CRE provides one-stop logistics real estate services. These encompass signing master lease agreements, managing properties, finding tenants, developing and selling facilities, plus establishing and managing real estate funds. Its business segments are Real Estate Management (51.0% of sales and 29.5% of operating profit in FY07/21), Logistics Investment (46.8% and 62.7%), and Asset Management (2.2% and 7.7%). CRE believes it is the only company in Japan handling all aspects of logistics facilities and can grind out synergy from the various activities. The company also aims to expand its business territory with a logistics infrastructure platform starting in FY07/19.
The company employs a business model where first it constructs logistics facilities, then finds tenants and provides property management services. It then sells these logistics properties for a profit to a real estate investment fund it has set up, and receives asset management fees for managing the fund through a subsidiary.
Based on this circular business model, CRE established CRE Logistics REIT, Inc. in May 2016, mainly to invest in logistics facilities. CRE Logistics REIT was listed on the TSE REIT Market in February 2018. The move divided off the logistics facility development and property management functions from the investment and holding functions. Under this arrangement, the company receives gains on sale from the development of logistics facilities, as well as asset and property management fees; leasing revenue from holding property accrues to the investment corporation’s investment units.
While Logistics Investment drives growth, the company thinks focusing on logistics facility development would make it too vulnerable to the economic cycle, so it covers all of its costs with stable gross profit from Real Estate Management (master lease business), supplemented by profits from the development of logistics facilities.
In FY07/21, the company reported consolidated sales of JPY47.6bn (+15.4% YoY), operating profit of JPY5.8bn (+36.5% YoY), recurring profit of JPY5.3bn (+31.2% YoY), and net income attributable to owners of the parent of JPY3.6bn (+36.9% YoY). Master lease rental income (recurring income) grew steadily, and Logistics Investment earnings were driven by the sale of three logistics facilities including LogiSquare Kawagoe II.
Company forecast for FY07/22 (upwardly revised on March 14, 2022) calls for sales of JPY61.6bn (-JPY500mn from the previously revised forecast), operating profit of JPY9.3bn (+JPY500mn), business profit of JPY10.4bn (+JPY700mn), recurring profit of JPY8.2bn (+JPY400mn), and net income attributable to owners of the parent of JPY5.6bn (no change). Upward revisions to profit forecasts were attributable to steady sales of logistics facilities in the Logistics Investment business, while the company lowered its sales forecast to reflect its conservative projection for small property sales in the Real Estate Management business.
On September 9, 2021, the company announced its second medium-term management plan, ending FY07/26. This called for business profit of JPY12.0bn (double the FY07/21 figure of JPY6.2bn; 5-year CAGR of 18%), average ROE of at least 15%, master lease floor space under management of 1,983,480sqm (600,000 tsubo, roughly +27% versus FY07/21), property management floor space under management of 5,289,280sqm (1,600,000 tsubo, roughly +27%), and AUM of JPY450.0bn (double).
Shared Research views CRE’s strengths as its specialization in a growth sector of real estate development; expertise and information necessary for attracting logistics tenants; and stable earnings platforms of Real Estate Management and Asset Management. Weaknesses include limited scale and funds compared to major real estate funds; volatile profits in its growth driver, Logistics Investment; and a growth strategy that inevitably results in a relatively unhealthy financial position (see Strengths and weaknesses section).
|Gross profit margin||15.1%||20.1%||18.6%||20.8%||20.4%||18.9%||21.6%||20.6%||21.7%||-|
|Operating profit margin||5.3%||11.5%||9.4%||13.0%||12.8%||9.5%||6.9%||10.3%||12.1%||15.1%|
|Business profit margin||13.1%||16.9%|
|Recurring profit margin||4.0%||10.7%||8.7%||12.2%||12.2%||9.2%||5.8%||9.8%||11.2%||13.3%|
|Per-share data (split-adjusted; JPY)|
|Shares issued (year-end; '000)('000 shares)||-||-||22,803||23,697||25,423||25,931||26,161||26,309||27,469||-|
|EPS (fully diluted; JPY)||-||-||66.2||94.4||142.0||81.9||27.7||103.4||130.2||-|
|Dividend per share (JPY)||-||-||10.0||20.0||20.0||40.0||21.0||22.0||23.0||24.0|
|Book value per share (JPY)||-||-||393.2||480.1||621.6||678.0||696.2||792.3||970.8||-|
|Balance sheet (JPYmn)|
|Cash and cash equivalents||1,727||5,007||8,727||14,282||14,505||13,497||9,033||14,466||19,474|
|Total current assets||8,980||10,304||19,111||26,930||27,180||28,213||36,245||49,324||76,790|
|Tangible fixed assets||1,720||2,163||3,294||3,700||2,432||2,791||3,905||4,562||4,566|
|Investments and other assets||5,053||4,918||4,525||6,638||7,211||10,952||12,899||14,815||16,028|
|Total current liabilities||7,514||8,524||3,762||7,636||10,236||10,465||8,770||28,039||14,976|
|Total fixed liabilities||7,280||6,473||14,424||18,443||10,914||14,812||28,397||22,100||57,320|
|Total net assets||1,007||2,451||8,967||11,375||15,819||16,976||17,545||20,004||26,746|
|Total interest-bearing debt||5,034||5,414||9,579||13,844||11,583||12,676||24,540||24,456||49,653|
|Statement of cash flows(JPYmn)|
|Cash flows from operating activities||282||3,315||-3,173||4,189||2,423||2,974||-13,350||7,725||-22,754|
|Cash flows from investing activities||190||-405||-1,640||-2,740||-821||-3,807||-1,529||-472||-286|
|Cash flows from financing activities||417||486||8,223||4,346||-1,397||-279||10,523||-1,820||28,041|
On March 14, 2022, CRE, Inc. announced revisions to its full-year FY07/22 earnings forecast.
On March 14, 2022, the company released an upgraded earnings forecast along with 1H results. The revised forecast calls for JPY61.1bn in sales (-JPY500mn from the previously revised forecast), operating profit of JPY9.3bn (+JPY500mn), business profit of JPY10.4bn (+JPY700mn), recurring profit of JPY8.2bn (+JPY400mn), and net income attributable to owners of the parent of JPY5.6bn (no change). Upward revisions to profit forecasts were attributable to steady sales of logistics facilities in the Logistics Investment business, while the company lowered its sales forecast to reflect its conservative projection for small property sales in the Real Estate Management business.
On March 1, 2022, CRE, Inc. announced the sale of a logistics facility.
The company decided to sell its beneficial interests in the LogiSquare Miyoshi II logistics facility on March 1, 2022.
CRE has begun preparations to establish within five years a core open-ended fund (OEF) that will invest in domestic logistics facilities. The company will sell its beneficial interests in LogiSquare Miyoshi II to this OEF's first bridge fund. It aims to increase the asset value associated with the OEF to JPY100.0bn over the medium to long term.
Facility name: LogiSquare Miyoshi II
Main use: Warehouse (warehousing operations)
Site area: 12,072.92 sqm (3,652.05 tsubo)
Total floor space: 18,135.21 sqm (5,485.90 tsubo; including attached buildings)
The selling price is undisclosed but assumed to be equivalent to at least 10% of consolidated net sales (JPY47.6bn) for FY07/21. The company expects profit from the sale to be equal to at least 30% of consolidated operating profit (JPY5.8bn), recurring profit (JPY5.3bn), and net income attributable to owners of the parent (JPY3.6bn) for the same year.
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||Revised forecast||Initial forecast|
|Cost of sales||6,519||26,913||31,899||37,246||23,622||28,508|
|Cost of sales ratio||79.8%||77.4%||77.9%||78.3%||76.8%||76.6%|
|Gross profit margin||20.2%||22.6%||22.1%||21.7%||23.2%||23.4%|
|Operating profit margin||8.5%||16.8%||14.8%||12.1%||18.8%||16.4%||15.1%||14.0%|
|Business profit margin||10.8%||17.6%||21.0%||18.4%||16.9%||14.6%|
|Recurring profit margin||8.4%||16.4%||14.2%||11.2%||18.1%||15.2%||13.3%||12.3%|
|Cost of sales||6,519||20,394||4,986||5,346||23,622||4,886|
|Cost of sales ratio||79.8%||76.7%||80.7%||80.7%||76.8%||75.7%|
|Gross profit margin||20.2%||23.3%||19.3%||19.3%||23.2%||24.3%|
|Operating profit margin||8.5%||19.4%||3.6%||-||18.8%||4.9%|
|Business profit margin||10.8%||19.7%||21.0%||6.0%|
|Recurring profit margin||8.4%||18.8%||2.3%||-||18.1%||1.6%|
|(JPYmn)||Q1||Q1–Q2||Q1–Q3||Q1–Q4||Q1||Q1–Q2||% of Est.||Revised forecast||Initial forecast|
|Real Estate Management||7,148||12,582||18,383||24,274||7,944||13,657||49.5%||27,600||28,850|
|Real Estate Management||708||1,139||1,822||2,055||949||1,431||68.1%||2,100||1,940|
|Operating profit margin||9.9%||9.1%||9.9%||8.5%||11.9%||10.5%||7.6%||6.7%|
|Operating profit margin||17.0%||22.6%||21.2%||19.6%||22.3%||21.9%||23.8%||24.2%|
|Real Estate Management||7,148||5,434||5,801||5,891||7,944||5,713|
|Real Estate Management||708||431||683||233||949||482|
|Operating profit margin||9.9%||7.9%||11.8%||4.0%||11.9%||8.4%|
|Operating profit margin||17.0%||22.8%||-||-||22.3%||-|
|Total area under development ('000 tsubo)||1,605||1,680||1,724||1,731||1,738||1,819|
|Master lease ('000 tsubo)||467||471||470||471||476||478|
|Property management ('000 tsubo)||1,138||1,210||1,254||1,260||1,262||1,341|
|No. of properties under management||1,582||1,578||1,584||1,578||1,579||1,582|
|Master lease occupancy rate||98.4%||97.9%||98.2%||98.2%||98.7%||99.2%|
Sales rose JPY2.4bn to JPY37.2bn (+7.0% YoY). Sales growth of JPY2.4bn YoY broke down to growth of JPY1.1bn in Real Estate Management, JPY1.1bn in Logistics Investment, and JPY250mn in Asset Management. In Logistics Investment, the sale of LogiSquare Osaka Katano (in Q1) drove segment sales and profit. In Asset Management, CRE Logistics REIT executed its fifth public offering, with assets under management hitting JPY134.7bn (public offering) and reaching JPY225.1bn as a total of public offering and private funds (at end-January 2022).
