Use of the ARES J-REIT Property Database About the ARES J-REIT Property Database
 
 

Use of the ARES J-REIT Property Database

 
 
 
 
     
 
 

About the ARES J-REIT Property Database

 
 
1. Overview
 
  The ARES J-REIT Property Database is a service provided by The Association for Real Estate Securitization (ARES) the lists information on the ARES website concerning real estate, leasehold rights and surface rights for real estate and trust beneficiary rights placed in trust owned by listed J-REITs*1 (hereafter, "owned real estate" collectively).  Although listed J-REITs announce information on their owned real estate at each account settlement period, ARES aims to convey the broad trends of the real estate market to the general public by unifying such published information in the ARES J-REIT Property Database as well as by calculating and releasing specific indicators based on published J-REIT information.
  Specifically, the ARES J-REIT Property Database first provides a service for ARES members to use information on income and expenditures, appraisal amounts, leased area, leasable area, etc. of individually owned real estate that each J-REIT discloses.  The information is provided in an Excel format so that it can be easily used and processed.  Second, the ARES J-REIT Property Database calculates indices based on compilations of information on the J-REITs' individually owned real estate for multiple properties and discloses these indices on the web.
 
 
*Note1:  J-REIT (real-estate investment trust) is a collective investment scheme in which funds are collected from multiple investors and primarily managed via real estate. The profits from managing the real estate are distributed to investors. The formation of J-REITs became possible with the November 2000 amendment to the "Investment Trusts and Investment Corporations Law," which has expanded the assets targeted for management by investment trusts from securities to general property rights including real estate.
 
2. Significance
 
  The ARES J-REIT Property Database discloses various indices calculated using data on the real estate owned by J-REITs that has been published for the general public.  Since J-REITs have a tendency to invest in real estate that generates stable income, these indices can be described as the macro indices that reveal the average trends of real estate owned by J-REITs.  If an increasing quantity of real estate beings to be covered in tandem with the expansion of the JREIT market, accuracy of the indices as macro indicators will improve further.  These indicators are also based on actual cash flow and actual contract results, a significant feature, making it one of the few truly valuable indices in Japan.
  However, since the target real estate is all J-REIT owned real estate, same form of particularity may be recognized in the indices.  In addition, it must be noted that the indices do not cover the entire Japanese real estate market.
  Further, the ARES J-REIT Property Database provides member companies with the original data of individually owned real estate in the Excel format.  High usability is provided for a user friendly format by providing a search system to the users that enables multiple owned properties satisfying conditions required by the users to be extracted.
  This service of providing information on individually owned real estate facilitates understanding and comparing changes in individual real estate owned by J-REITs and makes it easier to extract multiple owned properties and calculate indices according to the user's own criteria.
  A wide range of other usage could be applied to these original data on real estate provided by the ARES J-REIT Property Database and thus we expect the Database to serve as a very effective tool for business application.
  In addition, the centralized formation of information into data through the data and indices that the ARES J-REIT Property Database provides has the merit of freeing users from data preparation activities.
 
   
3. Contents of Published Indices
 
  The ARES J-REIT Property Database covers real estate owned by J-REITs that have already filed a fiscal report after going public.  In regards to the real estate that J-REITs have already sold, only the information during the period of past ownership is included in the data.
  The following are the specific published indicators.
 
 
(1)ARES J-REIT Property Index(%/year)
 
*The ARES J-REIT Property Index is a part of the ARES J-REIT Property Database and consists of the real estate investment return rate that is the collective term for income return, capital return and total return.
 
  Computation Formula: Computation Formula:
  The abbreviations in the calculation formula represent the following:
   
EMV:Ending Market Value
BMV:Beginning Market Value
PS :Partial Sales
CI :Capital Improvement or Expenditures
NOI:Net Operating Income
    Tabulation Method:
In regard to real estate owned by each J-REIT, the actual value of NOI in the current term and the index value, which is calculated on the basis of the appraisal amount at the end of the previous term, the appraisal amount at the end of the current term, the actual value of sales in the current term, the actual value of capital improvement or expenditures in the current term and the actual value of NOI in the current term, are assumed to be maintained each month during the current term.  Based on this, monthly data consisting of the weighted average on the basis of the appraisal amount of individually owned real estate at the beginning of the term is calculated.
    Data Period:
The data for the fiscal period when owned real estate expecting to have special factors was acquired is not used when calculating indices but the data in the fiscal period following said period is used for calculating the indices.
   
