, 450 5,881 -8.8 %
Gain on Sale of Properties 12 327
12,327 7 382
7,382 1,921
1 921 74.0
-74 0 % 20%
Market-linked revenue Semi-stable revenue
Valuation Loss of Properties 0 -3,870 -596 -% Stable revenue
Others
0%
-6,764 0 -22 -%
2008/12 2009/12 2010/12
Asset Management Business 2,956 3,143 3,531 +12.3 %
Asset Management Fees (gross operating income basis)
Asset Management Fees 2,611
2 611 3 078
3,078 3 446
3, +12.0%
+12 0% (Millions of yen)
4,000
Incentive Fees 345 65 84 +29.2%
NPL Investment Management 3,000
Business 38 -834 132 -%
Fee Income 161 129 282 +118.7% 2,000
3,078 3,446
Gain
G i on Collection P fit on
C ll ti Profit 2,220
2 220 2 611
2,611
1,000 1,907
NPL/Dividend Income from -122 -963 -149 -% 1,423
Investment in TK
Notes: 0
“Stable revenue” is the sum of leasing revenue in the Real Estate Investment Business and asset management fees in the Asset Management Business. 2005 2006 2007 2008 2009 2010
“Semi-stable revenue” is the sum of fee income in the Real Estate Investment Advisory Business and fee income and fee income in the NPL Investment Management Business.
“Market-linked revenue” is the sum of dividend income from Investment in TK of the Real Estate Investment Advisory Business, gains/losses on sales of real estate for sale, inventory valuation gains/losses and others in the Real Estate 5
Investment Business, incentive fees in the Asset Management Business, and gain on collection on NPL and dividend income from Investment in TK in the NPL Investment Management Business.
Consolidated Balance Sheet
y g , g y p
Downsized the balance sheet from 2008 by selling real estate, and greatly improved financial
soundness by procuring funds twice as well as taking other actions.
(Millions of yen, unless otherwise stated) (Millions of yen) (Millions of yen)
300,000 80,000
Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010 Total Assets Net Assets
273,149
71,147
Total Assets ¥273,149 ¥218,603 ¥206,228
250,000
Net Assets 57,558 54,525 71,147 218,603
60,000 57,558
(of which Minority Interests) (10,819) (7,784) (11,080) 206,228
, 54,525
54 525
200,000
Equity Ratio* 21.1% 24.9% 34.5%
Equity Ratio* (excluding Minority 17.1% 21.4% 29.1%
Interests) 150,000 40,000
2008/12 2009/12 2010/12 2008/12 2009/12 2010/12
(Millions of yen) (Millions of yen)
Interest-bearing Debt ¥202,806 ¥153,038 ¥123,625 250,000 5.0
(of which Non-recourse Loans) (78,528) (68,419) (69,764) Interest-bearing Debt DebtEquityRatio
4.5
4.34
Cash and Deposits 11,872 18,291 10,913 202,806
4.0
200,000
200 000
Net Debt* 112,404 66,327 42,947 3.5
3.27
153,038 3.0
Net Debt Equity Ratio 2.40x 1.42x 0.72x
150,000
(including minority interests) (1.95 x) (1.22x) (0.60x) 2.5
123,625
D bt E it R ti
Debt Equity Ratio 4 34 x
4.34 3.27x
3 27 2 06
2.06x 2.0 2 06
2.06
(including minority interests) (3.52 x) (2.81x) (1.74x)
100,000 1.5
Note: Equity ratio = “Net Assets” / “Total Assets” 2008/12 2009/12 2010/12 2008/12 2009/12 2010/12
“Net Debt” = “Interest-bearing Debt” – “Non-recourse Loans” – “Cash and Deposits“
“Net-Debt-Equity-Ratio” = “Net-Debt” / “Interest-bearing Debt (of which Non-recourse Loans)” 6
“Debt-Equity-Ratio” = “Interest-bearing Debt” / “Interest-bearing Debt (of which Non-recourse Loans)”
Interest bearing 1
Summary of Interest-bearing Debt -1
Interest-bearing Debt Breakdown of Interest-bearing Debt
(Millions of yen)
240,000 100%
Corporate bonds (unsecured) 3.4%
1.1%
Corporate loans (unsecured)
14.6% 14.9%
Corporate loans (secured)
Non-Recource loans 22.1%
202,806 26.0%
1.2%
1 2% 0.4%
0 4%
2.2% 39.2%
180,000 44,784 75%
2.1%
160,441
153,038
153 038 36.8%
36 8%
4,400 39.5%
41,657 22,339 134,313
37.0%
1,868 123,625 35.9%
20,003 4,143
120,000 3,407 1,315 50%
,
75,094 532
60,411
48,403
57,609 49,493
56.4%
56 4%
60,000 25% 47.9%
44.7%
38.7%
36.0%
78,529
68,420 64,285 69,765
57,768
0 0%
08/12 09/6 09/12 10/6 10/12 08/12 09/6 09/12 10/6 10/12
7
Interest bearing 2
Summary of Interest-bearing Debt -2
g g y g g g
Succeeded in extending maturities of interest-bearing debt by taking out new loans and undergoing
refinancings, but interest expenses are increasing due to certain mezzanine loans and other factors.