Operating profit amounted to JPY6.1bn (up JPY252mn YoY), reaching 65.7% of the revised full-year target of JPY9.3bn. This marked a record high for 1H. The JPY252mn increase broke down as follows. Operating profit in the Logistics Investment segment (one-time revenue business) rose JPY102mn YoY from JPY4.9bn in 1H FY07/21. Meanwhile, operating profit increased JPY292mn (25.6%) YoY and JPY213mn (61.6%) YoY in the Real Estate Management segment and the Asset Management segment, respectively. The company-wide expenses (segment deduction) also increased JPY355mn YoY. The company recorded an extraordinary gain of JPY565mn paralleling development (real estate sales contract penalty).
Recurring revenue businesses (Real
Estate Management and Asset Management) saw sales increase by JPY1.3bn YoY to JPY14.4bn (+10.1% YoY). Operating profit
for recurring revenue businesses rose JPY506mn YoY to JPY2.0bn (+34.0% YoY). Recurring revenue businesses accounted for 38.8% of total sales. In the Real Estate Management business, profit from master lease rental income went up due to higher capacity utilization rates. In the Asset Management business, the company steadily recorded asset management fee revenue due to the increase of assets under management(public offering), as well as arrangement fees from a newly formed private fund specializing in small and medium-size warehouses and a fund specializing in self-storage facilities.
On March 14, 2022, the company revised its full-year FY07/22 forecast upward to reflect 1H performance. This is the second upward revision for FY07/22 following the first one on December 13, 2021. It now forecasts sales of JPY61.6bn (-JPY500mn from the previous forecast), operating profit of JPY9.3bn (+JPY500mn), business profit of JPY10.4bn (+JPY700mn), recurring profit of JPY8.2bn (+JPY400mn), and net income attributable to owners of the parent of JPY5.6bn (no change).
The Real Estate Management business recorded stable earnings as master lease properties maintained high occupancy rates (99.2%) and floor space under management steadily increased. The company sold a small and medium-sized warehouse it owned to a private fund specializing in these facilities. Floor space under management at end-January 2022 was 6.0mn sqm (1,819,000 tsubo, +8.3% YoY). This comprised 1.6mn sqm (478,000 tsubo, +1.6% YoY) in the master lease business, and 4.4mn sqm (1,341,000 tsubo, +10.9% YoY) in the property management business.
The company is proceeding with the leasing and construction of each LogiSquare property. Sales and operating profit expanded in line with the sale of LogiSquare Osaka Katano to CRE Logistics REIT. The segment profit margin was 21.9% (versus 22.6% a year earlier), buoyed by cost savings and higher-than-planned gross profit. There was also a contribution from an extraordinary gain of JPY565mn paralleling development in Q1. The company sold LogiSquare Miyoshi II to a core bridge fund on March 1, 2022, and expects to book proceeds from the sale in Q3.
CRE Logistics REIT steadily booked asset management fees over the period. The balance of assets under management (as of January 2022) was JPY134.7bn, as CRE Logistics REIT issued new investment units in September 2021 and acquired new assets. As a result, the business saw a steady increase in asset management fees. The segment recorded arrangement fees in connection to the formation of a private fund specializing in small and midsize warehouses and a fund specializing in self-storage facilities.
Capital increase: On October 11, 2021, CRE announced the issuance of new shares and secondary offering of shares through public offering and third-party allotment. The approximate net proceeds of JPY4.1bn will be used to partially fund the acquisition of land for development of large-scale logistics facilities for sale in the Logistics Investment business, scheduled for completion in FY07/25 or later.
Formed fund specializing in self-storage facilities in December 2021: CRE and consolidated subsidiary Strategic Partners began developing self-storage facilities in 2018 with Palma Co., Ltd. to form a fund specializing in these facilities. The company sold a bridge property to an SPC that Singapore-based investors invest in. Strategic Partners will undertake asset management of the SPC. The company aims to continue to expand its portfolio.
Began preparations to form an open-ended core fund (OEF) specializing in domestic logistics facilities in February 2022: CRE and consolidated subsidiary Strategic Partners are preparing to form an OEF within five years, targeting assets of JPY100bn. The company believes that having a flagship fund among its private funds targeting institutional investors in addition to listed REITs will contribute toward stable development of logistics facilities.
LogiSquare Ichinomiya: CRE acquired land for development in Ichinomiya, Aichi Prefecture and began development of LoqiSquare Ichinomiya, a multi-tenant logistics facility. This is the first project for the company in the Chukyo area. Completion is scheduled for fall 2023. The site area is approximately 27,863sqm and total floor space is 63,000sqm (planned).
|March 14||December 13||Initial|
|(JPYmn)||1H Act.||2H Act.||FY Act.||1H Act.||2H Act.||FY Act.||1H Act.||2H Est.||Revised forecast||Revised forecast||FY Est.|
|Cost of sales||9,096||23,626||32,723||26,913||10,332||37,246||28,508|
|Gross profit margin||20.4%||20.6%||20.6%||22.6%||19.3%||21.7%||23.4%|
|Operating profit margin||4.8%||12.3%||10.3%||16.8%||-0.6%||12.1%||16.4%||13.1%||15.1%||14.2%||14.0%|
|Business profit margin||17.6%||13.1%||18.4%||14.6%||16.9%||15.6%||14.6%|
|Recurring profit margin||4.0%||12.1%||9.8%||16.4%||-2.9%||11.2%||15.2%||10.4%||13.3%||12.6%||12.3%|
The company’s initial forecast for FY07/22 called for full-year consolidated sales of JPY61.6bn (+29.5% YoY), operating profit of JPY8.6bn (+49.0% YoY), business profit of JPY9.0bn (+44.6% YoY), recurring profit of JPY7.6bn (+43.0% YoY), and net income attributable to owners of the parent of JPY5.0bn (+39.9% YoY). Business profit consists of operating profit, equity-method investment gains, and amortization of goodwill (for consolidated subsidiaries and equity-method affiliates).
On December 13, 2021, CRE announced Q1 FY07/22 results and an upward revision to its full-year forecast. The revised forecast calls for sales of JPY62.1bn (up JPY500mn from the initial forecast), operating profit of JPY8.8bn (up JPY200mn), business profit of JPY9.7bn (up JPY700mn), recurring profit of JPY7.8bn (up JPY200mn), and net income attributable to owners of the parent of JPY5.6bn (up JPY600mn). The difference from the initial forecast reflects the company's recalculation of the plan based on an increase in assets under management and floor space under management. Out of the JPY700mn increase in business profit versus the initial forecast, approximately JPY565mn was attributable to an extraordinary gain paralleling development (real estate sales contract penalty) recorded in Q1 FY07/22.
On March 14, 2022, the company released an upgraded earnings forecast along with 1H results. The revised forecast calls for JPY61.1bn in sales (-JPY500mn from the previously revised forecast), operating profit of JPY9.3bn (+JPY500mn), business profit of JPY10.4bn (+JPY700mn), recurring profit of JPY8.2bn (+JPY400mn), and net income attributable to owners of the parent of JPY5.6bn (no change). Upward revisions to profit forecasts were attributable to steady sales of logistics facilities in the Logistics Investment business, while the company lowered its sales forecast to reflect its conservative projection for small property sales in the Real Estate Management business.
The company's forecast calls for segment sales of JPY27.6bn (+13.7% YoY) and operating profit of JPY2.1bn (+2.2% YoY). The company has not factored in any particular impact from the COVID-19 pandemic. The Real Estate Management segment is a stable source of earnings generated primarily through the accumulation of floor space associated with Master Lease and Property Management properties. Shared Research thinks, under its second medium-term management plan, the company aims to both maintain and expand its existing earnings base and therefore will continue striving to expand its floor space under management and improve its earning power. We also think that the company will likely adopt measures aimed at facilitating the rehabilitation of Master Lease properties and the promotion of ancillary businesses associated with Property Management operations.
