TIDMJRIC
RNS Number : 3204C
Japan Residential Inv. Co. Ltd
04 March 2011
4 March 2011
JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED ("THE COMPANY")
Consolidated Financial Statements for the Year Ended 30 November
2010
Japan Residential Investment Company Limited (AIM: JRIC) is a
closed-ended Guernsey registered company established to make and
hold investments in residential property in Japan. The Company
presents its audited consolidated annual financial results for the
year ended 30 November 2010.
Highlights
-- Reinforced balance sheet with GBP34.1 million net capital
raising in June 2010(1) .
-- Reduced gearing substantially, including net debt to asset
ratio(2) lowered to 47% at year end, from 60% one year prior.
-- Portfolio value decline slowed to 1.9% in the second half of
2010 on a like-for-like basis, compared with 5.0% decline in the
first half.
-- Loss for the year narrowed to GBP11.7 million, down from
GBP22.7 million one year prior on reduced valuation losses on
investment properties.
-- Improved occupancy levels to 95% as at 30 November 2010, up
from 91% one year prior.
-- Underlying profit(3) increased to GBP5.2 million over the
year, from GBP4.8 million one year prior.
-- Cumulative interim distributions of 2.5p per share in respect
of the 12 months ended 30 November 2010.
Financial Summary
2010 2009
----------------------- --------- ---------
GBP'000 GBP'000
----------------------- --------- ---------
Gross rental income 18,086 17,480
Unrealised valuation
loss on investment
property (16,814) (26,736)
Loss for the period (11,716) (22,701)
Loss per share(1) (8.45p) (22.70p)
Underlying profit(3) 5,250 4,784
Underlying profit per
share(1) 3.8p 4.8p
Investment property 236,738 236,493
External debt 128,287 174,165
Net debt to asset
ratio(2) 47% 60%
Distributions relating
to the year 4,688 -
Net Asset Value (NAV) 122,165 93,010
NAV per share(1) 65.2p 93.0p
------------------------ --------- ---------
Sterling denominated values of assets and liabilities as at 30 November
2010 are based on an exchange rate of Yen131.166/GBP1. Items in the
Statement of Comprehensive Income are converted at the average exchange
rate for the year of Yen137.040/GBP1.
Notes:
1 The Fund raised GBP34.1 million net of expenses through the
issue of 87.5 million shares at a price of 40p per share on 22 June
2010.
2 Net debt to asset ratio: Total debt less cash and restricted
reserves as a proportion of investment property.
3 Underlying profit: Profit excluding losses from fair value
adjustments, foreign exchange and other capital items. 2010
underlying profit (see Note 8) is stated after writing off
GBP645,000 in capitalised financing costs incurred due to early
refinancing. The Fund uses 'underlying business performance' in its
internal financial reporting and provides this analysis as
additional information.
Enquiries:
K.K. Halifax Asset
Management Alec Menikoff +81 (0)3 5563 8771
Smith & Williamson
Corporate Finance Limited Azhic Basirov +44 (0)20 7131 4000
Fairfax I.S. PLC John Korwin-Szymanowski +44 (0)20 7460 4376
Gillian McCarthy +44 (0)20 7460 4390
Chairman's Statement
What a difference a year makes! The Fund, having weathered a
financial maelstrom, is now in good shape. The successful capital
raising in June netted GBP34.1 million, greatly strengthening the
balance sheet. In 2010 the Fund sold two non-core properties for
Yen528 million (GBP3.9 million) excluding taxes and sales costs,
further improving its cash position. Of the total debt outstanding
at the end of the 2009 fiscal year, the Investment Adviser
eliminated more than a third through a combination of refinancing,
voluntary pay down, and scheduled amortisation. The result is a
conservatively geared portfolio, with lower interest expense and a
satisfactory buffer against lender LTV and debt service coverage
covenants.
The severe economic downturn in 2008/9 had a delayed but severe
impact on portfolio occupancy and revenue. The Investment Adviser
responded by redoubling leasing efforts and persistent value
engineering of the Fund cost structure. Occupancy stabilised in Q4
2010 and by January 2011 the Fund had registered four consecutive
months with occupancy above 95%.
The decline in property values that began in autumn 2007 appears
to be nearing an end. The rate of decline in portfolio value slowed
significantly to 1.9% in the second half of 2010 on a like-for-like
basis, down from 5.0% in the first half, suggesting stabilisation
is not far off and the possibility of a reflationary cycle around
the corner. The combination of lower debt servicing costs,
stabilising property values, and improved revenue bodes well for
the strength and sustainability of Fund distributions going
forward.
Results
The Fund generated a loss for the year of GBP11.7 million in
2010, down from GBP22.7 million in 2009 due to the slowing rate of
decline in value of investment properties. Underlying profit -
profit excluding losses from fair value adjustments, foreign
exchange and other capital items - was GBP5.2 million or 3.8p per
share. Calculation of underlying profit is net of a GBP645,000
write-off of capitalised finance costs incurred with the early
refinancing of debt, which is considered non-recurring. The
unrealised valuation loss on investment properties was GBP16.8
million (7.1% of market value at 30 November 2009) excluding
foreign exchange translation effects.
Net Asset Value ("NAV") as at 30 November 2010 was GBP122.2
million (65.2p per share), an increase of GBP29.2 million since 30
November 2009. The increase is the result of GBP34.1 million in net
proceeds from issuing shares and an GBP8.7 million foreign exchange
gain which were offset partially by a loss of GBP11.7 million and
distributions paid in the amount of GBP1.9 million.
Borrowings
Through a combination of refinancing, voluntary partial pay down
and scheduled amortisation, outstanding debt was reduced by GBP45.9
million during the year to GBP128.3 million as at 30 November 2010.
Cash at bank and Restricted lender reserves totalled GBP17.1
million at period end, resulting in net debt of GBP111.2 million.
Investment property totalled GBP236.7 million, bringing the net
debt to assets ratio to 47%, down from 60% one year prior.