Schedule for Repayments of Interest-bearing Debt Average Interest Rate on Interest-bearing Debt
As of Dec. 31, 2009 300,000 5%
(Millions of yen)
40,000 Corporate Bonds (unsecured) Loan balance (left axis)
35,349 Corporate Loans (unsecured)
Average interest rate (right axis)
28,825 Corporate Loans (secured)
30,000 Non-Recource Loans
23,334
23 334 238,268
240,000
240 000 4%
20,000 15,000 13,415
8,763 11,350 202,806
10,000 3.28%
4,782 4,912
1,990 2,0933753,732
110
180,000 3%
2010 2011 2012 2013-17 153,038
2.61%
As of Dec. 31, 2010 2.38% 123,625
(Millions of yen)
120,000 106,630 2%
40,000
1 92%
1.92%
30,000 1.47%
20,318 21,774
20,000 60,000 1%
16,425 15,431
14,313 12,964
12,242
10,000
4,701
1,750240 2,393 1,000
75
0 0%
2011 2012 2013 2014-17 2006Q4 2007Q4 2008Q4 2009Q4 2010Q4
Note: The average interest rate is calculated by dividing interest paid in each fiscal period (excluding 8
up-front fees) by the average of interest-bearing liabilities at the beginning and end of each fiscal period.
Summary of Inventories
Transferred 5 rental condominium properties to fixed
ea do of e to y of ece be 31, 0 0)
Breakdown o Inventory (as o December 3 , 2010) assets as long-term holdings
(Millions of yen, number of properties in parentheses)
Suspended
Office Commercial Gas Stations Gas Stations
Rental Condos developments Total
Buildings Facilities (Operating) (Closed)
(land), others
Tokyo
Metropolitan 2,600(1) - 2,910(1) 5,375 581 - 11,467(2)
Area
Kansai Area 4,526(1) - 2,264(1) 1,866 316 1,170(1) 10,144(3)
Chubu Sold one office building to - - - 1,842 394 - 2,236(-)
Kenedix Realty
Kyushu Investment Corporation - - - 1,483 456 - 1,939(-)
Other - - 13,447(2) 2,484 904 381(2) 17,218(5)
Total 7,126(2) - 18,621(4) 13,052(1)*3 2,654(1)*3 1,551(3) 43,006(10)
Valuation loss of ¥92 mm posted due to
p p
Valuation loss of ¥321 mm posted due to
Yi ld f I t i d (L t V l )
NOI Yield for Inventories and LTV (Loan to Value)
application of the lower-of-cost-or-maket method application of the lower-of-cost-or-maket method
Appraised NOI
8.4% -% 6.2% -% -% -% 6.8%*2
yield*1
LTV 62.8% ¥27,015 mm, ¥22,708 non recourse
62 8% (Total loans: ¥27 015 mm includes ¥22 708 mm of non-recourse loans)
Notes: (1) Appraised NOI yield = Appraised NOI/Book value. Appraised NOI yield for gas stations (operating properties) is not shown due to change to appraisal method that does not use an appraised NOI yield.