The company's forecast calls for segment sales of JPY32.7bn (+46.7% YoY) and operating profit of JPY7.8bn (+78.0% YoY). In FY07/21, the company developed two properties with about 98,671.1 square meters (29,848 tsubo) in floor space but does not plan to develop any properties in FY07/22. It projects sales of JPY32.7bn from property sales. On September 2, 2021, the company announced the plan to sell its LogiSquare Osaka Katano property (about 35,635.4 square meters [10,779.71 tsubo]) to CRE Logistics REIT, Inc. for JPY22.4bn in September 2021 (booked in Q1).
CRE also sold its LogiSquare Miyoshi II property to a core bridge fund as of March 1, 2022, to be booked in Q3. The company plans to sell its quasi-co-ownership interest of 20% in the LogiSquare Sayama Hidaka property in FY07/22.
The company calls for segment sales of JPY1.4bn (+31.7% YoY) and operating profit of JPY840mn (+56.1% YoY). As of January 31, 2022, assets under management amounted to JPY134.7bn (public offering) and JPY225.1bn as a total of public offering and private funds. This amount was reached because CRE Logistics REIT (a privately listed logistics property-oriented REIT) conducted a public offering of shares and acquired assets in January 2021.
For private funds, CRE recorded revenue from the sale of the No. 3 CRE master lease fund and plans to form the No. 4 fund in FY07/22. The company formed a fund specializing in self-storage facilities in December 2021 and began preparations to form an open-ended core fund (OEF; private fund), targeting assets of around JPY100bn. On March 1, 2022, the company added LogiSquare Miyoshi II to the first bridge fund.
In the longer term, CRE aims to increase assets under management to JPY450bn in FY07/26.
On September 9, 2021, the company announced a medium-term management plan covering FY07/22–FY07/26. Its previous medium-term management plan covered a period of three years, but this plan spans five. The company’s business vision focuses on becoming a “number one corporate group with a logistics infrastructure platform that connects the people and things of our world.” Accordingly, it is striving to evolve from a company that furnishes comprehensive logistics real estate services into a corporate group that provides a foundational base of services that provide all-encompassing logistical support.
In FY07/26, the company aims to generate JPY12.0bn in business profit (average annual growth of 18% over the course of the plan) average ROE of at least 15%. To drive growth, the company will conduct development through its real estate investment business as it steadily expands results generated through its core recurring revenue businesses (earnings from CRE’s Real Estate Management segment [excluding earnings from new contract-based construction projects and real estate sales income] and income from asset management fees performed through the Asset Management segment).
The medium-term plan primarily focuses on expanding the company’s scale, but the company maintains that it has not changed its philosophy of establishing a foundational earnings structure that enables it to cover SG&A expenses using the stable earnings generated by its recurring-revenue businesses (Real Estate Management and Asset Management).
|JPYmn||FY07/21 result||FY07/26 company forecast||Notes|
|Business profit||6,224||12,000||Double in five years (CAGR 18%)|
|Pipeline||200,000||350,000||FY06/27 figure refers to pipeline from FY07/27 onward|
|Area under management (tsubo)|
|Master lease||471,247||600,000||Up roughly 27% in five years|
|Property management||1,260,132||1,600,000||Up roughly 27% in five years|
|AUM||200,000||450,000||Double in five years|
|Core recurring revenue||4,500||6,500||Up roughly 40% in five years|
|ROE||15%||At least 15%|
|Real Estate Management||Logistics Investment||Asset Management|
|Initatives||Expand floor space under management||At least JPY200.0bn in development over five years||1. Double AUM associated with CRE REIT|
2. Balance private and public placement of securities
|Action||1. Master Lease: Expand floor space through master leasing fund |
2. Property Management: Expand floor space through development properties
|1. Distinguish property specifications from those of competitors|
2. Find ways to actively utilize sites with contaminated soil
3. Acquire bases for medium- to long-term development
4. Decarbonization (LogiSquare)
|1. Stably supply properties|
2. Form medium- and small-sized private warehouse REITs and expand private funds (including development funds)
|Expansion and monetization|
|New domain: Overseas business|
|Initiative||Conduct active real estate investment in ASEAN regions|
|Action||1. Vietnam: Continue warehouse development|
2. Indonesia: Conduct warehouse development, establish asset management companies, and acquire asset management businesses
3. Thailand: Acquire asset management businesses
|New domain: New business|
|Initiative||Independently establish profitability for constituent logistics infrastructure platform (LIP) companies|
|Action||1. Support growth through collaboration between businesses|
2. Expand services and networks associated with constituent LIP companies
CRE can reduce volatility in earnings generated through one-time revenue business by increasing annual development projects in the Logistics Investment segment over the medium term. Ample opportunity exists for the company to expand its development of logistics real estate thanks to expansion in demand for advanced logistics facilities stemming from growth in e-commerce and third-party logistics (3PL) markets and a business environment in which candidate sites for the development of new logistics facilities are being created through the construction of roads in the Tokyo Metropolitan Area.
CRE has made progress in establishing its development pipeline, and values the development properties it plans to begin selling in FY07/23 at JPY200.0bn. The company is broadening its investment areas and expanding investment in sites with contaminated soil. Meanwhile, Shared Research has concluded that the company will tackle the challenge of increasing its involvement in joint development projects at a later time. The company has expressed a desire to focus on joint development that will enable it to leverage its sourcing capabilities.
During the period spanning from FY07/22 through FY07/26, the company will aim to conduct distribution warehouse development with a total value of at least JPY200.0bn while striving to ensure that development for all projects generates IRR of 15% or more.
The company has already completed preparations for projects worth about JPY200.0bn. The company has made no development plans for FY07/22. However, starting in FY07/23, the company plans to develop 10 published and contracted properties (about 456,605 sqm [138,123 tsubo] of development space) and three unpublished and contracted properties (about 349,435 sqm [105,704 tsubo] of development space) with a total development space of approximately 806,040 sqm (243,827 tsubo).
In FY07/22, CRE plans to sell three properties it developed and constructed prior to the end of FY07/21 (LogiSquare Osaka Katano, LogiSquare Miyoshi II, and LogiSquare Sayama Hidaka [its 20% quasi-co-ownership interest]). On September 2, 2021, the decision to sell the LogiSquare Osaka Katano property to CRE Logistics REIT for a planned amount of JPY22.4bn was finalized.
Based on its accumulation of pipeline properties (worth JPY200.0bn in total), the company projects annual pipeline property sales of JPY40.0–50.0bn.
CRE plans to continue acquiring and developing properties with the goal of increasing the size of its pipeline of properties to be sold in the future. It aims to expand the total value of this pipeline to JPY350.0bn by the end of FY07/27. The company is assuming a total pipeline value of JPY350.0bn starting in FY07/26. Based on this assumption, it can conclude that it will generate annual pipeline property sales of JPY70.0bn.
|FY of development||Project name||Space under development (tsubo)|
|FY07/15||LogiSquare Yashio, LogiSquare Hidaka||11,058|
|FY07/16||LogiSquare Kuki, LogiSquare Hanyu||25,177|
|FY07/17||LogiSquare Kuki II, LogiSquare Niiza, LogiSquare Urawa Misono, LogiSquare Moriya||37,635|
|FY07/18||LogiSquare Chitose, LogiSquare Tosu, LogiSquare Kawagoe, LogiSquare Kasukabe||20,692|
|FY07/19||LogiSquare Ageo, LogiSquare Kawagoe II||10,378|
|FY07/20||LogiSquare Kobe Nishi, LogiSquare Miyoshi, LogiSquare Sayama Hidaka||42,633|
|FY07/21||LogiSquare Osaka Katano, LogiSquare Miyoshi II||29,848|
|FY07/23 onward (Under development and published)||LogiSquare Itami, Shiroi-shi Naka dev't plan, LogiSquare Hirakata, LogiSquare Atugi I, LogiSquare Matsudo, LogiSquare Fukuoka Kogori, LogiSquare Atugi II, LogiSquare Fujinimo A, B, and C (3 properties )||138,123|
|Ditto (unpublished and contracted)||3 properties||105,704|
The company aims to expand master lease floor space under management and increase AUM by annually selling LogiSquare properties with a total worth of JPY40–50bn to CRE Logistics REIT. The company will continue to receive asset management fees and property management fees.
Increase Real Estate Management sales and profit: By end-FY07/26, the company aims to raise master lease floor space under management to about 1.98mn sqm (600,000 tsubo; versus about 1.56mn sqm [471,247 tusbo] in FY07/21) while increasing property management floor space under management to about 5.29mn sqm (1,600,000 tsubo; versus about 4.17mn sqm [1,260,132 tusbo] in FY07/21). These increases represent expansion of about 27% over five years. In particular, the company can expect property management floor space under management to increase as it conducts development. Properties developed by the company internally will account for a larger percentage of the its management portfolio moving forward. Based on this change, the company can expect to receive higher fee rates in the future. In contrast, performance associated with master lease floor space under management is largely determined by the company’s sales efforts.