The Fund has achieved the debt levels targeted under
therecapitalisation. Following January paydowns, the portfolio LTV
was reduced to 53% on the asset level based on year end valuations.
The majority of debt has now been refinanced with extended
maturities beyond the initial Fund life, with the exception of
Yen7.0 billion (GBP53.4 million) in bonds maturing in May 2012.
Following a reduction in the LTV on these bonds to 61% and in light
of the quality of the underlying assets and improvements in the
credit market, the Investment Adviser considers this debt to be at
a sustainable level.
Distributions
The Directors are pleased to announce a further interim
distribution of 1.5p per share to be paid on 8 April 2011 to
shareholders on the register on 11 March 2011, bringing the amount
paid and payable in respect of the 12 months ending 30 November
2010 to 2.5p per share, an amount which represents 89% of
underlying profit. In accordance with the Fund objective of
achieving both steady income and capital growth the Board intends
to maintain a sustainable and prudent distribution policy.
Outlook
The Fund today is on a solid footing with reduced gearing,
improved portfolio operating performance and the prospect of
recovery in Japan's property market. Substantial delevering made
possible by the recapitalisation and selective sale of non-core
assets has brought debt to a sustainable level. The combination of
lower debt servicing charges, following delevering, and
improvements in portfolio occupancy levels, which began at the end
of 2010, are expected to enhance 2011 revenues substantially. With
a reinforced balance sheet, stabilising property markets, and
improved operating performance, the Fund is well positioned for
sustained distributions at prudent levels and to benefit from the
anticipated reflation of real estate values in Japan.
The Board warmly commends the performance and hard work of the
Manager and the Investment Adviser over this very positive year in
the life of the Fund.
Raymond Apsey
Chairman
3 March 2011
Report of the Manager and the Investment Adviser
Overview
The Fund's objective is to generate steady income and capital
growth through the acquisition and management of quality Japanese
residential properties. The focus over the past 12 months has been
on strengthening the balance sheet in response to reduced
availability of credit and asset value declines. Following the
selective sale of non-core assets and the
successfulrecapitalisationin June 2010, the Investment Adviser was
able to delever the portfolio aggressively. All outstanding loans
have now been refinanced with maturities extending beyond the
initial Fund life (as denoted by the continuation vote scheduled
for September 2013). The voluntary partial pay down of bonds
maturing in May 2012, which was negotiated by the Investment
Adviser, allows the Fund to continue to benefit from this low cost
debt while delevering to a sustainable level.
2010 was a year in which we also focused on mitigating the
impact of the economic downturn on the operational side of the
business. The Investment Adviser worked intensively with third
party property managers to re-think leasing strategy, expand
marketing activities, and communicate the competitive strength of
our units throughout the market on a property-by-property basis. As
a result of these efforts, the Fund has seen a significant uplift
in portfolio occupancy with limited rent price declines. At the
same time, we have continued to value engineer the operating cost
side of the business and successfully negotiated reductions in
property management, building management, unit restoration, and
various professional fees.
The Fund has reached its stride, and 2011 is a year in which the
rewards for recent efforts should become fully evident. We expect
forthcoming results to demonstrate the cash generating capability
of the JRIC portfolio while operating at 95% occupancy under a
lower cost structure. Furthermore, we anticipate that the
substantially reduced gearing, stabilisation of portfolio value,
and re-establishment of distributions should increase the Fund's
appeal to a wider range of investors.
Market
Following a substantial contraction in 2009, Japan's economy is
recovering, aided by government stimulus measures and improved
international trade. After growing at an estimated 4.3% in 2010,
the economy is forecast to increase at a more modest 1.3% in 2011
as Japan continues to benefit from exports to growing Asian
economies (including China). Consumer spending, which accounts for
60% of Japan's gross domestic product, has improved for six
straight quarters. The deflationary trend continued through 2010
with consumer prices falling 0.9%. Consumer prices are expected to
fall a further 0.2% in 2011, however, pressures from high corporate
profits and an improving labour market are expected to reverse this
trend by 2012.
Economic uncertainty has resulted in a general flight to quality
assets. In this environment, investors are attracted to Japan's
large, liquid and mature property market and the broad stability of
the world's third largest economy that underpins Yen-denominated
assets. At the same time, the aftermath of the financial crisis
continues as a steady flow of forced sale properties - the result
of non-recourse debt maturities and pressure on borrowers to
improve balance sheets - continues to weigh heavily on the market.
Nevertheless, increased investor demand combined with greater
availability of credit and low interest rates are supporting
property values.
The residential property market in major Japanese cities
isstabilising. Residential land values in the six large cities fell
0.9% in the six months ending September 2009 versus a 2.1% decline
during the prior six month period. Yields on residential investment
property have been trending downward since peaking in late
2009.
Currently, quality residential properties trade at net yields of
5% to 6% in Tokyo and 6% to 7% in Osaka/Nagoya. New supply has been
constrained by an exit of mid-tier developers due to bankruptcy or
difficulty obtaining development financing. Limited supply and
strong demand, due to the improving economy and low interest rate
environment, are combining to support prices on new condominiums
where in 2010 prices per square metre increased 3.4% in Tokyo and
3.6% in Osaka.
Residential rents in 2010 declined 1.5% in Tokyo, 1.0% in Osaka,
and 1.1% in Nagoya (versus office rent declines of 11.4%, 7.2%, and
6.5% respectively). Residential investment property is back in
favour due to stable occupancy and rent levels relative to the
commercial sector. The moderate negative trend in residential rents
is expected to reverse itself by 2012 due to the improving economy,
limited new supply, and positive net migration as well as increased
household formation in the major cities.