  (Note 1)
Upon calculation, half-year data is converted into annual data.
  (Note 2)
When capital expenditures for individually owned real estate are not disclosed, they are deemed to be zero in calculations.
  (Note 3) Half-year data is converted into monthly data.
  (Note 4) When capital expenditures for individually owned real estate are not disclosed, they are deemed to be zero in calculations.
     
(2) AJPPI (ARES J-REIT Property Price Index)
 
AJPPI (ARES J-REIT Property Price Index) is comprised of 2 types: AJPPI (based on capital return) and AJPPI (based on total return).
 
 
The term“fiscal period, etc. of the applicable month” (*) found in the explanation below on the calculation method of AJPPI refers to a settlement month (of 6 months) of the fiscal period which includes the applicable month of a J-REIT whose fiscal period is 6 months. For J-REITs whose fiscal period is 1 year, this would refer to a either of the following periods which includes the applicable month: (1) from the beginning of a fiscal period to the end of a half-year period (6 months), or (2) from the day after the end of an interim period to the end of a fiscal period (6 months).
The term “base month” (*) found in the explanation below on the calculation method of AJPPI currently refers to May 2004. However, the “base month” (*) is subject to change without prior notice.
 
 
(i) Calculation Method of AJPPI (based on capital return)
 
Formula:
Index value of the “base month” (*) = 100
Index value of the applicable month
= Index value of the previous month x (1 + Index monthly capital return of applicable month)
  Note: Regarding the index value prior to the base month, we have made calculations so that a relationship such as the above exists between the index value of the applicable month and the index value of the previous month.
 
The “Index monthly capital return” in the abovementioned formula (hereafter, “RMC”) refers to the weighted average value of the market value at the beginning of the “fiscal period, etc. of the applicable month” (*) for the monthly capital return on real property k during the same period as the applicable month (hereafter, “rkMC”).
The monthly capital return on real property k, or rkMC, is calculated according to the following formula by using the annualized capital return on real property obtained during the calculation process of the ARES J-REIT Property Index (hereafter “rkYC”).
   
rkYC=(capital return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*)) x 2
 
The capital return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*) is the value calculated based on the formula for the ARES J-REIT Property Index.
In other words,
The capital return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*)is:
   
Formula
 
However,
EMVk:Ending Market Value of Real Property k (market value of real property k at the end of the fiscal period)
BMVk:Beginning Market Value of Real Property k (market value of real property k at the beginning of the fiscal period)
PSk:Partial Sales of Real Property k
CIk:Capital Improvement or Expenditures of Real Property k (capital improvement expenses/capital expenditures for real property k)
NOIk:Net Operating Income of Real Property k
   