Increase AUM in Asset Management: The company aims for JPY450.0bn in AUM. Groupwide AUM in FY07/21 amounted to JPY209.7bn. The company’s pipeline of properties to be sold in the Logistics Investment segment has a total value of JPY209.7bn. When accounting for property sales made to REITs, the company has come within reach of its target fund scale of JPY450.0bn. Assuming profitability of 50 basis points at this fund scale of JPY450.0bn, however, the company can only expect to achieve a medium- to long-term profit level of JPY2.3bn and therefore the company needs to achieve accelerated scale expansion. Shared Research assumes that the company will attempt to expand its master lease base by searching for acquisition opportunities of similar scale with previous LogiCom.
More active joint development: The company will focus on capturing more development opportunities through joint projects utilizing externally raised capital. By focusing on development funds, the company will provide both domestic and foreign investors with opportunities to invest in development.
Over the long term, the company will establish joint development and other one-time businesses within its Logistics Investment segment as growth drivers as it aims to expand recurring revenue by expanding floor space under management through the sale of properties and accumulating assets under management.
CRE has been focusing on strengthening its logistics infrastructure platform (LIP). Through its LIP, the company conducts activities that extend beyond its core warehouse operations, furnishing “services that enhance warehouse convenience” (acquisition of necessary human resources, inventory and warehouse management systems, warehouse automation, among others) and aiming to provide comprehensive support for overall logistical optimization, including solutions related to delivery functions.
Under its second medium-term management plan, the company plans to accelerate the pace of increase in the earning capacities of its core LIP companies: HAPILOGI (e-commerce business), APT (systems), and A-TRUCK (rentals of various vehicles, including those equipped with refrigeration or freezing technology). By FY07/26, the company aims to raise business profit generated through its LIP to JPY1.2bn, or 10% of total business profit of JPY12.0bn.
The company will continue to invest actively, primarily in Vietnam and Indonesia. In the past, the company had limited overseas investment to support for local logistics companies. However, moving forward, the company will aim to locally establish a comprehensive logistical service model. In Vietnam, the company will continue to develop warehouses while also developing warehouses and establishing asset management companies in Indonesia. Elsewhere, in Thailand, the company will aim to acquire asset management businesses. Afterward, the company will endeavor to construct an overseas logistics infrastructure platform (LIP). CRE will also aim to raise the share of business profit generated by the Overseas business to 10% (of a projected total business profit of JPY12.0bn ) in FY07/26.
The company defines Real Estate Management and Asset Management as recurring revenue businesses, and Logistics Investment as a one-time business. It is developing a circular business where the one-time revenue business flows lead to the recurring revenue businesses. The cycle entails developing logistics facilities, finding tenants, and conducting outsourced property management. The relevant properties are incorporated in (sold to) real estate investment funds that the company formed in-house. This leads to gains on sale, and subsidiaries receive asset management fees for managing real estate investment funds.
Under this business cycle, the company does not seek to hold as much property as possible; instead, its business territory comprises a cycle of repeated fund investments and redemptions in the low-risk, low-return Real Estate Management and Asset Management businesses, and a high-risk, high-return Logistics Investment business. The company considers the medium-risk, medium-return long-term real estate ownership as a territory for J-REITs.
CRE earnings structure was previously built so that gross profit from its stable recurring revenue businesses (Real Estate Management and Asset Management) was enough to cover SG&A expenses in the event of earnings downturn during a recession. The company's second medium-term management plan also defines the particularly stable revenue within the recurring revenue businesses as core recurring revenue. The company currently aims to structure its earnings so that it can cover SG&A expenses with core recurring revenue.
According to the company, core recurring revenue includes master lease profits, property management fees, repair and construction fees, and asset management fees among others.
CRE’s earnings feature a base of stable growth in recurring revenue, supplemented by volatile one-time revenue. The company has accumulated a pipeline of sellable properties within its Logistics Investment segment and has established a beneficial cycle through which it reinvests profits generated through its one-time revenue businesses to expand the foundations of its recurring revenue businesses. Additionally, CRE indicates that the FY07/18 listing of CRE Logistics REIT enabled it to establish a structure under which earnings growth in the Asset Management business drives growth in the recurring revenue businesses. The company’s REIT business has a strong connection with the apparatus industry. Accordingly, the company can accelerate its generation of asset management sales relatively easily by leveraging associated economies of scale. CRE can also smoothly raise profitability through the accumulation of AUM.
In addition to booking acquisition fees in line with growth in assets under management, CRE expects to generate income through asset management fees. The company’s consolidated subsidiary, CRE REIT Advisers, conducts asset management on behalf of CRE Logistics REIT. CRE REIT Advisers receives acquisition fees of up to 0.5% of the acquisition price for assets that CRE Logistics REIT purchases. It also receives asset management fees of up to 0.4% of the REIT’s net asset value.
CRE offers one-stop logistic real estate services. It enters into master lease agreements, manages properties, attracts tenants, develops and sells facilities, and creates and manages real estate funds. Segments: Real Estate Management, Logistics Investment, and Asset Management. CRE is the only company covering all aspects of logistics facilities. From FY07/19, the company set a goal to expand its business territories through the development of a logistics infrastructure platform (LIP).
To capture logistics real estate growth, CRE Chairman Yamashita founded the company’s predecessor, Kokyo Logistics, in December 2009. The company acquired the businesses of Commercial RE in August 2010 and absorbed Tenko Soken in July 2011. Commercial RE was involved in master lease and property management primarily in Chiba, while Tenko Soken did the same in Kanagawa. CRE took over these two firms’ bases and launched logistics properties services centered on master lease and property management in Kanto. The company made Strategic Partners (currently CRE REIT Advisers) a subsidiary in August 2014, enabling it to do asset management. It made LogiCom, which is mainly involved with master lease properties in the Tama area of Tokyo, a subsidiary in December 2018. Through such acquisitions, it has expanded the scale and range of its businesses.
CRE operates a cash-generating business model centered on logistics real estate. This entails constructing logistics facilities, getting tenants, and providing property management services, then placing (selling) these logistics properties in a portfolio of the real estate investment fund it has set up and receiving asset management fees via a subsidiary that manages the fund. While the Logistics Investment segment is one of its primary growth drivers, the company believes focusing on logistics facility development would make it vulnerable to the economic cycle, and instead wants to create an earnings structure in which all costs are covered by the stable gross profit generated by the Real Estate Management and Asset Management businesses, and the profits from logistics facilities development are added on top of that base.
Real Estate Management: Real Estate Management accounted for 51.0% of total sales and 29.5% of operating profit (before eliminations and adjustments) in FY07/21. The segment is involved in master lease, property management, construction work, and leasing. Shared Research sees that the master lease business—most of segment sales—drives earnings. Master leased facilities in Greater Tokyo comprise about 90% of total floor space under management. As of July 2021, the master lease business had 1,344 properties (-0.5% YoY). It also had roughly 1.56mn sqm (471,000 tsubo; +0.8% YoY) of floor space under management, which is now on the increase thanks to the acquisition of Commercial RE’s businesses and absorption-type merger with Tenko Soken, as well as to the company’s efforts and the consolidation of LogiCom. Earnings in this business depend on floor space under management, rents, and occupancy levels. Earnings are stable, as logistics facilities have less frequent tenancy changes vis-à-vis offices and other types of property, and rents are less volatile. Master lease business costs are rents payable to the building owner. GPM is about 15%.
Logistics Investment: Logistics Investment accounted for 46.8% of total sales and 62.7% of operating profit (before eliminations and adjustments) in FY07/21. This business buys land for logistics facilities, and constructs properties of about 13,000–100,000sqm (4,000–30,000 tsubo). After securing tenants, it sells the facilities to real estate funds and other investors. According to the company, leveraging Commercial RE and Tenko Soken’s extensive experience in operating and managing logistics facilities has allowed it to develop logistics facilities that are mindful of end users’ perspectives; it has also become versed at collecting land information. Developments built on spec require the ability to get tenants; here CRE uses its leasing experience from Real Estate Management. Logistics Investment was launched in FY07/14. Its track record comprises the sale of one property with floor space of about 30,100sqm (9,097 tsubo) in FY07/14, increasing to three properties totaling 90,192sqm (27,283 tsubo) in FY07/17. In FY07/21, the company sold three properties with a floor space of roughly 646,218.2 sqm (195,481 tsubo). Selling prices depend on floor space, rents, net operating income (NOI), and capitalization (cap) rates. The main costs are land and construction: land accounts for 20–30% of the total cost, construction 70–80%. For these development projects, CRE targets GPM of around 10%.
Asset Management: Asset Management accounted for 2.2% of total sales and 7.7% of operating profit (before eliminations and adjustments) in FY07/21. Subsidiary CRE REIT Advisers operates publicly offered funds and another subsidiary, Strategic Partners manages private funds. The company provides end-to-end services, including planning and structuring real estate funds, attracting investors, borrowing from financial institutions, buying properties, operating/managing, selling and refinancing. The segment generates revenue through upfront fees, asset management fees and disposition fees.