(2) Book value-based weighted average
(3) Treated as a single holding for operating and closed locations because properties are held in bulk; includes 92 operating locations and 35 locations that are closed
9
Summary of Fixed Assets
Purchased one office building by
Breakdown of Fixes Assets (as of December 31,, 2010)
( ) g
exercising contract for loan sale with
condition precedent
(Millions of yen, number of properties in parentheses)
For Long-term
Office Senior Total
Rental Condos Replacement Data Center Other
Buildings Healthcare
(Ginza/Roppongi)
Tokyo
33,487(10) 8,284(11) 5,021(3) 9,646(2) 6,295(2) 30(1) 62,766(29)
Metropolitan Area
Kansai Area 12,866(2) 11,408(8) 1,893(2) - 1,148(1) 406(1) 27,723(14)
Ch b
Chubu 3,767(3)
3 767(3) 8,372(7)
8 372(7) Transferred 5 rental condominium
- - 1,080(1)
1 080(1) - 13,220(11)
13 220(11)
buildings from inventories to fixed
assets and acquired three rental
Kyushu - 2,204(2) - - - - 2,204(2)
condominium buildings by
exercising contract for loan sale
Other 4,158(4) 6,245(7) -p
with condition precedent - 1,544(2) 843(2) 12,792(15)
Total 54,280(19) 36,516(35) 6,914(5) 9,646(2) 10,069(6) 1,279(4) 118,706(71)
NOI Yield for Fixed Assets and LTV (Loan to Value)
Appraised NOI
5.9% 6.4% 7.7% 5.1% 5.4% 6.4% 6.0%*2
yield*1
LTV 63.9% ((Total loans: ¥75,857mm, includes ¥47,055mm of non-recourse loans)
Total Fair Value*3 ¥115,474mm
Notes: (1) Appraised NOI yield = Appraised NOI/Book value
(2) Book value-based weighted average
(3) Starting in 2010, “Accounting Standard for Disclosures about Fair Value of Investment and Rental Property” and “Guidance on Accounting Standard for Disclosures about Fair Value of Investment and Rental Property” have 10
been applied.
Inventories and Fixed Assets
Inventory Summary*
(Millions of yen)
70,000 66,370 65,677 7.4%
7.3%
60,000 7.3% 54,878 54,237 7.2%
49,515
50,000 46,222 7.0%
6.8% 43,006
6.7%
40,000 36,171 35,559 6.8% 6.8%
30,000 27,015 6.6%
20,000 6.4%
Owned real estate
10,000
10 000 L linked to
Loans li k d t properties
ti 6 2%
6.2%
Appraised NOI yield
0 6.0%
2009/12 2010/3 2010/6 2010/9 2010/12
Fixed Asset Summary
(Millions of yen)
140,000 6.8%
118,706
120,000 6.6%
97,991 101,932 99,303 101,840
100,000 6.4%
6.2% 6.2% 6 2%
6.2% 6.2% 75,857
75 857
80,000 6.2%
64,793 65,694 62,079 65,398
60,000 6.0% 6.0%
40,000 5.8%
Owned real estate
20,000
20 000 L linked to
Loans li k d t properties
ti 5 6%
5.6%
Appraised NOI yield
0 5.4%
2009/12 2010/3 2010/6 2010/9 2010/12
Note: The appraised NOI yield for December 2009, March 2010 and December 2010 do not include gas stations. The appraised NOI yield for June 2010 and September 2010 include these properties.
11
Investments in Securities
j (“same boat investments”) with client investors are made in Kenedix non-
Small joint investments ( )
consolidated real estate funds. These investments total approximately ¥12.2bn (62.9%).
Breakdown of Investment Securities (as of December 31, 2010) Composition of
(Millions of yen) I t t i S iti
Investments in Securities
4Q FY2010
Holding Composition Description
Same Boat
(Dec. 31, 2010)
Investments
TK investments ¥9 577
¥9,577 49 3%
49.3% TK investments in SPC 3.7%
Same boat 11.1%
investments Other
¥2,652 13.6% TMK investments, etc.
investments
10.3%
Investments in U.S. apartment
49.3%
49 3%
Overseas investments ¥2,337 12.0% buildings, Chinese real estate funds
and other investments
12.0%
Mezzanine loans to SPCs that invest in
Mezzanine loans ¥2,000 10.3%
Tokyo office buildings
MAX-REALTY, Mitsui & Co Logistics 13.6%
13 6%
Equity in affiliated companies ¥2,156 11.1%
Partners, and others
TK investments
Other ¥721 3.7% REIT investment units, etc. Other investments
Overseas investments
Mezzanine loans
Total ¥19,442 100%
Equity in af f iliated companies
Other
12
Growth in Assets Under Management (AUM)
y ,g g ,
Achieved net increase of ¥158 bn in AUM by the end of FY2010, growing AUM to ¥1,097.9 bn.
Gross AUM increased ¥198.4bn, while the net total declined ¥ 40.3 bn.