Result
Gross rental income grew 3.5% to GBP18.1 million in the fiscal
year. Yen appreciation offset underlying declines in rent revenue
which were mainly the result of property dispositions. Property
operating expenses increased 16.5% to GBP4.6 million in 2010 as
foreign exchange gains, higher charges from unit restoration and
taxes were only partially offset by negotiated reductions in
property management fees. Property operating expenses also reflect
the cost of leasing up additional units as occupancy rose from 91%
to 95% in 2010. With a more stable occupancy rate and lower tenant
turnover, we anticipate a reduction in this expense item in
2011.
Unrealised valuation loss on investment properties was 7.1% of
market value as at 30 November 2009 excluding foreign exchange
translation effects, down from 10.2% over the same period one year
prior. Portfolio values appear to be bottoming out having
registered a 1.9% decline in the second half on a like-for-like
basis, versus a 5.0% decline in the first half of 2010. Property
values fell 6.8% in 2010 on a like-for-like basis. In Yen terms,
Fund properties had fallen 20% from purchase price as at 30
November 2010.
Administrative and other expenses fell 23.4% to GBP2.1 million
in 2010 from GBP2.8 million in the prior year. The Fund realised
substantial reductions in legal and tax advisory fees as well as
appraisal costs following the shift from quarterly to semi-annual
property valuations.
Net financing costs increased 6.4% to GBP4.9 million as the
reduction in debt outstanding and falling interest rates were
offset by the stronger Yen.
Borrowings
Total debt outstanding of GBP128.3 million less Cash at bank and
Restricted lender reserves of GBP17.1 million resulted in net debt
of GBP111.2 million and a net debt to assets ratio of 47% as at 30
November 2010. Based on the principal amount of total debt
outstanding at year end, 77% was hedged as follows: 11% was fixed
rate; 25% floating rate with swap into fixed rate; and 41% floating
rate with a cap. 23% of total debt was at floating rate.
Post year end, a combination of scheduled amortisation and
voluntary partial pay down of debt held by Mizuho Corporate Bank in
the amount of Yen503 million (GBP3.8 million) was made on 31
January 2011, resulting in a reduction of total debt outstanding to
Yen16.6 billion (GBP126.6 million).
The weighted average debt maturity as at 31 January 2011 was 2.4
years and the weighted average interest cost was 1.9%. There are no
refinancing events in 2011 and the next debt maturity is Yen7.0
billion (GBP53.4 million), which comes due in May 2012. Assets
financed by this debt are of high quality with a large allocation
to the Tokyo market and manageable LTV of 61%. Based on these
factors as well as improvements in the credit markets and
discussions with lenders, the Investment Adviser is confident in
its ability to secure replacement financing for this portfolio in
2012.
Fund LTV is currently 53% at the asset level based on property
values as at 30 November 2010. Given the greater availability of
non-recourse debt, stabilisingproperty markets and strong cash flow
of the underlying portfolio, the Investment Adviser considers the
current gearing to be prudent and sustainable.
Portfolio
The portfolio of 51 income generating residential properties was
valued at Yen31.1 billion (GBP236.7 million) as at year end. This
follows the sale of two properties for Yen528 million (GBP3.9
million) excluding taxes and sales costs in 2010. On a
like-for-like basis, property values fell 6.8% YoY and 20% from
purchase price as at 30 November 2010. The rate of decline is
slowing with portfolio value falling 1.9% during the six months
ended 30 November 2010. The unleveraged net yield of the portfolio
(appraised net operating income over value) ended at 6.0% as at 30
November 2010.
On the operating level, moderate declines in rents were more
than offset by significant improvement in portfolio occupancy. The
Fund ended the year with a portfolio occupancy rate of 95.1%, up
from 91.0% one year prior. The average occupancy rate increased to
92.4% for the year, versus 92.1% in the prior year. Tenant
cancellations, which spiked to 35% in 2009 in response to the weak
economy, were reduced to a more manageable 29% in 2010 following
intensified leasing and tenant retention efforts. As of January
2011, the Fund has realised four consecutive months with occupancy
above 95%. Further improvement in operating performance is
anticipated in 2011 as a result of cost reductions and enhanced
revenues.
Regional Allocation: Assets are well diversified in and around
the major population centres of Japan. Regional allocation remained
almost unchanged following the sale of two assets in Osaka. 86% of
all properties by value are located in the top three markets: Tokyo
45%, Osaka 27% and Nagoya 14%. The remaining 14% of properties are
located in or within commuting distance to a "key city" with a
population over 1 million or in a prefectural capital city.
Asset Diversification: The Fund is well diversified with the 10
largest assets comprising less than half of the total portfolio
value. The largest single asset represents 10.8% of portfolio
value. Portfolio diversification and liquidity is reflected in the
small average property size of Yen609 million (GBP4.6 million).
Asset Quality: All properties are held as fee simple ownership.
All buildings have a reinforced concrete structure. On account of a
variety of characteristics including quality of design, amenities
and surrounding environment, they are expected to remain
competitive in the marketplace for the foreseeable future. The
majority of units, 94%, are Single and Compact Type, targeting the
young, single demographic.
Tenant Risk: The portfolio offers broad tenant diversification
with the largest tenant occupying a mere 1.2% of the Fund's total
leasable space. Due to overall tenant quality and third party
guarantees on the majority of leases, instances of non-collection
of rent have been limited to less than 0.1% of gross rental
income.
Affordability: Units are concentrated in mid-level rent markets
offering broad tenant affordability and appeal. 89% of the rents
were priced below Yen150,000 (GBP1,144) per month. Average monthly
rent on residential units was Yen92,000 (GBP701) as at 30 November
2010.
Building Age: The average age of the portfolio was 5.1 years at
the year end. However, a full 91% of properties by value are less
than 5 years old and 25% are less than 3 years old. The modernity
of the portfolio is expected to result in lower repair and
maintenance costs, higher probability of renewal and greater
competitiveness.
Access: All properties are located within walking distance (most
within 10 minutes) of a train or subway station.