CRE offers primarily logistic facilities services: it enters into master lease agreements, manages properties, attracts tenants, develops and sells facilities, and creates and manages real estate funds. Business segments: Real Estate Management, Logistics Investment, and Asset Management.
|Real Estate Management||Handles master lease agreements, property management, construction, and leasing of logistics facilities.|
|Logistics Investment||Acquires sites suitable for developing logistics facilities, constructs logistics facilities, attracts tenants, and sells to real estate funds.|
|Asset Management||Plans and creates real estate funds, brings in investors, borrows from banks, and buys, operates, manages, sells, and refinances properties.|
|Real Estate Management||15,622||15,544||15,590||15,253||15,552||18,450||21,538||22,563||24,274|
|% of total||98.0%||69.9%||61.8%||45.1%||38.4%||54.9%||90.0%||54.8%||51.0%|
|% of total||2.0%||30.1%||31.2%||51.8%||57.3%||42.5%||6.7%||42.8%||46.8%|
|% of total||-||-||1.3%||3.1%||4.3%||2.3%||3.3%||2.3%||2.2%|
|% of total||-||-||5.6%||-||-||0.3%||0.1%||0.0%||0.0%|
|Operating profit margin||5.3%||11.5%||9.4%||13.0%||12.8%||9.5%||6.9%||10.3%||12.1%|
|Real Estate Management||1,170||1,365||1,515||1,521||1,610||1,725||1,764||2,164||2,055|
|Operating profit margin||7.5%||8.8%||9.7%||10.0%||10.4%||9.3%||8.2%||9.6%||8.5%|
|% of total||96.7%||44.6%||50.3%||29.0%||26.6%||43.0%||74.1%||41.7%||29.5%|
|Operating profit margin||12.2%||25.4%||16.5%||20.0%||18.3%||12.9%||12.9%||14.3%||19.6%|
|% of total||3.3%||55.4%||43.1%||66.9%||70.0%||45.8%||8.7%||48.6%||62.7%|
|Operating profit margin||-||-||34.8%||20.5%||12.0%||50.5%||51.8%||52.1%||52.5%|
|% of total||-||-||3.9%||4.1%||3.4%||9.5%||17.1%||9.7%||7.7%|
|% of total||-||-||2.8%||-||-||0.0%||0.0%||0.0%||0.0%|
51.0% of sales and 29.5% of operating profit (before eliminations and adjustments) in FY07/21
The segment is involved in master lease, property management, construction, and leasing. Shared Research estimates that the key source of earnings is the master lease business which accounts for most of segment sales. In FY07/21, the company had 1,578 properties under management with a total floor space of roughly 5.72mn sqm (1,731,000 tsubo). Of this total, 1,344 properties (total floor space of roughly 1.56mn sqm [471,000 tsubo]) were Master Lease properties, and 234 properties (total floor space of roughly 4.16mn sqm [1,260,000 tsubo]) were Property Management properties. The occupancy rate associated with the company’s master lease properties remains high at 98.2%.
|Master lease||Renting land and buildings from a property owner with guaranteed rental income for the owner, acting as the landlord of the leased property, and obtaining leasing revenue by leasing it out to tenants|
|Property management||Earning fees by managing properties on behalf of J-REITs and other funds|
|Leasing||Attracting tenants to vacant properties managed by CRE and other companies, earning brokerage fees|
|Construction||Conducting property repairs and maintenance, renovation and restoration for property owners, performing construction to utilize land effectively, earning revenue from construction|
A master lease involves renting land and buildings from a property owner and guaranteeing them set rental revenue. CRE acts as the landlord of leased property and subleases to tenants. On land of 992–1,653sqm (300–500 tsubo) the company constructs a warehouse with floor space equivalent to half the land area (for a one-story building) or roughly equivalent to the land area (for a two-story building). The company enters into a leasing contract with real estate owners for 15–25 years. CRE earns construction revenue by building warehouses.
The company enters a master lease for an entire warehouse with the property owner, guaranteeing the owner rental income. The company then subleases the property, with rent from warehouse users (tenants) booked as income.
Income in the master lease business depends on floor space under management, rents, and occupancy rates, calculated using the following formula:
Master lease business income = floor space under management x rent x occupancy rate
As of July 2021, the company had 1,344 properties (-0.5% YoY) for a total of roughly 1.6mn sqm (471,000 tsubo; +0.8% YoY) under master lease management. According to CBRE’s MARKETVIEW Japan Logistics Q2 2021, effective rents per tsubo (roughly 3.3 sqm) for large multi-tenant logistics facilities in Tokyo in Q2 2021 (April–June 2021) were JPY4,470, while they were JPY7,470 in the Tokyo Bay area, JPY5,200 in the Tokyo Gaikan Expressway area, and JPY3,590 in the Metropolitan Inter-City Expressway area. In addition, according to Japan Real Estate Institute’s 42nd Real Estate Investor Survey, as of April 2020, the anticipated cap rates on multi-tenant logistics facilities were 4.2% (vs. 4.5% in the year earlier) in Tokyo’s Koto district, 4.4% (vs. 4.6%) in Tokyo’s Tama district, and 5.0% (vs. 5.1%) in Chiba’s Narita district. It is our understanding that logistics facility tenants tend to move less frequently compared with office building tenants and rents vary less, as moving logistics facilities requires labor and expenses (see Market and value chain). According to the company, its master lease occupancy rate is generally around 98%.
The cost of sales of the master lease business comprises warehouse rents paid to the owner. The company aims for a spread of at least 10% when setting rents. The company said leasing margin depends on the risk/return of the building. Rents are based on rent assessment risk scores set by CRE’s leasing business, which consider expressway exits and entrances, road access, nearby residents, and median strips. GPM: about 15%.
The company operates in Greater Tokyo (Tokyo, Kanagawa, Chiba, and Saitama). The Greater Tokyo area accounts for roughly 90% of the company’s operated and managed logistics facilities, and roughly 90% of floor space under management. However, the long-term management plan calls for increasing the ratio of floor space under management outside Greater Tokyo to 20％.
Floor space under management has risen due CRE’s expansion efforts after the acquisition of Commercial RE’s businesses and the absorption-type merger of Tenko Soken, as well as the consolidation of LogiCom.
|Space under management (tsubo)||325,078||331,981||339,203||336,868||349,674||445,759||467,501||471,247|
The property management business entails managing properties on behalf of property owners or real estate funds. More specifically, this involves tenant management (attracting tenants, acting as an agent for rental contracts, and troubleshooting) and planning and operations (inspecting buildings and facilities, establishing management budgets, and setting long-term building maintenance plans). The property management business handles many large logistics facilities. Average floor space per property managed is roughly 1,160.3 sqm (351 tsubo) in the master lease business versus approximately 17,801.7 sqm (5,385 tsubo) in the property management business.
In the property management business, the company wins orders to manage large logistics facilities mainly owned by real estate funds or logistics facilities of other owners. In some cases, a master lease operated and managed by CRE that has run its course is shifted to a property management contract.
According to the company, property management revenues vary by building. Fees the company receives can be a percentage of the rent, a set fee per building, or a base fee with additional fees per tenant, but monthly fees per building are roughly around 1% of rents.
As of July 2021, there were 234 properties under management (-2.1% YoY), spanning approximately 4.17mn sqm (1,260,000 tsubo; +9.5% YoY).
According to the company, its aim for this business is to build up leasing and construction earnings by managing properties, not simply generating profits.
Operating costs in the property management business are primarily personnel and other SG&A expenses. CRE’s “remote control” property management is distinctive: personnel requirements do not increase as the area of property under management increases.
|Space under management (tsubo)||430,311||605,821||880,782||859,632||1,163,493||1,043,910||1,150,493||1,260,132|
This entails attracting tenants to vacant properties. A rental contract is signed after proposing and introducing buildings that suit tenants’ needs.
The business earns brokerage revenue or commissions by attracting tenants to properties managed, or developed by CRE, as well as those not managed by CRE.
The company supplies properties to the tenant. For a property managed by the master lease business, expenses are allocated to the master lease business. For a property developed by the company, costs are allocated to Logistics Investment. When it secures a lease for non-CRE managed buildings, the business earns brokerage fees. The fees are equivalent to around one month’s rent, per the company.
CRE has a proprietary database inherited from Commercial RE and Tenko Soken. We understand that it manages basic building data, rental trends, inquiries, customer data, and prospective customers. Further, it matches tenants’ needs by using data on the properties it manages, as well as information on vacancies of buildings managed by owners and other companies.
Further, the company operates a logistics facility website called LogiSquare to attract new corporate clients. The site provides rental property information so customers can search for properties and request property information online.
This is not a core business. In the construction business CRE helps real estate owners to use land effectively, and conducts repairs and maintenance, renovation and restoration services for buildings that it leases in the master lease business.
46.8% of sales and 62.7% of operating profit (before eliminations and adjustments) in FY07/21
The company launched the Logistics Investment segment in July 2014. It develops and sells specialized logistics facilities. Specifically, it constructs facilities of about 13,000–116,000sqm (4,000–35,000 tsubo) and, after securing tenants, it sells the facilities to real estate funds and investors. The company does market research, procures land information, plans, buys land, engages in construction, attracts tenants, and sells properties.