(Millions of yen)
12,000 10,979
AUM
10,000 9,399
8,443
8,000 7,349
6,000
6 000 5,444
5 444
3,857
4,000
2,404
2,000 1,059
685 838
190
0
00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12
2,000 1,905
各決算期毎の純増額
Annual net increase 1 453
1,453 ,
1,587 1,580
,
1,500 1,345
1 345
1,094 956
1,000
495
500 153 221
0
00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12
Notes: The Kenedix Group uses the following standards for calculating the balance of assets under management (AUM)
- AUM includes real estate properties where the Kenedix Group performs asset management services, but does not include development projects prior to completion
- AUM uses the acquisition cost of a property (net of taxes). Costs associated with acquisitions, capital expenditures to raise a property’s value and other related items are included in the book value of a property for accounting
purposes. However, these items are not included in AUM
- AUM includes properties that the Kenedix Group holds itself for a short period of time. AUM also includes properties held by J-REITs (Kenedix Realty Investment and Japan Logistics Fund) that are managed by Kenedix affiliates 13
Major Causes of 2010 Change in AUM
Causes of change in AUM and major properties (Total of new AM contracts in FY2010)
REIT
(Millions of yen)
2,000
1,984 Public stock offerings have been resumed; 2 group REITs purchased properties
71
Kenedix Realty Investment approx ¥15.1bn
Japan Logistics Fund approx ¥25.3bn
404
1,600
Properties added due to changes in asset management contracts
Switched from current AMI to Kenedix due to request from a lender or investor
316
4 senior healthcare facilities, from foreign investors approx ¥14.5bn
1,200
8 residential properties, from domestic financial institutions approx ¥17.0bn
461 Corporate transactions
800 Properties of companies to which Kenedix serves as a sponsor and asset manager
(assistance for rebuilding), including Pacific Holdings, which is undergoing corporate
reorganization proceedings
Pacific Holdings in reorganization proceedings, etc. approx ¥46.1bn
400
729
New acquisitions
Acquired mainly due to restructurings, resulting from J-REIT mergers
0 Japan Retail Fund Investment Corporation approx ¥33.2bn
New acquisitions REIT
Corporate transaction Others
Properties added due to change in asset management contract 14
Diversification of AUM (1): Client Investors
Growth in AUM Breakdown of AUM
(¥100 mm)
12,000 100% 1%
Principal account 8% 10%
14% 13% 15%
J-REIT 17%
21% 22% 20%
Pension funds 1,618
10,000
Domestic institutional investors 80% 26%
45% 28%
Foreign investors
1,623
8 000
8,000 41% 35%
1,720 37%
3,877 47%
60% 38%
41% 40%
1,624
6,000 3,448 100% 22%
724 3,225 47% 14%
1,549 40%
17%
2,913 21%
4,000 7%
19%
402 2,210 1,598 772 17%
54% 25%
7%
1 070
1,070
1,622
190 632 20% 40% 37% 5%
1,238 15% 6%
2,000 634 862 1,135
438 3,164 29%
445 22%
1,133 958 2,098 19% 17%
224 819 15% 15%
113
10
306 392 439 1,130 1,438 10%
369 332 396 448 564 557
0 190 0%
00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12
15
Diversification of AUM (2): Property Category
Growth in AUM Breakdown of AUM
(¥100 mm)
12,000 100% 2% 2%
4%
Other 8% 10% 9% 9%
6% 12% 11%
15% 13%
Logistics 20%
1 016
1,016
Commercial Facilities 13% 12% 13%
10,000 13% 12%
80% 20% 13%
Residence
1,452 11%
17%
Office 847
18%
15% 17% 19% 18%
8 000
8,000 872 1,166
1 166 19%
1,996 21%
60%
809 1,004 21%
1,827
6,000 942 100% 21% 21%
1,431 19% 20%
126 2,250
710 1,097
40% 79%
1,808
919 1,762 70%
4,000
67 1,527 62%
584 56%
408 ,
1,122 51%
47%
9 20% 40% 40% 40%
293 814 39%
2,000 4,266
308 3,751
447 3,374
2,974
2,567
67 67 1,984
139 111 212 1,348
121 742
426 660
0 190 0%
00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12
16
Diversification of AUM (3): Geographic Coverage
Growth in AUM Breakdown of AUM
(¥100 mm)
12,000 100% 1%
7% 5%
Other 9% 9% 10% 10% 10%
11%
Kyushu area 2% 2% 8%
21% 2% 1% 5% 4% 3%
1 097
1,097 25% 4%
Chubu area 2% 4%
10,000 20% 4% 5% 5%
284 80% 13%
Kansai area
484 20% 15% 14%
Tokyo metropolitan area 1,069 15% 14%
16%
1,562
8,000
8 000 840 347
491
364
60%
725 438
1,534
384
289 1,162
6,000 100%
269 1,124
1 124
459
134 40% 78%