  (Note 1)
Regarding real property k owned by J-REITs whose fiscal period is 6 months, EMVk, BMVk, PSk, CIk, and NOIk are all based on the published values of the fiscal period which includes the applicable month.
  (Note 2)
Regarding real property k owned by J-REITs whose fiscal period is 1 year, EMVk and BMVk refers to the market value at the end of the fiscal period and market value at the beginning of the fiscal period, respectively, for the period that includes the applicable month for either of the following 2 periods: (1) from the beginning of a fiscal period to the end of an interim period (6 months), or (2) from the day after the end of an interim period to the end of a fiscal period (6 months). The market value at the end of the fiscal period, or EMVk, and market value at the beginning of the fiscal period, or BMVk, is determined as follows:
(a)In the case where the applicable month is included in period (1) from the beginning of the fiscal period to the end of the interim period (6 months):
EMVk: The calculated value of the end of the interim period as of the end of the interim period
BMVk: The calculated value of the end of the fiscal period as of the end of the fiscal period preceding the fiscal period which includes the applicable month
(b)In the case where the applicable month is included in period (2) from the day after the end of an interim period to the end of a fiscal period (6 months):
EMVk: The calculated value of the end of the applicable fiscal period
BMVk: The calculated value of the end of an interim period as of the end of an interim period of the fiscal period which includes the applicable month
  (Note 3)
Regarding real property k owned by J-REITs whose fiscal period is 1 year, PSk, CIk, and NOIk refers to the actual value for the period that includes the applicable month for either of the following 2 periods: (1) from the beginning of a fiscal period to the end of an interim period (6 months), or (2) from the day after the end of an interim period to the end of a fiscal period (6 months). PSk, CIk, and NOIk are determined as follows:
(a)In the case where the applicable month is included in period (1) from the beginning of a fiscal period to the interim period(6 months):
PSk, CIk, and NOIk are all the actual value as of the applicable interim period.
(b)In the case where the applicable month is included in period (2) from the day after the end of an interim period to the end of a fiscal period (6 months):
PSk, CIk, and NOIk is the value derived by deducting the actual value starting from the beginning of the fiscal period which includes the applicable month to the interim period (6 months) from the actual value of fiscal period (1 year) which includes the applicable month.
  (Note 4)
Based on the assumption that the hypotheses for calculating EMVk, BMVk, PSk, CIk, and NOIk, are the same hypotheses that are assumed for calculating EMV, BMV, PS, CI and NOI in ARES J-REIT Property Index.

The rkYC obtained here forms the basis for calculating the monthly return of real property k, rkMC, according to the abovementioned formula and RMC is obtained by as the weighted average of the real estate appraisal values as of the beginning of the fiscal period of rkMC. Accordingly, the index value of the applicable month (excluding “base month” (*)) of AJPPI (based on capital return) are calculated based on the index of the previous month.
     
 
 
(ⅱ) Calculation Method of AJPPI (based on total return)
 
Formula:
Index value of the “base month” (*)= 100
    Index value of the applicable month
          = Index value of the previous month x (1 + Index monthly total return of applicable month)
 Note: Regarding the index value prior to the base month, we have made calculations so that a relationship such as the above exists between the index value of the applicable month and the index value of the previous month.
 
The “Index monthly total return” in the abovementioned formula (hereafter, “RMT”) is derived using (1) the abovementioned “Index monthly capital return” (“RMC”) which is defined under section “(i) Calculation Method of AJPPI (based on capital return)” and (2) “Index monthly income return” (hereafter, “RMI”) mentioned below.
   
RMT=RMC+RMI
 
By using the RMT obtained likewise, the index value of the applicable month (excluding “base month” (*)) for AJPPI (based on total return) is calculated based on the index value of the preceding month.

Moreover, the “Index monthly income return” in the abovementioned formula, or RMI, refers to the weighted average value of the market value at the beginning of the “fiscal period, etc. of the applicable month” (*) for the monthly income return on real property k during the same period as the applicable month (hereafter, “rkMI”).
The monthly income return on real property k, or rkMI, is calculated according to the following formula by using the annualized income return on real property obtained during the calculation process of the ARES J-REIT Property Index (hereafter “rkYI”).
   
rkYI=(income return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*)) x 2
 
The income return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*) is the value calculated based on the formula for the ARES J-REIT Property Index.
In other words,
The income return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*) is:

   
Formula
 
However,
BMVk:Beginning Market Value of Real Property k (market value of real property k at the beginning of the fiscal period)
PSk:Partial Sales of Real Property k
CIk:Capital Improvement or Expenditures of Real Property k (capital improvement expenses/capital expenditures for real property k)
NOIk:Net Operating Income of Real Property k
   