Outlook
Amidst global economic uncertainty, Japan's industrial
competitiveness and the relative strength of its financial sector
has helped to impart Japanese Yen-denominated investments with a
degree of "safe haven" status. Demand for quality rental housing in
urban areas remains strong as the supporting trends of net
migration and increases in household formation continue. On the
basis of strong fundamentals, we are optimistic about the prospect
for a sustained recovery in residential property values in
Japan.
With a portfolio of 51 properties and 2,200 units spread
predominantly among the three largest metropolitan markets in
Japan, the Fund has achieved a high level of diversification in
terms of location, assets and tenants. The strategy of investing in
quality urban assets capable of sustaining high occupancy rates has
resulted in stable cash flows. The 2010 capital raising has enabled
substantial delevering of the Fund which will help to ensure the
sustainability of distributions.
KK Halifax Management Limited KK Halifax Asset Management
Manager Investment Adviser
JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED
Consolidated Statement of Comprehensive Income
For the year ended 30 November 2010
2010 2009
GBP'000 GBP'000
Gross rental income 18,086 17,480
Property operating expenses (4,608) (3,954)
--------- ---------
Net rental income 13,478 13,526
Gain/(loss) on disposal of investment properties 157 (535)
Unrealised valuation loss on investment
properties (16,814) (26,736)
Management and investment advisory fees (1,378) (1,385)
Administrative and other expenses (2,108) (2,752)
Net operating loss before net financing
costs (6,665) (17,882)
Interest income 12 20
Interest and financing costs on bonds and
loans payable (4,595) (4,402)
Net foreign exchange losses (91) (141)
Gain/(loss) on fair value adjustments on
interest rate cap contracts 3 (73)
Loss on fair value adjustments on interest
rate swaps (221) -
--------- ---------
Net financing costs (4,892) (4,596)
Loss for the year before tax (11,557) (22,478)
Taxation charge (159) (223)
Loss for the year (11,716) (22,701)
========= =========
Loss per share - Basic and diluted (8.45p) (22.70p)
Other comprehensive income
Exchange differences on translation of foreign
operations 8,668 2,052
Total comprehensive loss for the year (3,048) (20,649)
========= =========
All items in the above statement are derived from continuing
operations.
The loss is attributable to shareholders of the Company. There
are no minority interests.
The accompanying notes form an integral part of these financial
statements.
JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED
Consolidated Statement of Financial Position
As at 30 November 2010
2010 2009
GBP'000 GBP'000
Non-current assets
Investment property 236,738 236,493
Security deposits held 561 1,026
Interest rate cap contracts 4 1
--------- ---------
237,303 237,520
--------- ---------
Current assets
Trade and other receivables 1,051 1,802
Restricted lender reserves 6,462 6,440
Cash and cash equivalents 10,611 26,364
--------- ---------
18,124 34,606
Total assets 255,427 272,126
--------- ---------
Non-current liabilities
Security deposits payable to tenants 1,124 1,171
Bonds and loans payable 126,421 151,898
Interest rate swap contracts 230 -
Deferred tax liability 379 293
--------- ---------
128,154 153,362
--------- ---------
Current liabilities
Bonds and loans payable 1,866 22,267
Trade and other payables 3,242 3,487
--------- ---------
5,108 25,754
Total liabilities 133,262 179,116
--------- ---------
Net assets 122,165 93,010
========= =========
Equity
Share capital 18,750 10,000
Special reserve 102,707 82,067
Distributions proposed from special reserve 2,813 -
Foreign exchange translation reserve 51,969 43,301
Accumulated loss (54,074) (42,358)
Total equity 122,165 93,010
========= =========
Net asset value per share 65.2p 93.0p
========= =========
JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED
Consolidated Statement of Changes in Equity
For the year ended 30 November 2010
Distributions Foreign
proposed exchange
Share Special from special translation Accumulated
2010 Capital Reserve reserve reserve loss Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 December
2009 10,000 82,067 - 43,301 (42,358) 93,010
Issue of
shares 8,750 25,328 - - - 34,078
Loss for the
year - - - - (11,716) (11,716)
Distributions
paid - (1,875) - - - (1,875)
Distributions
proposed - (2,813) 2,813 - - -
Currency
translation
differences - - - 8,668 - 8,668
At 30 November
2010 18,750 102,707 2,813 51,969 (54,074) 122,165
======== ======== ============== ============ ============ =========
Distributions Foreign
proposed exchange
Share Special from special translation Accumulated
2009 Capital Reserve reserve reserve loss Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
At 1 December
2008 10,000 82,067 1,500 41,249 (19,657) 115,159
Loss for the
year - - - - (22,701) (22,701)
Distributions
paid - - (1,500) - - (1,500)
Currency
translation
differences - - - 2,052 - 2,052
At 30 November
2009 10,000 82,067 - 43,301 (42,358) 93,010
======== ======== ============== ============ ============ =========
JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED
Consolidated Statement of Cash Flows
For the year ended 30 November 2010
2010 2009
GBP'000 GBP'000
Cash flows from operating activities
Loss for the year before tax (11,557) (22,478)
Adjustments for:
Unrealised valuation loss on investment
properties 16,814 26,736
(Gain)/loss on disposal of investment properties (157) 535
Interest income (12) (20)
Interest and financing costs on bonds and
loans payable 4,595 4,402
(Gain)/loss on fair value adjustments on
interest rate cap contracts (3) 73
Loss on fair value adjustments on interest
rate swap contracts 221 -
Deposit forfeited on uncompleted property
transactions - 69
---------- ---------
Operating profit before changes in working
capital 9,901 9,317
Decrease in receivables 1,216 1,072
(Increase)/decrease in restricted lender
reserves (22) 302
Decrease in trade and other payables and
security deposits payable to tenants (232) (233)
Withholding tax paid (102) (126)
Net cash inflow from operating activities 10,761 10,332
---------- ---------
Cash flows from investing activities
Proceeds from disposal of investment property 3,791 3,043
Property duties paid on property acquisitions
in prior year - (264)
Capital expenditure (132) (22)
Net cash inflow from investing activities 3,659 2,757
---------- ---------
Cash flows used in financing activities
Proceeds from issue of share capital 34,078 -
Proceeds from refinanced loans 75,701 -
Repayment of bonds and loans payable (133,772) (1,374)
Distributions paid from special reserve (1,875) (1,500)
Interest received 12 20
Interest and financing costs on bonds and
loans payable (5,629) (4,414)
Net cash outflow from financing activities (31,485) (7,268)
---------- ---------
Net (decrease)/increase in cash and cash
equivalents (17,065) 5,821
Cash and cash equivalents at beginning of
year 26,364 19,161
---------- ---------
9,299 24,982
Effect of exchange rate fluctuations on
cash and cash equivalents 1,312 1,382
Cash and cash equivalents at end of the
year 10,611 26,364
========== =========
JAPAN RESIDENTIAL INVESTMENT COMPANY LIMITED
Notes to the Consolidated Financial Statements
For the year ended 30 November 2010
1. General Information
The Fund, which comprises the Company and its subsidiaries and
special purpose entities as defined in note 2, has been established
to make and hold investments in residential property in Japan.