73% 75% 74%
790 70% 69%
4,000 67% 66% 67%
332 7,553 63%
88
56
512 5,958
5 958
5,640
227 4,828 20%
39
38
2,000 3,792
484
2,869
2 11
49 209 222 1,616
139 827
497 627
0 190 0%
00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12 00/12 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12 09/12 10/12
17
Outlook for 2011
Earnings Outlook for 2011 Gross Profit Breakdown by Business Segment
(Millions of yen) (Millions of yen)
FY2010 FY2011 (forecast) FY2010 FY2011 (forecast)
YoY YoY
change change
Revenue ¥38,589 ¥21,900 -43.2% Gross Profit ¥11,411 ¥10,900 -4.5%
Cost of Revenue 27,177 11,000 -59.5% Real Estate Investment Advisory
562 1,659 +195.1%
Business
Gross Profit 11,411 10,900 -4.5%
Fee Income 1,213 1,592 +31.2%
Selling, General & Dividend income from
4 080
4,080 3 300
3,300 -19.1%
19 1% -651 67 -%
Administration Expenses Investment in TK
Operating Income ¥7,331 ¥7,600 +3.7% Real Estate Investment Business 7,184 5,330 -25.8 %
Non-operating Income 692 570 -17.7% Leasing Revenue 5,881 5,550 -5.6 %
et Ga s on Sales of ea
Net Gains o Sa es o Real
N ti Expenses
Non-operating E 5,821
5 821 4 470
4,470 23 2%
-23.2% 1 921
1,921 0 -%
%
Estate for Sale
Ordinary Income ¥2,202 ¥3,700 +68.0% Net Inventory Valuation Gains -596 0 -%
Extra-ordinary Income -2,592 -120 -95.4% Others -22 -220 -%
Income Taxes and Minority g
Asset Management Business ,
3,531 ,
3,890 +10.2%
2 153
-2,153 1 580
-1,580 26 6%
-26.6%
Interests in Income, etc.
Asset Management Fees 3,446 3,740 +8.5%
Net Income ¥-2,542 ¥2,000 -%
Incentive Fees 84 150 +77.1%
NPL Investment Management
132 21 -84.6%
us ess
Business
Fee Income 282 114 -59.8%
Gain on collection on NPL and
dividend income from -149 -93 -%
Investment in TK 18
2. Business Environment
19
Summary
Interest in Japanese real estate is starting to increase once again, as the
liquidity of funds available for investments continues to improve in the global
1 markets.
Real estate transaction volume, are increasing in Japan due to growing
activity in the J-REIT market, purchases by overseas investors, and other
2 factors.
factors
The downward correction in cap rates for office buildings and rental
condominiums, the two primary asset categories, has ended and rates are
3 slowly starting to recover.
Although concerns remain surrounding real estate fundamentals in the office
building market, this sector has bottomed out. Furthermore, Kenedix does not
view the upcoming increase in the supply of new office space as a source of
4 major concern.
j
20
Global Market Outlook
p y
Growth in the volume of capital channeled to real estate markets may accelerate on a g global scale in 2011.
Global real estate transactions recovered sharply in 2010. The highly active markets in emerging countries
in East Asia are attracting much attention, but the Tokyo market remains very significant. We believe that
the 2011 investment climate in Tokyo is relatively favorable.
Commercial Real Estate Transaction Volume 2010 Transaction Volume in Major Cities
(Billions of US$)
（単位：十億米ドル）
(Billions of
（十億米ドル）US$)
250
London Metro $23.9
Asia Pacific EMEA Americas
200 Tokyo $18.9
NYC Metro $16.3
150
Paris $12.8
100 Hong Kong $12.0
DC Metro $12.0
50
LA Metro $9.7
0 SF Metro $8 6
$8.6
07Q1 07Q2 07Q3 07Q4 08Q1 08Q2 08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3
Singapore $7.3
Source: Jones Lang LaSalle
Stockholm $5.3
Opinion Concerning Adequacy or Shortage of Equity Chicago $5.2
Toronto $4.7
Extremely inadequate Somewhat inadequate
Supply matches demand Somewhat excess
2010 supply supply supply So Fla $4.5
24.5%
13.9% 49.7% 11.9%
Sydney $4.4
Moscow $4.2
Beijing $4.2
y q
Extremely inadequate Somewhat inadequate
q Somewhat excess
Supply matches demand Boston $3 9
$3.9
2011 supply supply supply
37.3%
4.7% 35.3% 20.7% Shanghai $3.9
Extremely excess supply
2.0% Dallas $3.9
Seoul $3.8
0% 10%
Source: Urban Land Institute
20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: Real Capital Analytics
21
The Real Estate Investment Market:
Transaction Volume
g particularly solid
Transaction volume in the real estate investment market is climbing, and there is p y
growth in the core office market sector.