The roots of this segment, Commercial RE and Tenko Soken, have been involved in the operation and management of logistics facilities since 1980 and 1964, respectively. This experience has allowed the company to develop logistics facilities that are mindful of end-users’ perspectives, and to become well-versed at collecting land information. CRE can produce detailed development plans that describe where the potential sites for logistics facilities are, and what sort of buildings would draw which tenants if facilities are to be constructed at these locations. Further, building developments on spec entails attracting tenants; for this, CRE exploits the leasing ability cultivated in Real Estate Management.
Under the Building Standards Act, it is prohibited to construct logistics facilities in category one and category two residential districts and residential areas. Construction is only possible in certain designated districts—neighborhood commercial districts, commercial districts, quasi-industrial districts, industrial districts, and exclusive industrial districts—or undesignated districts
CRE strengths also include its ability to purchase sites for development that allow it to exploit its expertise developing urbanization control areas and areas with contaminated soil.
Strengths and achievements in development of urbanization control areas: As urbanization is controlled and construction of buildings is strictly limited in urbanization control areas, developers can purchase lots at relatively low prices. Construction of buildings is in principle prohibited in such areas, but some municipalities have approved the conditional construction of warehouses based on municipal ordinances. CRE scrutinizes each municipality’s ordinances before it proceeds to develop properties for rent in those areas. Its development track record in urbanization control areas includes LogiSquare Hanyu, LogiSquare Hidaka, and LogiSquare Niiza. Target areas for development are those between the Ken-O Expressway and the Tokyo Gaikaku Expressway (Outer Ring Road).
Strengths and achievements with developments in areas with contaminated soil: Areas with contaminated soil, such as factory sites, tend to require high development costs, though land prices are low. In alliance with EnBio Holdings, an equity-method affiliate engaging in restoration work for sites with contaminated soil, CRE has acquired the expertise to perform restorative work at low at low costs and to purchase sites at low prices: Conventional restoration work consists of digging and removing contaminated soil for delivery to repository sites, but EnBio Holdings’ strength is on-site restoration technology that injects purifying substances into contaminated soil, enabling low-cost restoration. CRE’s track record developing areas with contaminated soil include LogiSquare Niiza and LogiSquare Urawa Misono.
CRE developed and sold one facility with about 30,000sqm (9,097 tsubo) in floor space in FY07/14, and since then the annual number of properties developed and sold has been on an uptrend. In FY07/17, CRE completed four facilities with combined floor space of 124,413 sqm (37,635 tsubo) and sold three properties with floor space of 90,192 sqm (27,283 tsubo). As of FY07/21 it had completed a cumulative total of 20 properties with floor space of about 616,585 sqm (186,517 tsubo), and sold 18 properties with total floor space of roughly 466,274 sqm (141,048 tsubo).
As of September 2021, the company had completed preparations for projects value at about JPY200.0bn. The company has made no development plans for FY07/22. However, starting in FY07/23, the company plans to develop 10 published and contracted properties (about 456,605 sqm [138,123 tsubo] of development space) and three unpublished and contracted properties (about 349,435 sqm [105,704 tsubo] of development space) with a total development space of approximately 806,040 sqm (243,827 tusbo) square meters.
|Space under development (tsubo)||9,097||11,058||25,177||37,635||20,692||10,378||42,633||29,848|
|Number of properties||1||2||2||4||4||2||3||2|
|Space per property (tsubo)||9,097||5,529||12,589||9,409||5,173||5,189||14,211||14,924|
|Space sold (tsubo)||9,097||11,057||25,177||27,283||22,445||1,906||24,535||19,548|
|Number of properties||1||2||2||3||3||1||3||3|
|Space per property (tsubo)||9,097||5,529||12,589||9,094||7,482||1,906||8,178||6,516|
|Sales price (JPYmn)||6,678||7,877||17,534||23,185||14,283||1,600||17,645||22,252|
|Sales price per sqm (JPYmn)||0.73||0.71||0.70||0.85||0.64||0.84||0.72||1.14|
|Total space under development (tsubo)||9,097||20,155||45,332||82,967||103,659||114,037||156,670||186,517|
|Total no. of properties under development||1||3||5||9||13||15||18||20|
|Space per property (tsubo)||9,097||6,718||9,066||9,219||7,974||7,602||8,704||9,326|
|Total space sold (tsubo)||9,097||20,154||45,331||72,614||95,059||96,965||121,500||141,048|
|Total number of properties sold||1||3||5||8||11||12||15||18|
|Space per property (tsubo)||9,097||6,718||9,066||9,077||8,642||8,080||8,100||7,836|
|Total sales price (JPYmn)||6,678||14,555||32,089||55,274||69,557||71,157||88,802||111,055|
|Sales price per sqm (JPYmn)||0.73||0.72||0.71||0.76||0.73||0.73||0.73||0.79|
|Status||Project name||Location||Floor space (sqm)||Floor space (tsubo)||Construction start||Completion|
|Completed||LogiSquare Soka||Soka, Saitama||30,073||9,097||Jun. 2012||Jun. 2013|
|Completed||LogiSquare Yashio||Yashio, Saitama||19,094||5,776||March 2013||Jan. 2014|
|Completed||LogiSquare Hidaka||Hidaka, Saitama||17,461||5,282||July 2014||Mar. 2015|
|Completed||LogiSquare Kuki||Kuki, Saitama||44,374||13,423||May 2015||Jun. 2016|
|Completed||LogiSquare Hanyu||Hanyu, Saitama||38,856||11,754||August 2015||Jul. 2016|
|Completed||LogiSquare Kuki II||Kuki, Saitama||11,931||3,609||Jul. 2016||Feb. 2017|
|Completed||LogiSquare Urawa Misono||Saitama, Saitama||52,374||15,843||Feb. 2016||Apr. 2017|
|Completed||LogiSquare Niiza||Niiza, Saitama||25,888||7,831||May 2016||Apr. 2017|
|Completed||LogiSquare Moriya||Moriya, Ibaraki||34,221||10,352||August 2016||May 2017|
|Completed||LogiSquare Chitose||Chitose, Hokkaido||20,885||6,318||Apr. 2017||Dec 2017|
|Completed||LogiSquare Tosu||Tosu, Saga||17,789||5,381||Jun 2017||February 2018|
|Completed||LogiSquare Kawagoe||Kawagoe, Saitama||7,540||2,281||Jun 2017||February 2018|
|Completed||LogiSquare Kasukabe||Kasukabe, Saitama||22,188||6,712||Jun 2017||Jun. 2018|
|Completed||LogiSquare Ageo||Ageo, Saitama||19,521||5,905||May 2018||Apr. 2019|
|Completed||LogiSquare Kawagoe II||Kawagoe, Saitama||14,786||4,473||Aug 2018||Jun. 2019|
|Completed||LogiSquare Kobe Nishi||Kobe, Hyogo||16,050||4,855||Jun. 2019||Apr. 2020|
|Completed||LogiSquare Miyoshi||Miyoshi, Saitama||40,754||12,328||Mar 2019||Jun. 2020|
|Completed||LogiSquare Sayama Hidaka||Hanno, Saitama||84,132||25,450||Feb. 2019||Jun. 2020|
|Completed||LogiSquare Osaka Katano||Katano, Osaka||80,535||24,362||Nov 2019||Jan. 2021|
|Completed||LogiSquare Miyoshi II||Miyoshi, Saitama||18,135||5,486||Nov 2019||Mar. 2021|
|Under development||LogiSquare Itami||Itami, Hyogo||29,967||9,065||Sept 2021||November 2022 (planned)|
|Under development||Shiroi-shi Naka dev't plan||Shiroi, Chiba||30,400||9,196||Nov 2021 (planned)||November 2022 (planned)|
|Under development||LogiSquare Hirakata||Hirakata, Osaka||45,083||13,638||Nov 2021 (planned)||January 2023 (planned)|
|Under development||LogiSquare Atugi I||Aiko, Kanagawa||18,200||5,500||Apr 2022 (planned)||March 2023 (planned)|
|Under development||LogiSquare Matsudo||Matsudo, Chiba||15,654||4,735||Spring 2022||Spring 2023|
|Under development||LogiSquare Fukuoka Kogori||Kogori, Fukuoka||18,000||～||24,000||5,445||～||7,260||Summer 2022||Summer 2023|
|Under development||LogiSquare Atugi II||Atsugi, Kanagawa||18,000||～||20,000||5,445||～||6,050||Spring 2023||Summer 2024|
|Under development||LogiSquare Fujimino A||Fujimino, Saitama||114,256||34,563||2022 (planned)||2023 (planned)|
|Under development||LogiSquare Fujimino B||Fujimino, Saitama||115,040||34,800||2023 (planned)||2024 (planned)|
|Under development||LogiSquare Fujimino C||Fujimino, Saitama||43,893||13,277||2023 (planned)||2024 (planned)|
Under its second medium-term management plan, the company will aim to conduct development worth at least JPY200.0bn while ensuring that associated projects generate IRR of 15% or more. Shared Research understands that, through its Logistics Investment segment, the company will primarily focus on expanding its investment area, developing land over the medium to long term, conducting joint development, and developing sites with contaminated soil. The company aims to achieve steady growth in its core stocks while simultaneously driving the growth through development conducted within its Logistics Investment segment.