The Company is incorporated and domiciled in Guernsey. The
Company has its primary listing on the AIM market of the London
Stock Exchange.
These financial statements were approved for issue by the Board
of Directors on 3 March 2011.
2. Basis of Preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS'), which
comprise standards and interpretations approved by the
International Accounting Standards Board ('IASB'), and
International Accounting Standards and Standards Interpretations
Committee, interpretations approved by the International Accounting
Standards Committee ('IASC') that remain in effect, to the extent
that they have been adopted by the European Union and The Companies
(Guernsey) Law, 2008.
The financial statements have been prepared in Sterling, which
is the presentation currency of the Fund, and under the historical
cost convention, except for investment property and certain
financial instruments which are carried at fair value.
3. Significant agreements
The Fund has entered into the following significant
agreements:
(a) The Company has entered into an agreement with KK Halifax
Management Limited ('KKHML') whereby KKHML provides management
services for a fee of GBP50,000 per annum.
(b) The Japan-domiciled firms in which the Company is the
ultimate beneficiary have entered into agreements with KK Halifax
Asset Management ('KKHAM') whereby KKHAM provides investment
advisory services for a management fee of 0.5% of Gross Assets
under management calculated and paid quarterly, which is subject to
a minimum fee of Yen200 million (GBP1,459,000) per annum with
effect from 1 June 2010. KKHAM is also entitled to a performance
fee equivalent to 20% of the performance of the investments in
excess of 10% per annum, which will be calculated on the basis of
the average annual return on a three year rolling basis. No
performance fee was paid during the year (2009: Nil).
(c) The Company has entered into an agreement with Praxis
Property Fund Services Limited ('PPFSL') whereby PPFSL provides
administration and company secretarial services for a fee equal to
0.10% of the net asset value of the Fund, calculated and paid
quarterly, subject to a minimum fee of GBP50,000 per annum.
(d) The Company has entered into an agreement with Smith &
Williamson Corporate Finance Limited ('SWCFL') whereby SWCFL acts
as the Nominated Adviser for an annual fee of GBP30,000.
(e) The Company has entered into an agreement with Fairfax I.S.
Limited ('FISL') whereby FISL acts as financial adviser and
nominated broker to the Company for an annual fee of GBP40,000.
Prior to 1 January 2010 this fee was GBP50,000 per annum.
(f) The Japan-domiciled firms in which the Company is the
ultimate beneficiary have entered into agreements with Colliers
International ('CI') whereby CI provides accounting and
administrative services for a fixed fee of Yen34.6 million
(GBP253,000), with an additional variable fee based on the number
of properties held.
4. Related party transactions
Transactions between the Company and its subsidiaries which are
related parties have been eliminated on consolidation and are not
disclosed in this note.
Directors' fees have been disclosed in the Directors' Report.
There were no outstanding fees payable to Directors at the year
end. There are no key personnel other than the Directors,
Investment Adviser and Manager.
The Fund pays fees to KKHML for its management services. The
total charge to the Statement of Comprehensive Income during the
year was GBP50,000 (2009: GBP50,000), of which GBP12,500 (2009:
GBP12,500) was outstanding at the end of the year. Paul Hammerstad,
a director of the Company, is also a director of KKHML.
The Japan-domiciled firms in which the Company is the ultimate
beneficiary pay fees to KKHAM for its investment advisory services.
The total charge to the Statement of Comprehensive Income during
the year was GBP1,329,000 (2009: GBP1,285,000) of which GBPNil
(2009: GBPNil) was outstanding at the year end. Paul Hammerstad, a
director of the Company, is also a director of KKHAM. A
contribution to office rent of GBP6,000 was paid to KKHAM by the
Japan-domiciled firms in which the Company is the ultimate
beneficiary.
The Japan-domiciled firms in which the Company is the ultimate
beneficiary pay fees to CI for its accounting and administrative
services. The total charge to the Statement of Comprehensive Income
during the year was GBP433,000 (2009: GBP438,000) of which GBPNil
(2009: GBPNil) was outstanding at the year end. Paul Hammerstad, a
director of the Company, is also a director of CI.
5. Underlying profit
2010 2009
GBP'000 GBP'000
Gross rental income 18,086 17,480
Property operating expenses (4,608) (3,954)
-------- --------
Net rental income 13,478 13,526
Management and investment advisory
fees (1,378) (1,385)
Administrative and other expenses (2,108) (2,752)
Underlying profit before net financing
costs 9,992 9,389
Interest income 12 20
Interest and financing costs on bonds
and loans payable (4,595) (4,402)
-------- --------
Net financing costs (4,583) (4,382)
Taxation (159) (223)
5,250 4,784
======== ========
6. Gross rental income
2010 2009
GBP'000 GBP'000
Gross lease income 16,439 15,938
Service and management charges 1,647 1,542
-------- --------
18,086 17,480
======== ========
The Fund leases out its investment property under operating
leases. All operating leases are for original terms of two years or
more. Service and management charges include common area
maintenance fee income, non-refundable deposits received and other
income.