Activity is returning to the real estate investment market owe to the recovery of the J-REIT market
and increase in J-REIT public stock offerings.
Real Estate Transaction Volume Stock Offerings
J-REIT Public S Off
(Number of transactions)
350 250% Announcement Amount Acquired Properties
Hotels Logistics facilities
Date (\100 mn) (numbers) (\100 mn)
Commercial facilities Residential properties
Offices Offices (YoY, right) Advance Residence 2010/6/4 285 6 104
300 200% Frontier Real Estate Investment
( g )
Residential (YoY, right) (
Commercial (YoY, right)
g ) 2010/6/14 195 2 288
C ti
Japan Logistics Fund 2010/8/20 101 1 174
250 150% Nippon Building Fund Inc. 2011/1/11 *1 290 5 472
Japan Excellent, Inc. 2011/1/13 *1 151 2 157
Fukuoka REIT Corporation 2011/2/7 *2 90 1 287
200 100% Nippon Accommodations Fund 2011/2/10 2
*2 226 19 307
Source: Prepared by Kenedix AM based on REIT data; Notes: *1. Includes estimates of third-party allotments. *2 Estimated net proceeds
150 50%
J-REIT Property Acquisitions
(Number of transactions)
100
100 0%
50
50 -50%
0 -100% 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2008 2009 2010 2008 2009 2010
Source: Prepared by Kenedix AM based on Nikkei Fudosan Market Joho data Source: Prepared by Kenedix AM based on Nikkei Fudosan Market Joho data
22
Real Estate Investment Market: Cap Rates
p p , g g p p
The volatile period for cap rates has ended, and some investors are beginning to accept lower cap rates.
The outlook for activity in the real estate investment market will depend primarily on whether or not
investors target a broader range of properties in terms of asset class, geographic area, and other
parameters.
Expected NOI Return (Office buildings) Expected NOI Return (Residential)
(%) (%)
6.5 6.5
6.0 6.0
5.5 5.5
5.0 5.0
4.5 4.5
4.0 4.0
Note: Basis is a building in Otemachi, Chiyoda-ku, Tokyo Note: Basis is a building, less than 5 years old, located in the 5 major wards of Tokyo
that is less than five years old and has at least 1,650m2 of that is within a 10-minutes’ walk distance from the nearest railway station and has
leasable space on a standard floor. Source: CBRE one-room condominium units with an average floor area of 25m2. Source: CBRE
3.5 3.5
07/7 07/10 08/10 08/4 08/7 08/10 09/1 09/4 09/7 09/10 10/1 10/4 10/7 10/10 07/7 07/10 08/10 08/4 08/7 08/10 09/1 09/4 09/7 09/10 10/1 10/4 10/7 10/10
23
Real Estate Fundamentals: Office Building Market
y general bottom.
Conditions are still uncertain in the Tokyo office market, but the market seems to have reached a g
Although there are concerns about the volume of the upcoming supply of office buildings, we believe this supply
will not be enough to stagnate the current recovery.
Vacancy Rates of S- and A-Class Buildings Vacancy Rate by Building Size (in 9 Central Wards of Tokyo)
( )
(%) ( )
(%)
10 14 Large scale Large Medium Small Average
S Class A Class Average
12
8
10
6 8
6
4
4
2
2
0 0
07/12 08/3 08/6 08/9 08/12 09/3 09/6 09/9 09/12 10/3 10/6 10/9 10/12 '00/1
00/1 '01/1
01/1 '02/1
02/1 '03/1
03/1 '04/1
04/1 05/1
'05/1 06/1
'06/1 07/1
'07/1 '08/1
08/1 09/1
'09/1 '10/1
10/1 11/1
'11/1
Source: CBRE Note: Classified by standard floor space:; large-scale > 660m2, 660m2 > large > 330m2, 330m” > medium > 165m2,
165m2 > small > 66m2 Source: Sanko Estate Co., Ltd.