Investment area expansion: Through FY07/17, the company only performed development under its Logistics Investment segment within the Tokyo Metropolitan Area. Since FY07/18, the company has been aiming to expand its area of investment. In February 2018, the company successfully listed a J-REIT specializing in logistics. As this J-REIT’S sponsor, the company plans to begin providing properties outside of the Tokyo Metropolitan Area as it aims to decentralize the areas covered by this J-REIT. In FY07/18, the company completed construction on its LogiSquare Chitose property in Hokkaido and its LogiSquare Tosu property in Saga Prefecture. Later, in FY07/20, it wrapped up construction on its LogiSquare Kobe Nishi property in Hyogo Prefecture. Construction on the company’s LogiSquare Osaka Katano property in Osaka was completed in FY07/21. CRE anticipates that construction on its LogiSquare Fukuoka Ogori property will conclude in summer 2023.
Site development conducted from a long-term perspective: CRE will establish a system for acquiring land that is strategically beneficial over the medium to long term while examining methods for generating stable sales through the Logistics Investment business.
Joint development: CRE will consider sharing development expertise with companies looking to develop logistics real estate and subsequently generating allocated profit through joint development. Through this type of joint development, the company will be able to increase its number of development properties and expand the floor space covered by its property management operations.
Development of sites with contaminated soil: In FY07/17, CRE was able to proceed with the development of logistics facilities on its LogiSquare Urawa Misono and LogiSquare Niiza properties despite the presence of severely contaminated soil. The company generated high levels of profitability through this development, which was made possible through technology provided by equity-method affiliate EnBio Holdings (CRE stake of 18.6%).
In November 2017, the company established Land Revitalization Investment Ltd. through joint investment with EnBio Holdings. As Land Revitalization Investment’s first project, the company acquired a contaminated site located in the City of Yokohama for about JPY600mn (later sold in May 2020). In June 2020, the company acquired the joint investment’s second project, another contaminated site in the City of Atsugi, for about JPY1.5bn. Over the medium term, the company plans to carry out soil decontamination and construction, preparing this property for future sale as a logistics site.
In this segment, development project revenue comes from sales. The selling price depends on floor space, rents, net operating income (NOI), and the cap rate.
Selling price = NOI ÷ cap rate
NOI: property rental income - property rental costs + depreciation expense (including long-term prepaid expenses)
or property rental income - sundry expenses (property taxes, administrative expenses and repair reserves).
Theoretically, the cap rate is determined by the risk-free rate plus risk premium, so a property with a riskier profile has a higher cap rate. Cap rates vary by region (generally the closer to Tokyo to the lower the cap rate), as well as by asset (investments with stable cash flows like offices and rental housing have lower cap rates). The tempo of economic growth also has an impact. Rents associated with logistics facilities do not fluctuate significantly, but their selling prices are subject to fluctuation based on changes in cap rate.
Main costs are land (20–30%) and construction (70–80%). The company is targeting segment GPM of about 10%.
It takes around one year to construct a logistics facility. According to the company, because land costs are a small proportion of total facility costs, IRR is around 30%, even with a GPM around 10%. The company develops logistics facilities with equity of around 20% and borrowings of around 80%. It pays 10% of construction costs when entering a contract, around 20% during construction, and 70% at handover. If the company sells logistics facilities immediately after completion to an investment fund, it can recoup funds soon after the construction costs have been paid. Assuming construction accounts for 70% of costs, CRE pays 49% of total costs when the project is completed, so a one-time cash outflow is sufficient, and IRR increases. Cash to cover the entire costs is not necessary when a project is launched.
Case study: assuming 1) selling price of JPY100mn, 2) costs of JPY90mn (broken down to 30% land costs and 70% construction), and 3) 25% of costs sourced from equity and the remaining 75% from debt borrowed at a 1.5% interest rate, cash flows from land acquisition to signing of construction agreement (one year), duration of the construction (one year), and from handover to sale (two to three months) will be as follows. In this scenario, the IRR will be 33.6%.
|Land acquisition||Construction contract||Midterm||Transfer||Sale|
|Year||0 year||1.0 year||1.5 years||2.0 years||2.3 years|
|CRE capital payments (JPYmn)||6.8||1.6||3.2||11.0|
|Cash flow (JPYmn)||-6.8||-1.6||-3.2||-11.0||31.4|
CRE Logistics REIT is the primary buyer of projects developed through this segment.
In February 2014, the company reached a basic agreement with Kokyo Tatemono Co., Ltd., Sumitomo Corp. (TSE1: 8053), Kokyo Asset Management, Co., Ltd. and Sumisho Realty Management Co., Ltd. regarding the logistics property development business: CRE and the four companies will jointly create and manage new private funds, and develop new logistics facilities. Specifically, Sumisho Realty Management created a private logistics fund to invest in Japanese logistics facilities, to which CRE sold its LogiSquare Soka in FY07/14 and its LogiSquare Yashio in FY07/15.
In August 2014, the company set up a real estate fund and made Strategic Partners (currently CRE REIT Advisers) a subsidiary to operate the Asset Management business. In FY07/16 the company established CRE Logistics REIT, Inc. and set up a private real estate fund with the aim of eventually listing a logistics property-oriented REIT on the stock exchange. In February 2018, the company listed the REIT on the TSE REIT Market. As of July 2021, CRE Logistics REIT owned 19 properties, primarily developed by the company, purchased for a total acquisition price of JPY112.3bn.
|Property||Location||Acquisition price (JPYmn)||Floor space (sqm)||Completion||Developer|
|LogiSquare Kuki||Kuki, Saitama||9,759||40,907||Jun. 2016||CRE|
|LogiSquare Hanyu||Hanyu, Saitama||6,830||34,000||Jul. 2016||Mar|
|LogiSquare Kuki II||Kuki, Saitama||2,079||11,511||Feb. 2017||Mar|
|LogiSquare Urawa Misono||Saitama, Saitama||13,060||48,738||Apr. 2017||Mar|
|LogiSquare Niiza||Niiza, Saitama||6,960||25,356||Apr. 2017||Mar|
|LogiSquare Moriya||Moriya, Ibaraki||6,157||32,905||May 2017||Mar|
|LogiSquare Tosu||Tosu, Saga||2,880||16,739||February 2018||Mar|
|LogiSquare Kawagoe||Kawagoe, Saitama||1,490||7,543||February 2018||Mar|
|LogiSquare Kasukabe||Kasukabe, Saitama||4,900||21,316||Jun. 2018||Mar|
|LogiSquare Soka||Soka, Saitama||8,109||28,818||Jun. 2013||Mar|
|LogiSquare Yashio||Yashio, Saitama||5,073||19,069||Jan. 2014||Mar|
|LogiSquare Mizuho A||Mizuho, Tokyo||2,794||13,755||Feb. 2007||Mar|
|LogiSquare Mizuho B||Mizuho, Tokyo||3,584||16,016||Feb. 2007||Mar|
|LogiSquare Ageo||Ageo, Saitama||4,908||19,143||Apr. 2019||Mar|
|LogiSquare Miyoshi||Miyoshi, Saitama||11,700||37,931||Jun. 2020||Mar|
|LogiSquare Chitose||Chitose, Hokkaido||1,300||19,760||Dec 2017||Mar|
|LogiSquare Kawagoe II||Kawagoe, Saitama||3,244||14,786||Jun. 2019||Mar|
|LogiSquare Kobe Nishi||Kobe, Hyogo||3,479||16,050||Apr. 2020||Mar|
|LogiSquare Sayama Hidaka (80 %)||Hanno, Saitama||14,066||84,132||Jun. 2020||Mar|
2.2% of sales and 7.7% of operating profit (before eliminations and adjustments) in FY07/21
This segment involves planning and structuring real estate funds, signing up investors, borrowing money from financial institutions, buying properties, operating/managing, selling and refinancing. It gets revenue through acquisition fees, asset management fees, and disposition fees.
The segment is mainly run by CRE REIT Advisers, Inc. (formerly Strategic Partners Co., Ltd.), a subsidiary since August 2014, and Strategic Partners Co., Ltd. (formerly NCF Real Estate Investment Management Co., Ltd.), a subsidiary since September 2016.
CRE REIT Advisers operates publicly offered funds within the CRE group. Before joining the group, it dealt with real estate securitization of retail and office properties, along with fund management and refinancing of securitized real estate, and its clients were real estate funds both inside and outside Japan.
Strategic Partners operates private funds within the CRE group. CRE made Strategic Partners a subsidiary in September 2016, and in February 2017 it took over the private fund asset management operations of the old Strategic Partners.
In FY07/16 the company established CRE Logistics REIT, Inc. to invest primarily in logistics facilities and set up a private real estate fund. It sold two of its newly developed properties to CRE Logistics REIT. CRE Logistics REIT was listed on the TSE REIT Market in February 2018.
According to the company, if it can list CRE Logistics REIT, it will be the first logistics property-oriented REIT with a domestic sponsor who is also a logistics facility developer (a shareholder of the asset management company and the company that launches the REIT). External growth can come from the logistics facility developer supplying properties as a sponsor, and the domestic sponsor can provide support to reduce risk of the companies that lease the facilities pulling out.
