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Ⅰ.Corporation type closed-end listed real estate investment trust

The official name of J-REIT is Japanese real estate investment trust, but unlike common contractual-type investment trusts, J-REITs are corporation type (investment corporation type) investment trusts. Therefore, in practice, rather than viewing J-REITs as investment trusts, it may be easier to view them as investment securities (stock) of dedicated real estate leasing companies given the privilege of actual corporate tax exemption on the condition that they pay out as dividends 90% or more of earnings available as dividends. Moreover, the investment corporations themselves are no more than formal bodies for the purpose of acquiring real estate, and actual management services are all performed by asset management companies. J-REITs being closed end investment trusts, they do not accommodate cancellation and refund requests from investors. Therefore, they are listed as a means of collecting funds from investors.

Ⅱ.Differences with stock of ordinary companies

Since, in the case of a J-REIT, an investment corporation as a formal entity acquires real estate and pays out as dividends almost the entirety of earnings available as dividends, which consist of the rental income minus expenses, a J-REIT has little room for accounting measures and dividend policies, unlike an ordinary company, and arbitrary settlement of accounts by managers is not done. Furthermore, as the revenue and expenditure structure of J-REITs is extremely simple and J-REITs practice thorough information disclosure, the relative ease of grasping the actual situation of each J-REIT is one of the characteristics of J-REITs. However, with regard to the acquisition of operating assets (real estate), like ordinary companies, J-REITs raise funds through bank loans, the issuance of investment corporation bonds (corporate bonds), capital increases (PO), and so on, and thus attention must be paid to the fund raising strategy of each J-REIT. Moreover, as J-REITs basically do not retain earnings, dividend yield is a greater point of focus than rises in investment unit price (stock price). Therefore, compared with stocks, investment unit prices are little subject to fluctuation and J-REITs can be said to be dividend-oriented, middle risk, middle return financial instruments.

Ⅲ.J-REITs give investors the opportunity to make diversified investments for a small amount

J-REITs are an investment product that collects funds from a large unspecified number of general investors to buy real estate, and pays out as dividends almost the totality of earnings available as dividends from rental income after deducting expenses. The investment unit price can be as low as about 100,000 yen per unit, while offering an investment in a large number of income properties spread out over many geographic areas. Real estate investment done on one's own requires large sums of money, making diversification difficult in the majority of cases, whereas investing in J-REITs allows investors to diversify across many areas and sectors, delivering greater investment efficiency.

Ⅳ.J-REIT investment risk

J-REITs not being financial instruments whose principal and dividends are guaranteed, risk factors consisting mainly of the following must be taken into account when investing in J-REITs.

  • ① Risks similar to real estate investment risks

    • ・Rent fluctuation risk
    • ・Increased rental expense risk
    • ・Tenant vacation risk
    • ・Building defect and flaw risk
    • ・Natural disaster risk
  • ② Risks similar to stock investment risks

    • ・Investment unit price fluctuation risk
    • ・Dividend fluctuation risk
    • ・Borrowing rate fluctuation risk
    • ・Investment unit dilution risk
  • ③ Investment corporation specific risks

    • ・J-REIT-related regulations change risk
    • ・Asset management company ability-related risk
    • ・Risk of conflict of interest between sponsor company and investors

The above-listed items are the main risks associated with investing in J-REITs. Many other risks are involved, but in terms of positioning with regard to risk/return as a financial instrument, J-REITs are middle risk, middle return financial instruments, as described above. J-REITs can be considered as an investment with higher risk/return than bonds, and low risk/return than stocks.

J-TEIT SCHEME FIGURE J-REITのスキーム図
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