基本的な投資戦略

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Ⅰ. Analysis of individual REIT securities

The following four points must be kept in mind when performing long-term investments in J-REITs.
(Put another way, investing in J-REITs should be largely safe as long as the following four points are checked.)

1. Is the portfolio a good portfolio?

The quality of the owned properties is the lifeblood of REITs and as such the most important factor.
Naturally, going on location to take a close look at the portfolio contents is best, but it would be difficult for most general investors to carry out field surveys of all the properties of each REIT. Thus, the quality of a portfolio is usually checked from the published data, and the items to check at that time consist of the following.

・occupancy rate : Has a relatively high occupancy rate been maintained stably over the long term?
・Stability of NOI yield : Has a relatively high NOI yield been maintained stably over the long term?
・Average age of buildings : The lower the average age of the properties that make up the portfolio, the lower future capital expenditures will be, thereby securing dividend resources.

In addition to the above, you also need to take into account the location and scale of the properties in order to judge the quality of a portfolio, but depending on the type of property, indiscriminate portfolio concentration on city centers or large-scale properties is not necessarily a good thing. Hotels and logistics facilities are spread out across the country, and portfolios that consist of medium-sized properties, particularly residential properties, may benefit from a diversification effect.

2. Is the REIT being operated satisfactorily?

While operational capability is an important point to be checked, this is unfortunately an aspect that does not easily lend itself to quantitative analysis. Notwithstanding this, the following data can be used as material to judge operational capability from a quantitative perspective.

・Stability of dividend yield : Has a relatively high dividend yield been maintained stably over the long term?
・Appropriate external    growth strategy : When the REIT acquires new properties, is the NOI yield
(in certain cases, the implied cap rate) of that property lower than that of the existing portfolio? (Ideally, it should be the same or higher.)
・Appropriate funding    strategy : Has the REIT conducted a timely public offering (PO)? Or has it performed a discount capital increase in the past? (It's not a good thing.)

The overall operational capability of a REIT can be known by checking the above three points. What matters is whether the REIT is acquiring competitive properties at a reasonable timing. However, in order to determine operational capability even more appropriately, it is also necessary to carry out qualitative analysis. For example, one thing to check is the organizations from which the managers of the REIT's management company come. Typically, the managers of the management company of a REIT are loan employees pulled from the executive ranks of the sponsor company. However, big as the sponsor company may be, this does not necessarily mean that these loaned managers are experienced with the operation of a real estate investment trust. Unfortunately, it appears that in some cases managers are loaned out to REITs as a temporary assignment that is part of their career path. Furthermore, this is not limited to management proper and can be said to extend also to asset managers. It should be noted that people like this tend to be at the beck and call of the sponsor company and hardly think about investors.

3. Is the REIT in a good financial condition?

Analysis of financial condition is important for conducting long-term investments. As you already know, REITs are companies (vehicles) that are made for raising funds from investors and investing these funds in real estate. As REITs have no operating assets other than the assets under management, and as they pay out the quasi-totality of earnings available as dividends in the form of dividends, they are a mechanism that avoids corporate income taxes. As a result, a point of note in terms of financial analysis is that it is more important to scrutinize debt than income and assets, in other words the right side rather than the left side of the balance sheet. Specifically, the following financial indicators, among other things, need to be checked.

・Loan to value ratio (LTV) : Ratio of the interesting-bearing debt to the total assets (or assets under management) of the REIT.
The higher this number is, the more high-risk, high-return the REIT is.
・Term structure of the    debt : Even if the debt ratio is the same, financial risk varies according to the term structure of the debt (including investment corporation bonds).
Specifically, it is desirable for the debt to be distributed over a long period of time.
・SCR (debt service    coverage ratio): : The DSCR is one of the indicators of the ability to repay debt, and it is represented by the following equation.
Cash flow before principal and interest repayment ÷ Principal and interest repaymentsThe higher this number is, the greater the cash flow margin is.

There are a number of financial indicators in addition to the above, but REITs being companies (vehicles) characterized by an extremely high degree of information disclosure, it is likely sufficient in most situations to check the above points rather than performing sophisticated financial analysis as done in the case of ordinary companies.
REITs that have a high debt ratio, high borrowing costs (low DSCR), and a short debt term structure warrant caution.

4. Whether the sponsor company is good

Whether the sponsor company of a REIT is good or bad is in a way difficult to quantify, just like operational capability.
However, the influence of the sponsor company being observable through the foregoing financial aspects, particularly debt cost, checking average borrowing cost, the above-mentioned DSCR, etc., provides good material for judging whether the sponsor company is good. However, when all is said and done, the most important role expected of the sponsor company is the ability to stably supply operating assets. Concretely, supplying properties in a stable manner even as the acquisition of properties that provide a reasonable yield is difficult owing to reasons such as overheating of the real estate market, is the condition demanded of the sponsor company. There are three points to check, as follows.

・Creditworthiness of
   the sponsor company
: Financial rating, background (especially in the case of a foreign-affiliated sponsor company), etc. of the sponsor company itself
・Influence on average
   borrowing cost
: If, compared to other REITs that operate in the same sector and are of comparable size,
the average debt cost is low, the creditworthiness of the sponsor company is considered to be a contributing factor.
・Past property
   supply performance
: This verifies, of all the properties acquired as of the present date, the extent to which acquisitions from the sponsor company account for. Furthermore, this compares the NOI yield the respective properties at the time of acquisition with their implied cap rate.

If the sponsor company is a well-known Japanese company, it is relatively easy to judge its creditworthiness, but even if the sponsor company is a Japanese company, if it is an independent company or a foreign-affiliated company, determining the creditworthiness of that company may be difficult. Moreover, the average borrowing cost differs also depending on the term structure of the debt and the loan to value ratio, thereby preventing easy comparison. Conducting comparison requires the use of adjusted values. With regard to the property supply performance, not just by looking at the supply rate, but by comparing the NOI yield at the time of acquisition with the implied cap rate, as mentioned above, it is possible to determine whether the transactions in question are done with emphasis on the interest of the sponsor company or with emphasis on the interest of the investors.

Ⅱ.Judgment of the investment environment

Even if it were possible to select REIT securities that are suitable for long-term investment through the analysis of individual REIT securities, good asset management performance cannot be achieved independently of the investment environment. What is important with regard to judging the investment environment is economic trend indexes and real estate market trend indexes. J-REIT INSIGHT publishes indexes considered to be important for the determination of such economic trends and real estate market trends. Please use this data to judge the investment environment for the REIT market as a whole, and also to judge the investment environment for specific sectors.

Ⅲ.Determination of investment timing

After selecting investment grade securities and judging the investment environment, the next step is to determine the investment timing. Even if you select good securities and invest in them, if having done so while these securities are priced in the higher zone of their price range, you will suffer a large write-down or receive a relatively low yield. Therefore, you should seek to invest at least in the lower zone between the peaks and valleys formed by the medium-term trend of the security price, and technical analysis provides the support required to determine the investment timing. J-REIT INSIGHT explains the moment-to-moment positional relationships in the REIT market using the Ichimoku Kinko Hyo analysis method for forecasting price movement, which is a technical tool devised in Japan. Further, J-REIT INSIGHT explains also the method for determining the investment timing by examining the relative overvaluation/undervaluation of individual REITs, apart from the market trend, by use of the NAV ratio, the FFO ratio, and other indicators.

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