The future aggregate minimum rentals receivable under operating
leases as at the year end date are as follows:
2010 2009
GBP'000 GBP'000
No later than 1 year 14,222 12,537
Later than 1 year and no later than
5 years 6,828 7,286
After 5 years 712 1,505
-------- --------
21,762 21,328
======== ========
7. Property operating expenses
2010 2009
GBP'000 GBP'000
Property taxes and duties 1,486 1,069
Marketing and leasing commissions 1,087 866
Building management 724 684
Repairs and maintenance 412 295
Property management 396 473
Utilities 339 326
Other 164 241
-------- --------
4,608 3,954
======== ========
All property operating expenses relate to investment properties
that generated rental income.
Included in Property taxes and duties is an amount of GBP61,000
which relates to consumption tax expenses for intercompany property
transactions and GBP108,000 which relates to under-accrued property
tax for the 2009 financial year.
8. Administrative and other expenses
2010 2009
GBP'000 GBP'000
Accounting and administrative services 670 731
Appraisal report fee 379 508
Auditors' remuneration 271 318
Trustee fees 252 208
Directors' remuneration and expenses 140 134
Office lease expense 140 134
Professional fees 108 425
Other 148 294
-------- --------
2,108 2,752
======== ========
Auditors' remuneration relates entirely to the provision of
audit services. In addition the previous auditors, Ernst &
Young, earned the following fees during the year:
2010 2009
GBP'000 GBP'000
Tax advisory services - 4
Reporting accountants' fees on listing of new
shares 70 -
-------- --------
70 4
======== ========
9. Taxation charge
The Company is exempt from Guernsey taxation on income derived
outside of Guernsey and bank interest earned inside Guernsey under
the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989, as
amended. A fixed annual fee of GBP600 is payable to the States of
Guernsey in respect of this exemption. No charge to Guernsey
taxation will arise on capital gains.
The Fund's SPEs are subject to foreign tax on income arising
from distributions and interest payments originating from Japan.
Deferred taxes have been provided on the undistributed profits of
the Japanese entities and interest receivable by the subsidiaries
at the expected tax rate on the future payments by the Japanese
entities.
The fair value adjustments of the investment properties result
in a temporary difference between the carrying value of the
properties and their tax basis. Deferred taxes on these differences
are based on the expected tax rate on the future distributions made
on disposal of the investment property.
The Fund is liable to Japanese tax arising on activities of its
Japanese operations. Withholding taxes arise on income
distributions from the TKs to the TK Investor, J-RIC International
Limited. The Fund is liable to Dutch tax arising on the activities
of its Dutch operations.
The tax charge for the year comprises:- 2010 2009
GBP'000 GBP'000
Increase in deferred tax liability (57) (97)
Withholding tax suffered on the remittance of
retained profit from subsidiaries (102) (126)
-------- --------
Income tax charge (159) (223)
======== ========
The charge for the year can be reconciled to the loss per the
Statement of Comprehensive Income as follows:
2010 2009
GBP'000 GBP'000
Loss before tax (11,557) (22,478)
========= =========
Tax credit on ordinary activities at applicable
country rate (see below) 4,803 9,229
Factors affecting charge
Tax rate differences on deemed distributions 259 322
Expenses not deductible for tax purposes - 125
Timing difference on fair value losses not
recognised (4,200) (9,709)
Tax losses not recovered (1,021) (820)
--------- ---------
Tax charge (159) (223)
========= =========
The applicable country rate above is a blended rate of those
applicable in different jurisdictions, weighted by the profits and
losses arising therein. No deferred tax assets have been recognised
in respect of losses due to the unpredictability of future taxable
profits.
10. Loss per share - basic and diluted
The loss per share is based on the
following data: 2010 2009
GBP'000 GBP'000
Loss attributable to the shareholders
of the Fund (11,716) (22,701)
=============== ===============
Weighted average number of ordinary
shares for the purpose of basic and
diluted earnings per share 138,595,890 100,000,000
=============== ===============
The Fund does not have any dilutive potential shares.
11. Investment property
2010 2009
GBP'000 GBP'000
At beginning of year 236,493 261,707
Property duties paid on property
acquisitions in prior year - 264
Capital expenditure 132 22
Disposal of properties (3,634) (3,577)
-------------- --------------
(3,502) (3,291)
Unrealised valuation loss on investment
property (16,814) (26,736)
Exchange differences 20,561 4,813
-------------- --------------
At end of year 236,738 236,493
============== ==============
Property duties are paid once the acquisition of the property
has been processed by the Japanese tax office, often this might not
be in the same accounting year as the acquisition.
The total cost of the investment property held at the year end
date was GBP294.4 million (Yen38.6 billion) (2009: GBP291.5 million
(Yen41.7 billion)).
Investment property consists of residential properties that are
leased to third parties under operating leases. The fair value of
the Fund's investment property at 30 November 2010 has been
calculated on the basis of valuations carried out at that date by
the following independent professionally qualified valuers with
relevant recent experience:
Daiwa Real Estate Appraisal
Co. Ltd.
DTZ Debenham Tie Leung K.K.
K.K. Tokyo Kantei
The valuation basis has been fair market value as defined by
Japanese Real Estate Appraisal Standards calculated using the
income capitalisation approach. This approach consists of both the
direct capitalisation method which applies a market capitalisation
rate to net operating income ('NOI') and the discounted cash flow
method which applies a discount rate to both NOI and a forecast
terminal property value. NOI is calculated with reference to in
place lease contracts as well as monthly reports of actual property
income and expenses.