Monthly YoY Change in Average Advertised
Office Supply (Leasing Floor Space)
Leasing Rates (Five central wards of Tokyo)
15% （千坪）
(1,000 Tsubo (= 3,300 m2)) Leased floor area where project delays or terminations may occur*
Leased floor area that may be supplied due to projects delayed from prior years*
10% 300
5%
200
0%
-5%
100
-10%
-15% 0
03/1 03/7 04/1 04/7 05/1 05/7 06/1 06/7 07/1 07/7 08/1 08/7 09/1 09/7 10/1 10/7 11/1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: prepared by Kenedix based on data according to Miki Shoji Co., Ltd. Note: *estimation by Kenedix 24
Source: prepared by Kendeix according to the CBRE data
Activities to Improve the Real Estate Investment Market
y p
There is currently much discussion about the initiatives needed to achieve an improvement in the J-REIT market and
real estate investment market. One such issue is the need to improve transparency in the Japanese market, which is
regarded as inferior to those transparency of the European and U.S. markets. There is also the need to grant J-REITs
more freedom in their equity strategies. If these and other measures are implemented, we believe they will increase
market.
the level of activity in the real estate investment market
Report of Real Estate Investment Market Strategy Conference
Debt market issues
Consider establishing long-term real estate loan products (Flat 10) with the participation of public-sector agencies,
etc.
t
J-REIT market issues
Diversify fund procurement methods (convertible bond issues, purchases of own investment units, etc.), increase
retained earnings, clear issue of inconsistency between financial and tax accountings, consider creating Japanese-
y p p
style umbrella partnership REITs, etc.
Issues in market for private funds
Improve the practicality of the asset liquidation law, etc.
Issues unique to the real estate market
Improve market transparency, enrich indices, refine appraisal processes, etc.
Issues involving cyclical system for real estate investment market and finance
Establish framework for conducting studies by the Ministry of Land, Infrastructure, Transport and Tourism and the
Financial Services Agency
p g p
Action plan for revitalizing financial and capital markets and the financial services sector
(Excerpts from related sections)
Increase flexibility of restrictions concerning asset liquidation schemes
Identify issues involving the laws that govern investment trusts and investment companies, and consider revisions
25
3. Kenedix Strategic Objectives
26
Accelerating the AUM Growth Strategy that
Leverages Kenedix Strengths
y g p y g p g
Kenedix has succeeded in consistently increasing AUM despite a constantly fluctuating operating
environment. We believe this has been possible due to the three strengths shown below.
Kenedix is committed to achieving further growth in AUM by continuing to argument these
capabilities while taking full advantage of them.
1 Sourcing skills
Kenedix can identify の回帰
AUM成長戦略への回帰 opportunities by drawing on a
AUM成長戦略 quality investment
powerful network for gathering real estate information in all areas of Japan.
2 Skills in arranging financing
Accelerating the AUM AUM成長戦略への回帰
Kenedix can leverage structuring know-how and other expertise to
growth strategy that devise the best possible solution for the arrangement of financing.
leverages core strengths
3 Competitive product lineup
Kenedix can establish new real estate funds, handle corporate transactions and use
many other schemes for managing assets.
Kenedix can manage office buildings, rental condominiums, senior health care facilities
and many other classes of assets.
27
Kenedix Strength (1): Sourcing Skills
g greatest strengths of Kenedix. We use an extensive real estate information
Sourcing is one of the g g
network to locate identify investment opportunities with speed and flexibility.
By utilizing this strength, Kenedix has captured more than ¥100 billion in new real estate asset
management contracts every year since 2004, for seven consecutive years.
for
There currently is growing demand among overseas investors f assistance in purchasing
Japanese real estate. We will continue to meet the needs of these investors by leveraging our core
strengths.
Kenedix Sourcing Expertise New Asset Management Contracts
(¥100mm) (Number of transactions)
Able to identify quality investment 3,000 361 400
新規受託額(左軸)
Total amount (left)
Network opportunities by utilizing an expansive
新規受託件数(右軸)
Number of transactions
(right)
network for gathering real estate information 300
248
2,000
Able to start acting quickly after identifying 192
Speed an attractive opportunity.
200
2,572 1,984
1,000
, 1,739
1,602 1,736
1 736 137 1,303
1 303
126 100
1,994
62 58
Steady supply of investment opportunities 0 0
04/12 05/12 06/12 07/12 08/12 09/12 10/12
As an asset manager with extensive knowledge about the Japanese real estate market,
Kenedix can provide investors with real estate investments that have outstanding added value.
28
Kenedix Strength (2): Skills in Arranging Financing
g project along with investors, Kenedix uses creativity also with regard to the
In conducting a p j g , y g
arrangement of financings, in order to devise schemes that provide the best solution for each project.