  (Note 1)
Regarding real property k owned by J-REITs whose fiscal period is 6 months, EMVK, BMVk, PSk, CIk, and NOIk are all based on the published values of the fiscal period which includes the applicable month.
  (Note 2)
Regarding real property k owned by J-REITs whose fiscal period is 1 year, BMVK refers to the market value at the beginning of the fiscal period that includes the applicable month for the period that includes the applicable month for either of the following 2 periods: (1) from the beginning of a fiscal period to the end of an interim period (6 months), or (2) from the day after the end of an interim period to the end of a fiscal period (6 months). The market value at the beginning of the fiscal period, or BMVK, is determined as follows:
(a)In the case where the applicable month is included in period (1) from the beginning of the fiscal period to the end of the interim period (6 months):
BMVk:The calculated value of the end of the fiscal period as of the end of the fiscal period preceding the fiscal period which includes the applicable month
(b)In the case where the applicable month is included in period (2) from the day after the end of an interim period to the end of a fiscal period (6 months):
BMVk:The calculated value of the end of an interim period as of the end of an interim period of the fiscal period which includes the applicable month
  (Note 3)
Regarding real property k owned by J-REITs whose fiscal period is 1 year, PSk, CIk, and NOIk refers to the actual value for the period that includes the applicable month for either of the following 2 periods: (1) from the beginning of a fiscal period to the end of an interim period (6 months), or (2) from the day after the end of an interim period to the end of a fiscal period (6 months). PSk, CIk, and NOIk are determined as follows:
(a)In the case where the applicable month is included in period (1) from the beginning of a fiscal period to the interim period (6 months):
PSk, CIk, and NOIk are all the actual value as of the applicable interim period.
(b)In the case where the applicable month is included in period (2) from the day after the end of an interim period to the end of a fiscal period (6 months):
PSk, CIk, and NOIk is the value derived by deducting the actual value starting from the beginning of the fiscal period which includes the applicable month to the interim period (6 months) from the actual value of fiscal period (1 year) which includes the applicable month.
  (Note 4)
Based on the assumption that the hypotheses for calculating EMVk, BMVk, PSk, CIk, and NOIk, are the same hypotheses that are assumed for calculating EMV, BMV, PS, CI and NOI in ARES J-REIT Property Index.
     
 
(3)Average Occupancy (%)
  Calculation Formula: Total leased area/Leasable area
  Tabulation Method:
In regards to the real estate owned by the respective J-REITs, monthly data gained when assuming the simple average data at the end of the previous year and at the end of the current year are to be continued every month during the current fiscal period and then calculate the monthly data by taking the weighted average using the leasable area of individually owned real estate for each month (denominator).
  Data Period:
The data for the fiscal period when owned real estate expecting to have special factors was acquired is not used when calculating indices but the data in the fiscal period following said period is used for calculating the indices.
     
 
(4)Unit Price of Average Lease (thousand yen/m2, month)
  Calculation Formula: Income from leasing business/Total leased area
  Tabulation Method:
In respect to the real estate owned by each J-REIT, the index value, calculated using the actual value of the income from the leasing business in the current year and the total leased area at the end of the current year, is assumed to be maintained each month during the current year.  Based on this, monthly data consisting of the weighted average on the basis of the total leased area of the individually owned real estate for each month is calculated.
  Data Period:
The data for the fiscal period when owned real estate expecting to have special factors was acquired is not used when calculating indices but the data in the fiscal period following said period is used for calculating the indices.
  (Note 1) Half-year data is converted into monthly data.
  (Note 2)
Rent is calculated as the amount including common expenses.  In addition, income from parking lots, etc. is included in the case of same properties.  Please note that, since the ratio of income from parking lots, etc. to income from leasing is 2-4%, this index calculated on the basis of numerical values including such also has a fluctuation band of about 2-4%.
     