The Fund has pledged approximately GBP229.1 million (2009:
GBP218.9 million) of its investment property as security for bonds
and loans payable (see note 20). Income generated by the pledged
investment properties is distributable subject to the Fund meeting
its interest obligations on the bonds and loans payable. The bonds
and loans payable also include covenants that require maintenance
of maximum loan to value ('LTV') ratios ranging between 73% and 80%
and minimum stressed debt service coverage ratio tests of between
1.2x and 1.6x.
Any changes in market conditions will directly affect the profit
or loss reported through the Statement of Comprehensive Income. A
5% increase in the value of the direct properties as at 30 November
2010 would have increased total comprehensive income for the year
by GBP11.8 million (2009: GBP11.8 million). A decrease of 5% would
have had an equal but opposite effect. It is expected that
increases or decreases would be primarily the result of changes in
capitalisation rates, the primary variables in the fair value
calculations.
12. Security deposits held
2010 2009
GBP'000 GBP'000
Security deposits to master lessee 316 801
Guarantee deposits 229 210
Other 16 15
-------------- --------------
561 1,026
============== ==============
13. Interest rate derivatives
The Fund utilises derivative financial instruments, in the form
of interest rate cap contracts and interest rate swap contracts, to
hedge its exposure to interest rate risk.
Interest rate cap contracts 2010 2009
GBP'000 GBP'000
Fair value at beginning of year 1 74
Gain/(loss) on fair value adjustments 3 (73)
-------------- --------------
Fair value at end of year 4 1
============== ==============
The interest rate cap contracts hedge the interest payments on
the bonds issued to ORIX Corporation against movements in Japanese
Yen LIBOR rates. These contracts expire on 21 May 2012 and ensure
that the Fund's interest cost from bonds issued to ORIX Corporation
does not exceed 4%.
Interest rate swap contracts 2010 2009
GBP'000 GBP'000
Loss on fair value adjustment (221) -
Exchange differences (9) -
-------------- --------------
Fair value at end of year (230) -
============== ==============
An interest rate swap contract was taken out on 29 March 2010 in
order to hedge floating rate interest payments on Yen4,327 million
(GBP33.0 million) of the loan payable to Mizuho Corporate Bank.
Under the terms of the contract the Fund pays interest quarterly at
a fixed rate of 1.599% up to 31 December 2010 and 2.349% with
effect from 1 January 2011. The contract matures on 30 December
2013.
14. Trade and other receivables
2010 2009
GBP'000 GBP'000
Trade receivables 819 1,392
Other receivables 232 410
-------------- --------------
1,051 1,802
============== ==============
All amounts are receivable within 90 days.
15. Restricted lender reserves
The restricted lender reserves, which belong to the Fund,
comprise bank deposits that are held as reserves in lender
restricted accounts against future expenses including interest,
taxes and insurance. The restricted lender reserves are governed by
lender agreements that stipulate the terms under which the Fund may
withdraw funds subject to lender approval.
16. Cash and cash equivalents
2010 2009
GBP'000 GBP'000
Current account balances and short term
fixed deposits 10,611 26,364
============== ==============
17. Bonds and loans payable
Balance outstanding
Final Interest 2010 2010 2009
repayment rate Yen'000,000 GBP'000 GBP'000
Current
Floating
rate with
cap at 4%
DB Trust
Company
Limited February
Japan 2010 - - - 292
ORIX February
Corporation 2010 - - - 58
Floating
rate
interest
with no cap
Mizuho
Corporate October
Bank 2011 1.19% 155 1,180 -
September
Mizuho Bank 2011 1.86% 90 686 -
Fixed rate
interest
Mizuho Trust
& Banking February
Corporation 2010 - - - 17,834
Mizuho Trust
& Banking February
Corporation 2010 - - - 4,083
------------ ----------- --------------
245 1,866 22,267
------------ ----------- --------------
Non-current
Floating rate interest
with cap at 4% 1.21% 5,826 44,420 58,087
DB Trust
Company
Limited
Japan May 2012 3.26% 1,153 8,792 11,475
ORIX
Corporation May 2012
Floating rate interest
with no cap 1.19% 448 3,416 42,308
Mizuho
Corporate December
Bank 2013 1.86% 3,096 23,604 -
September
Mizuho Bank 2014
Fixed rate
interest
Mizuho Trust
& Banking January
Corporation 2014 2.25% 1,827 13,927 -
Tokyo Star
Bank February
Limited 2011 - - - 18,884
Tokyo Star
Bank
Limited March 2011 - - - 4,878
Tokyo Star
Bank
Limited April 2011 - - - 1,713
Tokyo Star
Bank
Limited May 2011 - - - 3,957
Tokyo Star
Bank
Limited June 2011 - - - 8,179
Tokyo Star
Bank
Limited July 2011 - - - 2,417
Floating
rate
interest
with swap
into fixed
rate
Mizuho
Corporate December
Bank 2013 1.60% 4,232 32,262 -
------------ ----------- --------------
16,582 126,421 151,898
------------ ----------- --------------
Total funded debt 16,827 128,287 174,165
============ =========== ==============
The bonds and loans payable are secured by certain investment
properties with a fair market value of Yen30,054 million (GBP229.1
million) (2009: Yen31,315 million (GBP218.9 million)) at the year
end date.
All floating interest rates are reset every three months based
on the prevailing base rate (3 months TIBOR or 3 months LIBOR) at
the time.
The Fund redeemed Yen3,050 million (GBP22.3 million) of the
bonds issued to DB Trust and Orix Corporation during the year. The
maturity date of May 2012 and other terms for the outstanding
Yen6,971 billion (GBP53.2 million) remain unchanged.
