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1. Overview |
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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.
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*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. |
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2. Significance |
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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.
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3. Contents of Published Indices |
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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. |
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(1)ARES J-REIT Property Index(%/year) |
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*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. |
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Computation Formula: |
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The abbreviations in the calculation
formula represent the following: |
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EMV:Ending Market Value
BMV:Beginning Market Value
PS :Partial Sales
CI :Capital Improvement or Expenditures
NOI:Net Operating Income |
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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. |
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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. |
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(Note 1) |
Upon calculation, half-year data is converted
into annual data. |
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(Note 2) |
When capital expenditures for individually
owned real estate are not disclosed, they are deemed to be zero in calculations.
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(Note 3) |
Half-year data is converted into monthly data. |
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(Note 4) |
When capital expenditures for individually owned real estate
are not disclosed, they are deemed to be zero in calculations. |
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(2) AJPPI (ARES J-REIT Property Price Index) |
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AJPPI (ARES J-REIT Property Price Index) is comprised of 2 types: AJPPI (based on capital return) and AJPPI (based on total return). |
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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. |
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(i) Calculation Method of AJPPI (based on capital return) |
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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) |
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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.
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The “Index monthly capital return” in the abovementioned formula (hereafter, “R MC”) 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, “r kMC”).
The monthly capital return on real property k, or r kMC, 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 “r kYC”).
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r kYC=(capital return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*)) x 2 |
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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: |
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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
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(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. |
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(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
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(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.
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(Note 4) |
Based on the assumption that the hypotheses for calculating EMV k, BMV k, PS k, CI k, and NOI k, are the same hypotheses that are assumed for calculating EMV, BMV, PS, CI and NOI in ARES J-REIT Property Index.
The r kYC obtained here forms the basis for calculating the monthly return of real property k, r kMC, 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 r kMC. 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. |
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(ⅱ) Calculation Method of AJPPI (based on total return) |
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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.
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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.
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RMT=RMC+RMI |
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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”).
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r kYI=(income return on real property k during the 6 months of the “fiscal period, etc. of the applicable month” (*)) x 2 |
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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,
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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
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(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.
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(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
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(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.
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(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.
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Calculation Formula: |
Total leased area/Leasable area |
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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). |
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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. |
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(4)Unit Price of Average Lease (thousand
yen/m2, month) |
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Calculation Formula: |
Income from leasing business/Total leased area |
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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. |
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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. |
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(Note 1) |
Half-year data is converted into monthly data. |
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(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%. |
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(5)Ratio of NOI to Sales(%) |
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Calculation Formula: |
NOI/Income from leasing |
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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. |
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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. |
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(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. |
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(Note 2) |
The data in the fiscal period following
said period may have the following special factor.
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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. |
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(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. |
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(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. |
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4.Issues
and Future Prospects of the ARES J-REIT Property Database |
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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. |
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< Reference 1 > Basis for Calculation Formula for Real Estate Investment Return Rate |
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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. |
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(1)Income return |
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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. |
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NOI:Net Operating Income
BMV:Beginning Market Value
CI:Capital Improvement or Expenditures
PS:Partial Sales |
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(2)Capital return |
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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. |
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EMV:Ending Market Value
BMV:Beginning Market Value
PS :Partial Sales
CI :Capital Improvement or Expenditures
NOI:Net Operating Income |
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(3)Total return |
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This is calculated as the sum total of income
return and capital return.
Total return = Income return + Capital return |
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(4)Meaning of the denominator |
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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. |
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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 |
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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. |
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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 |
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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
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Based on Assumptions 1 and 2,
The average investment balance is BMV + 0.5*CI - 0.5*PS - 0.33*NOI. |
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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 |
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Thus the following calculation formula provides
the real estate investment return rate (%/year) announced by the ARES J-REIT
Property Database. |
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< Reference 2 > Overview and Purpose of AJPPI (ARES J-REIT Property Price Index) |
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1.Overview of AJPPI |
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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.)
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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 |
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2. Rationale behind the Characteristics and Calculation Method of Monthly Return |
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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. |
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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
Capital return for a 6 month period on real property k
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:
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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. |
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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. |
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3.AJPPIの意義 |
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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. |
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< Reference 3 > What is a Real Estate Investment Index |
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1.Real Estate Investment Index |
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(1) What is a real estate investment index |
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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. |
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(2) Use of the real estate investment
index |
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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. |
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(3) Differences from securities indices |
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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. |
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2. Indices in Related to J-REITs
(Japanese real estate investment trusts) |
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(1) QUICK REIT Index and TSE REIT Index |
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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. |
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(2) Positioning of the ARES J-REIT Property
Index in the ARES J-REIT Property Database |
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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. |
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