 
(5)Ratio of NOI to Sales(%)
  Calculation Formula: NOI/Income from leasing
  Tabulation Method:
In respect to the real estate owned by each J-REIT, we assume that the index value, which is calculated using the actual value of NOI in the current fiscal period and the actual value of income from leasing in the current fiscal period, is maintained each month during the current fiscal period.  Based on this, monthly data consisting of the weighted average on the basis of income from leasing individually owned real estate for each month is calculated.
  Data Period:
The data for the fiscal period when owned real estate expecting to have special factors was acquired is not used when calculating indices but the data in the fiscal period following said period is used for calculating the indices.
  (Note 1)
NOI is the abbreviation of Net Operating Income and indicates the net income from leasing arrived at when leasing costs (excluding depreciation costs) are deducted from the income from the leasing business.
  (Note 2)
The data in the fiscal period following said period may have the following special factor.
· The property tax and city planning tax may have been recorded in the acquisition value and not as lease expenses and other special factors, and thus are reflected in the NOI.
  (Note 3)
The NOI disclosure policy in regard to disclosed materials of each J-REIT differs depending on the J-REIT.  There are cases where NOI is disclosed as the income before deduction of depreciation costs in the disclosed material, where NOI is disclosed as the income arrived at when depreciation costs are added to the profit or loss of the leasing business (after deduction of depreciation cost), and when NOI is not disclosed.
  (Note 4)
Upon calculating this index, the disclosed numerical value is used in the case of real estate owned by a J-REIT whose NOI is disclosed in the negotiable securities.  In the case of real estate owned by a J-REIT whose NOI is not disclosed in the negotiable securities report, the value arrived at when depreciation cost is added to the profit or loss of the leasing business (after deduction of depreciation cost) is used as the NOI.
     
 
 
4.Issues and Future Prospects of the ARES J-REIT Property Database
 
  The indices that the ARES J-REIT Property Database disclose have the following issues due to the constraint that only disclosed information of J-REITs are used.
  The first issue occurs due to the limited quantity of real estate owned by J-REITs when J-REITs initially emerged.  If there is a limited quantity of owned real estate subject to an index, the index will not show the average value of the whole market and there is the risk that the individual factors of owned real estate subject to the index may be strongly reflected in the results.
  The second issue is caused by changes in owned real estate subject to the index in tandem with decreases and increases in real estate owned by J-REITs.  This indicates the problem that the changes in the index reflect not only changes in the average trends of owned real estate but also influences from changes in owned real estate subject to the index.  In particular, in the period when the number of owned real estate by a J-REIT is small, the ratio of newly acquired owned real estate to real estate owned by the J-REIT is large.  This means that there is a risk that the changes in the index may be strongly impacted by changes in the subject owned real estate.
  The third issue is caused due to differences in the types of items and the definition of items in the information disclosed by each J-REIT.  When the ARES J-REIT Property Database calculates the data to be disclosed, certain adjustments are made in regard to these differences.  However, it is possible that some errors may between the result from such adjustment and the actual.  Particularly, the real estate investment return rate is a concept identical with the real estate indices used in overseas countries and the calculation formula was constructed based on premises equivalent to the calculation formulas of the NCREIF Index that is most widely used in the U.S.  Attention needs to be paid, however, since the index contains a margin of error caused by adjusting differences between J-REITs in respect to the disclosure of the original data.  When the real estate investment return rate is used to evaluate performance and investment decisions, there is a risk this will lead to the wrong decision.
  The fourth issue is caused due to the tabulation method of the indices.  This problem is caused due to the situation that the fiscal periods of all J-REITs are semi-annual and the information on individually owned real estate is disclosed each time accounts are settled, but each J-REIT closes its accounts in different months since the fiscal periods differ among J-REITs.  To calculate the indices of the ARES J-REIT Property Database, we decided to update the index on a monthly basis since there is at least one J-REIT closing its accounts each month and at that time new data on owned real estate are disclosed.  As for months when no fiscal periods end, the concerned data are assumed to be identical with the data at the end of the fiscal period including the concerned month, and the weighted average is calculated for the respective individually owned real estate.  Based on the assumption here, monthly changes are leveled.  Therefore, when indices showing changes are separately calculated based on the indices disclosed in the ARES J-REIT Property Database, there is the risk that the variability in the indices will underestimate changes occurring in the actual market.
  The indices disclosed in the ARES J-REIT Property Database include, at the very least, the abovementioned issues.  Caution should be exercised since there is a possibility of a mistaken judgment if the index is referred to without recognizing these issues.
  ARES intends for the problems of the indices to lesser through resolution of these issues along with the market expansion.  Presently, it is necessary to be very cautious about issues indicated here when using the various indices.
   