During the year the Fund repaid or refinanced its loan portfolio
as follows:
-- Refinanced the loan payable to Mizuho Corporate Bank from a
maturity of December 2010 to December 2013 and reduced the
outstanding balance from Yen6,053 million (GBP42.3 million) at 30
November 2009 to Yen4,835 million (GBP36.9 million) at the year
end, with scheduled quarterly amortisation of Yen39 million
(GBP297,000) (next amortisation payment is scheduled in January
2011);
-- Refinanced the loan payable to Mizuho Trust and Banking
Corporation from a maturity of February 2010 to January 2014 and
reduced the outstanding balance from Yen3,136 million (GBP21.9
million) at 30 November 2009 to Yen1,827 million (GBP13.9 million)
at the year end;
-- Refinanced the loans payable to Tokyo Star Bank Limited,
which had maturities of between February 2011 and July 2011, with
new debt from Mizuho Bank maturing in September 2014 and reduced
the outstanding balance from Yen5,727 million (GBP40.0 million) at
30 November 2009 to Yen3,186 (GBP24.3 million) at the year end,
with scheduled quarterly amortisation of Yen23 million (GBP175,000)
(next amortisation payment is scheduled in December 2010).
18. Deferred tax assets and liabilities
Deferred tax
liabilities
GBP'000
2010
At beginning of year 293
Charged to the Statement of Comprehensive
Income on undistributed income and interest
payable 159
Utilised on income distributed during the
year (102)
Exchange differences 29
--------------
At end of year 379
==============
2009
At beginning of year 190
Charged to the Statement of Comprehensive
Income on undistributed income and interest
payable 223
Utilised on income distributed during the
year (126)
Exchange differences 6
--------------
At end of year 293
==============
Deferred income tax assets are recognised for tax loss
carry-forwards to the extent that the realisation of the related
tax benefit through future taxable profits is probable.
The Fund did not recognise deferred income tax assets of Yen112
million (GBP0.9 million) (2009: Yen127 million (GBP0.9 million)) in
respect of losses amounting to Yen268 million (GBP2.0 million)
(2009: Yen302 million (GBP2.1 million)) that can be carried forward
against future taxable income.
Losses amounting to Yen87 million (GBP0.7 million), Yen137
million (GBP1.0 million), Yen36 million (GBP0.3 million) and Yen7
million (GBP0.1 million) expire in 2012, 2013, 2014 and 2015
respectively (2009: Yen129 million (GBP0.9 million), Yen137 million
(GBP1.0 million) and Yen36 million (GBP0.3 million) expire in 2012,
2013 and 2014 respectively).
19. Trade and other payables
2010 2009
GBP'000 GBP'000
Trade payables 2,231 2,843
Interest payables 181 241
Other 830 403
-------------- --------------
3,242 3,487
============== ==============
20. Share capital
2010 2009
GBP'000 GBP'000
Issued share capital:
187.5 million (2009: 100 million)
ordinary shares of 10p each issued and
fully paid 18,750 10,000
============== ==============
The total authorised number of ordinary shares is 250 million,
each with a par value of 10p. Ordinary shares carry no right to
fixed income but are entitled to dividends as declared from time to
time. Each share is entitled to one vote at meetings of the
Company.
On 22 June 2010 the Company issued 87,500,000 new ordinary
shares at a price of 40p per share, producing net proceeds after
issue costs of GBP34.1 million.
21. Share premium
On 12 January 2007 the Royal Court of Guernsey confirmed the
reduction of the share capital of the Company by way of
cancellation of the Company's share premium account, which under
Guernsey company law at the time was an undistributable reserve. An
amount of GBP85,067,000 was transferred to the special reserve,
which is distributable. With effect from 1 July 2008, Guernsey
company law no longer makes any distinction between distributable
and non-distributable reserves, requiring instead that a company
pass a solvency test in order to be able to make distributions to
shareholders.
On the issue of new ordinary shares during the year, the excess
of the proceeds over the nominal value of the shares issued, less
the share issue costs, was credited directly to the special reserve
(see note 25).
22. Special reserve
2010 2009
GBP'000 GBP'000
At beginning of year 82,067 82,067
Issue of shares 26,250 -
Share issue costs (922) -
Distribution paid (see note 26) (1,875) -
Distribution to be paid on 8 April 2011
at 1.5p per share (2,813) -
-------------- --------------
At end of year 102,707 82,067
============== ==============
The special reserve is a distributable reserve to be used for
all purposes permitted under Guernsey company law, including the
buy back of shares and the payment of dividends.
23. Distributions from special reserve
2010 2009
GBP'000 GBP'000
Interim distribution of 1p per share
paid on 31 December 2008 - 1,500
Interim distribution of 1p per share
paid on 30 September 2010 1,875 -
-------------- --------------
1,875 1,500
============== ==============
24. Commitments
The Fund did not have any capital commitments at the year end
date (2009: Nil).
25. Contingent liabilities
The Fund did not have any contingent liabilities at the year end
date (2009: Nil).
26. Entities
The Fund consists of the Company and the following entities:
Country of Beneficial
Entity Entity type incorporation interest
J-RIC International
Limited Limited Company Guernsey 100%
JRIC Holdings
Limited Limited Company Guernsey 100%
JRIC Netherlands
Cooperatief U.A. Cooperative Netherlands 100%
GK Aegis Tokumei Kumiai Japan 100%
GK Cross Tokumei Kumiai Japan 100%
GK Daisy Tokumei Kumiai Japan 100%
GK Eastern Tokumei Kumiai Japan 100%
GK Foster Tokumei Kumiai Japan 100%
Limited Liability
GK JRIC Company Japan 100%
Tokutei Mokuteki
TMK JRIC1 Kaisha Japan 100%
Tokutei Mokuteki
TMK JRIC2 Kaisha Japan 100%
GK Foster ceased operations and was closed in February 2010.
27. Post year end events
On 31 January 2011 the Fund made a voluntary partial repayment
of Yen464 million (GBP3.5 million) of the loan payable to Mizuho
Corporate Bank. Following this repayment, amortisation of the loan
is no longer required.
28. Copies of Annual Report and Consolidated Financial
Statements
The Financial Statements for the year ended 30 November 2010
will be sent to shareholders in due course and will be available
from the Company's registered office at Sarnia House, Le Truchot,
St Peter Port, Guernsey GY1 4NA and on its website
www.jricl.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JJMLTMBJMBMB
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