External Growth Strategy & Financial Strategy

In order to maintain stable operations, we divided our growth strategy into three stages and set several milestones for each. Specifically, these milestones are assets under management (AUM), earnings per share (EPS) level, number of properties, total rentable area, and the time target.

 

 

 

External growth strategy is the requisite driver of growth for J-REITs. For J-REITs dedicated to logistics properties, external growth has even greater importance as it creates further value.

As of March 5, 2010, JLF has a portfolio size of 123.6 billion yen and has already reached the milestones set forth for Phase 1, while being on the starting point of Phase 2. Typically, J-REITs dedicated to other asset classes such as residence or office with portfolios of over 100 billion yen would be considered to have well-diversified sources of cash flow. However, JLF still faces a challenge regarding this point. In this sense, external growth contributes to improvements in the diversification of cash flow, especially for JLF.

To be sure, to seek asset size only under the name of external growth is not in the interest of investors, and thus we put priority on "Quality" when considering new investment. Quality means an investment's contribution to stabilization and to the improvement of the dividend. This is why we have set DPU targets on our road map for external growth.

 

The issue of the risk of tenant concentration derived from the current status of cash flow diversification is an important factor for JLF when considering its financial strategy. Portfolio risk and financial risk are ultimately borne by our investors, and thus we try to formulate our financial strategy while balancing these risk factors. The graph on the top left depicts this concept. Furthermore, the right-hand pie charts show how changes in the diversification of cash flow correspond with external growth. The bottom left chart shows this concept as reflected in a rough estimate of the loan-to-value level.

 

 

As the external growth strategy is realized, the acceptable range of financial risk should be expanded. However, the risk tolerance for J-REITs dedicated to logistics properties differs from that for J-REITs dedicated to asset classes other than logistics. Hence, we have set the ceiling for the level of LTV at 30%, and will maintain this financial strategy until Phase 3 can be achieved.