 
 
< Reference 1 > Basis for Calculation Formula for Real Estate Investment Return Rate
 
1.Formula for Calculating the NCREIF Index

  Of the ARES J-REIT Property Database Indices, the formula for calculating the real estate investment return rate was determined based on a policy following the calculation formula for the real estate index announced by NCREIF (NCREIF Index), the most widely used of such indexes in the U.S.
  NCREIF is the acronym for the National Council of Real Estate Investment Fiduciaries established in 1985.  NCREIF is a nonprofit organization that issues the NCREIF Property Index (NPI), which shows real estate performance returns using data submitted from its members that include pension funds engaged in real estate investment.  NPI actually began in the late 1970s and was officially announced from 1982.  As of the end of March 2005, the amount of real estate covered reached 160 billion dollars and it is now the most widely used real estate index in the U.S.
  The formula to calculate NCREIF is as follows.
 
  (1)Income return
   
  Of the total return, this is portion derived from the net operating income (NOI) of individual properties.  This is calculated by dividing NOI by the average investment amount in each quarter.
   
Income return

   
NOI:Net Operating Income
BMV:Beginning Market Value
CI:Capital Improvement or Expenditures
PS:Partial Sales
     
  (2)Capital return
      This is calculated by dividing capital improvements or expenditures and changes in market value after consideration of partial sales by the average investment amount of each quarter.
   
Capital return

   
EMV:Ending Market Value
BMV:Beginning Market Value
PS :Partial Sales
CI :Capital Improvement or Expenditures
NOI:Net Operating Income
     
  (3)Total return
   
This is calculated as the sum total of income return and capital return.
Total return = Income return + Capital return
     
  (4)Meaning of the denominator
      The denominator in the NCREIF index, "BMV+0.5*CI-0.5*PS-0.33*NOI" represents the average investment balance in a quarter.  The calculation of the average investment balance is based on the following assumptions.
    CI (capital improvement or expenditures) and PS (partial sales) are assumed to be generated in the middle of the term.

· Image figure of Assumption 1
   
Image figure

     
      Based on Assumption 1, the size of CI and PS as the weighed average during the current quarter is expressed in the form of 0.5*CI or 0.5*PS.
   
NOI is assumed to be generated equally at the end of every month during the quarter (in other words, one third of NOI generated in the concerned period is assumed to be generated at the end of each month) .

· Image figure of Assumption 2
    Image figure

     
   
Based on Assumption 2,
The size of NOI as the weighted average during the concerned quarter is expressed as follows. = (1/3NOI × first third of the quarter) + (1/3NOI × second third of the quarter) + (1/3NOI × last third of the quarter) = 0.33NOI
   
Based on Assumptions 1 and 2,
The average investment balance is BMV + 0.5*CI - 0.5*PS - 0.33*NOI.
     
   
 
2.Calculation formula when using J-REIT data (Revision of formula for calculating the  NCREIF Index)

  Although J-REITs settle their books, the NOI of income from leasing, etc. is assumed to come in at the end of every month.  In this case, 1/6 of NOI generated during the concerned period (half-year term) is deemed to be generated at the end of each month, and thus the size of NOI as the weighted average during the concerned period (half-year period) is expressed as indicated below.
= (1/6NOI × first sixth f fiscal period) + (1/6NOI × second sixth of the fiscal period) + (1/6NOI × third sixth of the fiscal period) + (1/6NOI × fourth sixth f fiscal period) + (1/6NOI × fifth sixth of the fiscal period) + (1/6NOI × sixth sixth of the fiscal period)
= 0.417*NOI
  Consequently, the "average investment balance for the concerned fiscal period (half year) " placed as the denominator is arrived at with the following formula.