Example 1: Arrangement of mezzanine loan Example 2: Extended term of non-recourse loan
In September 2010, Kenedix raised funds to establish a new In September 2009, Kenedix performed a refinancing for a
fund by means of a mezzanine loan (LTV75%) using a CMBS, fund for pension funds that invests in rental residential
which was issued in the market for the first time in properties.
approximately two years. This refinancing provided two benefits: (1) Procured
Using this financing scheme realized the high returns that approximately the same amount as the loan prior to the
equity investors expected to receive. financing without an additional investment and (2) the term of
the loan was extended from two years to five years.
Bank A Bank B
Senior loan
S i l Senior loan (¥12bn)
(¥12b ) (¥24b )
(¥24bn)
Domestic financial
(¥17bn) institutions
Refinance
Assets
(approx ¥33bn) Mezzanine loan Foreign financial
Bank A Bank B
(¥8b )
(¥8bn) i tit ti
institutions Senior loan
S i l
(¥12bn) (¥18bn)
Equity
Foreign investors Bank B (¥6bn)
(¥8bn) Mezzanine loan
Kenedix used creative approaches to the financing methods and scheme
in order to devise ideal solutions for both investors and lenders. 29
Kenedix Strength (3): Competitive Product Lineup
Kenedix has extensive asset management expertise backed by a long track record. With this know-how, we can employ
flexible approaches to meet diverse investor needs. Know-how extends from establishing new real estate funds to corporate
transactions and the replacement of existing asset management contracts.
Furthermore, Kenedix has an asset management framework that goes beyond the traditional asset classes of office buildings,
rental condominiums and commercial buildings. We can also manage senior healthcare facilities and other types of asset
requirements.
classes with unique requirements
The Kenedix Group is one of Japan’s largest managers of senior health care facilities, with asset management
contracts for facilities having an aggregate value of aproximately ¥37.3 billion.
Corporate T
C ti E l P ifi H ldi
t Transaction Example: Pacific Holdings Asset Classes Handled by Kenedix
Rental
condominiums
Foreign investment
company Offices
Minority funding and asset management Majority funding
(reorganization assistance） Commercial
facilities
Companies undergoing corporate reorganization proceedings including
Pacific Holdings, Inc.
Senior healthcare
facilities
Logistics
Asset facilities
(¥46bn)
Expertise involving many types of investment schemes and asset classes
allows Kenedix to create the best proposal for every investor. 30
Strategic Objective: Serve a Broader Spectrum of
Overseas Investors
p , p y , g y
Outside Japan, Kenedix primarily serves U.S. investors, while also serving investors in many other
regions, including Europe and Asia.
Increasing activity among Asian investors and other current trends point to further growth in the
Japan s
role of overseas investors in Japan’s real estate market.
By further spreading a global mentality throughout the Kenedix Group, we will strive to serve an
even broader and more diverse range of overseas investors.
Country*
Private Fund Investors by Country Growth in Clientele of Foreign Investors
Identify and increase
5% investors from the Asia
11% and other regions
Asia
5% Australia
42%
Europe
USA
Japan
37%
Kenedix will target a diverse array of investor needs, while closely monitoring
changes in the activities and requirements of overseas investors. 31
Note: AUM amount excluding those of the investments in J-REITs and for the account of the Company (as of December 31, 2010)
本資料の取り扱いに関して
Disclaimer and Precautions
g y
The contents of this document, including summary notes, q quotes, data and other information, are
provided solely for informational purpose and not intended for the purpose of soliciting investment
in, or as a recommendation to purchase or sell, any specific products.
Please be aware that matters described herein may change or cease to exist without prior notice
of any kind. This document contains forward-looking statements, including anticipations of future
results, based on current assumptions and beliefs in the light of currently available information
resources uncertainties, unknown,
and resources. Risks and uncertainties both known and unknown including those relating to
interest rate fluctuations, competitive scenarios, and changing regulations or taxations, may cause
Kenedix, Inc. actual results, performance, achievements and financial performance to be materially
document.
different from those as explicitly or implicitly expressed in this document
With respect to any and all terms in this document, the information provided is intended to be
thorough. However, no absolute assurance or warranties are given with respect to the accuracy or
completeness thereof.
Kenedix, Inc. shall not be liable for any errors, inaccuracies, losses or damages, or for any actions
taken in reliance thereon, or undertake any obligation to publicly update the information
contained in this document after the date of this document.
32