· Image figure
  Image figure

    Thus the following calculation formula provides the real estate investment return rate (%/year) announced by the ARES J-REIT Property Database.
  Computation Formula
   
 
 
< Reference 2 > Overview and Purpose of AJPPI (ARES J-REIT Property Price Index)
  1.Overview of AJPPI
 
   
AJPPI (ARES J-REIT Property Price Index) is a real estate price index calculated by using income and expenditures, and appraisal amounts regarding property owned by J-REITs. The value as of the base period is set at 100 and thereafter, are calculated by multiplying the index value of the previous month with (1 + Index monthly return), as shown below.
(1)Index value at base period = 100 (standardization)
(2) Index value of the applicable month = index value of the previous month x (1 + Index monthly return)
(Note)The monthly return of the applicable month mentioned in (2) refers to the monthly return from the previous month to the applicable month.
(Regarding the calculation method of the Index monthly return, please refer to “2. Rationale behind the Characteristics and Calculation Method of Monthly Return below.)
   
Example of AJPPI Calculation
(Example) In the case where the Index monthly return fluctuated as follows:
Apr. 200X May 200X Jun. 200X Jul. 200X
0.45% 0.47% 0.48% 0.48%
If we set the standard at March 200X (= 100), then the price index fluctuates as follows:
Mar. 200X Apr. 200X May 200X Jun. 200X Jul. 200X
100.00 100.45 100.92 101.41 101.89
   
  2. Rationale behind the Characteristics and Calculation Method of Monthly Return
 
  When calculating the price index according to the abovementioned method, it is necessary to calculate the Index monthly return. The calculation of Index monthly return is conducted by going through the following 2 processes: (1) calculation of monthly return of real property and (2) tabulation of monthly return of real property.
   
Most listed J-REITs disclose income and expenditures, and real estate appraisal amounts as of the end of the fiscal period every 6 months, or at “every fiscal period, etc.” (*) Thus it is possible to calculate the return of real property for a 6 month period by using disclosed information. The return for a 6 month period on real property k is calculated according to the following formula, which is used during the calculation process of the ARES J-REIT Property Index. A large characteristic of this formula is that it follows the calculation method of NCREIF Property Index of the U.S. (Regarding the basis for the formula, please refer to “< Reference 1 > Basis for Calculation Formula for Real Estate Investment Return Rate”.)
Income return for a 6 month period on real property k
Computation Formula
Capital return for a 6 month period on real property k
Computation Formula
However,
EMVk:Ending Market Value of Real Property k (market value of real property k at the end of the fiscal period)
BMVk:Beginning Market Value of Real Property k (market value of real property k at the beginning of the fiscal period)
PSk:Partial Sales of Real Property k
CIk: Capital Improvement or Expenditures of Real Property k (capital improvement expenses/capital expenditures for real property k)
NOIk:Net Operating Income of Real Property k
All of the above are the return on real property k for a 6 month period. On the other hand, it is not possible to directly calculate the monthly return of real estate owned by J-REITs using disclosed data. Therefore it is necessary to calculate monthly return on real property based on the return on real property k for a 6 month period obtained by using the abovementioned formulas. In the case of considering this kind of problem in regards to the return rate of investment products, normally, policies based on compound interest system or simple interest system can be raised as follows. The image diagram of monthly return is as follows:
   
Rationale behind the calculation of monthly returns
When the return on real property k obtained during the calculation process of the ARES J-REIT Property Index equals 12% after annualizing the amount (multiplied by two)
=> Return for the 6 month period before annualization is 6% (before annualization)
[Image diagram of return]
We decided to use compound interest rates for the calculation of AJPPI.
   
Regarding monthly return on real property k and the calculation methods of AJPPI which uses these monthly returns, please refer to “3. Contents of Published Indices (2) AJPPI (ARES J-REIT Property Price Index)” above.
   
  3.AJPPIの意義
 
   
The most outstanding characteristic of AJPPI is that is based on the return on real property of a fiscal period, which is obtained during the calculation process of the ARES J-REIT Property Index. The calculation method of ARES J-REIT Property Index follows the calculation method of the NCREIF Property Index (the real estate investment index used most widely in the U.S.). In addition, since it is calculated based on information disclosed by J-REITs, the calculation method of the Index facilitates international understanding and it is one of the few real estate investment indices in Japan whose level of transparency and repeatability are very high. The AJPPI, which is published as a byproduct of ARES J-REIT Property Index, not only provides the advantages provided by the ARES J-REIT Property Index, but we also presume that new advantages will be provided, such as facilitating the grasping of the return rate between any 2 time periods, or trends in price volatility, or international comparison, etc.
(Note: Image diagram and advantages of price index)
AJPPI (based on capital return)
Due to the appearance of AJPPI with these characteristics, it is expected that the transparency of real estate investment market in Japan will further increase and that it would contribute to expansion of risk hedging methods and risk taking methods, etc. for real estate in Japan.
 
 
 
< Reference 3 > What is a Real Estate Investment Index
  1.Real Estate Investment Index
 
  (1) What is a real estate investment index
   
  A real estate investment index is used as a reference when making decisions concerning investing in real estate and at the same time serves as an index to measure and evaluate the investment result.  Specifically, it is comprised of the income return, which is gained from lease income, etc.; and the capital return, which is gained from changes in real estate value; and the total return, which is the sum total of these.
     
  (2) Use of the real estate investment index
   
  There are two ways to use the index.  The "Market Index" shows the movement of the entire real estate market subject to investment and is used to develop an investment strategy and examine asset allocation.  The "Benchmark Index" is used as an index to measure investment results and evaluate the performance of fund managers.
  In the UK and the U.S., where the use of real estate investment indices by investors is common, the index is referred to when selecting investment real estate and evaluating investment.
     
  (3) Differences from securities indices
   
  In the case of securities investment including stocks and bonds, a group of securities (called a universe) that can be subject to investment from the perspective of liquidity is designated and the indicator compiled from the average income return of these serves as the index.  Investors decides on the asset allocation after considering a combination of the expected return based on the index and risks.  Investors' performance is measured by the relative assessment of the index.
  On the other hand, in the case of real estate in kind, there are not a number of properties with an identical nature that are sold and purchased as is the case with securities (individuality of real estate), and sales and purchases are not conducted so frequently (rarity of real estate transaction). Therefore, it is difficult to set the universe and create an index based on the transaction price for the universe.
     
   
  2. Indices in Related to J-REITs (Japanese real estate investment trusts)
 
  (1) QUICK REIT Index and TSE REIT Index
   
  QUICK Corp. began issuing the "QUICK REIT Index" in July 2002 and the Tokyo Stock Exchange, which is the primary stock exchange on which J-REITs list, commenced publication of the "TSE REIT Index" in April 2003.  This calculates the index based on the weighted market capitalization average of the respective J-REITs and is calculated following the method used to calculate the TOPIX and other securities indices.  As a result of listed J-REITs emerging, calculation of an index of real estate securitization products became possible.
  However, caution should be exercised since both the QUICK REIT Index and TSE REIT Index differ from the aforementioned real estate investment index.  The QUICK REIT Index and TSE REST Index are conceptually merely a type of securities index.
     
  (2) Positioning of the ARES J-REIT Property Index in the ARES J-REIT Property Database
   
  The ARES J-REIT Property Index in the ARES J-REIT Property Database is calculated in a manner conforming to the NCREIF Index in the U.S. and has an identical concept with real estate indices used in other overseas countries.  However, since the original data lacks uniformity, it can hardly be said to satisfy the requirements of being a real estate investment index.
  If the ARES J-REIT Property Index is used for performance evaluation and in making investment decisions, there is the risk that it may lead to a mistaken decision.  It is therefore necessary to use it simply as an indicator to show macro trends of the entire market.
  It is desirable that issues concerning data will be solved and requirements to be a real estate investment index will be satisfied in the future.