The company launched and started managing a real estate fund investing in logistics facilities. It operates a circular business model. This entails building logistics facilities, attracting tenants, and managing properties, then selling the logistics facilities to real estate funds it has created, make profits on the sale, and get asset management fees for managing the funds (which it can then redeploy in the business).
Before the takeover of CRE REIT Advisers, CRE had no way to generate asset management fees, though it could sell property that Logistics Investment had developed to real estate funds and manage the properties. But now that CRE REIT Advisers is a consolidated subsidiary and the company has set up CRE Logistics REIT, Inc., it is able to do everything from developing its own logistics facilities to property management and asset management.
At the Asset Management business, most revenues are acquisition fees relating to asset acquisitions by real estate investment funds, asset management fees from property under management, and the sale of properties held for resale.
|Assets under management (JPYbn)||-||49||68||97||148||120||162||210|
|CRE Logistics REIT||-||-||-||17||48||54||92||112|
The main fund in this segment is CRE Logistics REIT, a specialist logistics facility investment fund. In May 2016, the company established CRE Logistics REIT, Inc. to invest in logistics facilities and set up a private real estate fund. CRE Logistics REIT was listed on the TSE REIT Market in February 2018. CRE REIT Advisers, a consolidated subsidiary of the company, manages the fund. CRE REIT Advisers receives acquisition fees equivalent to a maximum of 0.5% of the acquisition price when the fund purchases assets. It also receives asset management fees of up to 0.4% of the REIT’s net asset value.
Revenue comes primarily from short-term property holdings that the company acquires for resale. Because the company takes steps to limit the risk of these short-term property holdings, we estimate that profit earned when they are sold is small relative to the sales price.
In September 2018, CRE launched efforts aimed at forming a self-storage fund. Along with Palma Co., Ltd. (TSE Mothers: 3461), the company is conducting self-storage development under the “Keep it” brand as it endeavors to form a self-storage fund.
Until the fund has been fully formed, both companies plan to sell self-storage properties to leasing companies after co-developing them. Using the funds generated thereby, the companies will conduct further development and expand their property portfolio. CRE indicates that it also aims to form a self-storage REIT in the future.
In January 2017, CRE and Palma jointly established Japan Personal Storage Co., Ltd., a self-storage property management company (Palma’s share is 56% and CRE’s is 34%). Japan Personal Storage will perform master lease and property management operations associated with the self-storage fund established between CRE and Palma. CRE subsidiary Strategic Partners Co., Ltd. has concluded an agreement with this fund under which it will perform asset management.
The company has formed a private fund specializing in small- and medium-sized warehouse that holds and manages small warehouses it possesses or has previously acquired. By concluding agreements concerning master lease operations, the company aims to maintain high utilization rates for the small warehouses that are incorporated into the fundswhile ensuring that they generate high rent income. CRE subsidiary Strategic Partners Co., Ltd. is responsible for the fund’s management.
In April 2019, the company formed CRE master leasing fund, its first investment fund, and later sold this fund assets consisting mainly of four small- to medium-sized warehouses with a total floor space of under 5,000 sqm (Tana, Tsuchiura, Hidaka, and Higashikoujiya warehouses). CRE formed its second fund in September 2020 and its third in September of 2021.
In Vietnam, the company is rolling out a business for the leasing and development of logistics facilities as it also sets a storage facility business into motion in Thailand.
In June 2018, CRE subsidiary CRE Asia acquired 6,152,952 common shares (30% of outstanding shares) issued by Sembcorp Infra Services Pte. Ltd. (“SIS SG”) through the third party allotment. SIS SG is a subsidiary of Sembcorp Development Ltd. (“Sembcorp”), a government-linked company based in Singapore. Sembcorp has over 25 years of experience in the formulation and construction of fundamental large-scale urban development plans in Asia and in the field of infrastructure development.
CRE Asia and SIS are jointly pressing forward with plans for the development of logistics facilities within the VSIP (Vietnam–Singapore Industrial Park) Hai Phong Integrated Township and Industrial Park. This development will be conducted through Sembcorp Infra Services Hai Phong (“SIS HP”), a subordinate affiliate of SIS SG. In July 2020, Hankyu Hanshin Properties Corp. began participating in this development plan. The plan started with the leasing and operation of two logistics facilities (floor space of roughly 30,000 sqm) before construction on a third was completed in April 2020. A fourth logistics facility is expected to reach completion at the end of 2021.
In June 2018, CRE subsidiary CRE (Thailand) Co., Ltd. launched a Self-Storage business. Accordingly, it opened a seven-story, 180-unit self-storage facility in July 2018 (average rental fee per unit: THB5,400 per month). According to the company, within three years, it plans to use rented buildings or purchased and renovated structures and land to open three self-storage facilities primarily in the Bangkok Metropolitan Region.
Through its logistics infrastructure platform (LIP), CRE has generated opportunities to acquire orders through the use of available space and labor (the conversion of HAPILOGI [formerly “Brain Wave Co., Ltd.”] into a subsidiary) and provided a delivery matching platform (capital and business alliance with CBcloud Co., Ltd.). Additionally, HAPILOGI and CBcloud have formed a business tie-up and are developing a new delivery driver matching service for HAPILOGI customers (e-commerce business operators and other shippers of goods). Through endeavors such as these, CRE aims to create synergies between companies in which it has invested as business partners rather than simply providing capital funding.
In May 2018, CRE acquired 3,820 shares (51% of voting rights) issued by HAPILOGI through the third-party allotment, thereby converting it into a subsidiary.
HAPILOGI primarily operates an eponymous logistics platform that provides logistics services for e-commerce business operators and also furnishes opportunities the outsourcing of logistics operations. Using its warehouse management system (WMS) to provide operational support and solutions that facilitate the comprehension of inventory levels, HAPILOGI enables warehouse and logistics companies to furnish logistical services on behalf of e-commerce business operators using available space and labor.
CRE encourages logistics and warehouse companies that are tenants of its managed properties to take advantage of the HAPILOGI logistics platform, which provides these companies with opportunities to utilize their available space and labor to acquire shippers of goods who have joined the HAPILOGI platform as new customers. Moving forward, CRE will aim to accelerate business expansion at HAPILOGI by providing the latter’s customers (e-commerce business operators and other shippers of goods) with logistics facilities and corresponding information.
In FY03/17, HAPILOGI generated JPY658mn in sales (-3.7% YoY) and JPY4mn in operating profit (-81.5% YoY). CRE converted HAPILOGI into a subsidiary, and has been accounting for impact from the latter’s business performance when formulating its consolidated financial results since Q4 FY07/18. In June 2020, the company acquired additional shares in HAPILOGI, making it a wholly owned subsidiary.
In September 2017, the company established a capital and business alliance with CBcloud. CBcloud operates the PickGo platform, which matches shipping and logistics companies with individual delivery drivers. This matching platform enables individual drivers to choose delivery work that best fits their work schedule and provides shipping and logistics companies with delivery services that allow them to adapt to day-to-day fluctuations in volume.
HAPILOGI and CBcloud formed a business alliance in September 2018. As the first initiative of this alliance, the two companies have established Sokujitsu HAPILOGI-Bin (Same-day HAPILOGI Delivery), a collaborative project linking HAPILOGI’s eponymous cloud-based distribution platform with CBcloud’s PickGo platform, which directly matches companies looking to make shipments with individual delivery drivers. Sokujitsu HAPILOGI-Bin, enables customers who have logged in from the HAPILOGI control screen to navigate to the PickGo control screen and input various data, including shipment pickup spots and delivery destinations, using the Internet.
In August 2018, the company formed a capital alliance with APT and later converted APT into an equity-method affiliate in December 2020. For some time, APT has developed and provided unique solutions for updating large equipment systems in logistics facilities by opening them up and expanding their applications. However, it has recently become involved in projects targeting the establishment of new logistics centers. CRE has confirmed that its existing collaboration with APT can be expected to generate high levels of synergy between the businesses of the two companies. At the same time, APT’s services are attracting attention due in part to an increase in distribution stemming from the spread of e-commerce and labor shortages in the logistics industry. The CRE Group has decided that converting APT into a consolidated subsidiary would allow it to address two matters of rising importance related to its logistics infrastructure platform by enabling it to further strengthen its relationship with APT and enhance APT’s corporate governance.
In September 2019, CRE formed a capital and business alliance with A-TRUCK. Demand for vehicles equipped with refrigeration or freezing systems is on the rise within the refrigerated logistics market due in part to an increase in the handling of perishable food products. A-TRUCK primarily provides opportunities to lease and rent vehicles equipped with freezing and refrigeration systems, as well as particularly high-priced non-refrigerated wing-body trucks and large-sized trucks. Additionally, A-TRUCK customizes its vehicles to meet the needs of its customers while providing comprehensive lease, rental, and follow-through services. Due to its various strengths, A-TRUCK is uniquely equipped to expand the service lineup of CRE’s logistics infrastructure platform by providing the company’s customer base with services that furnish opportunities to lease trucks and take advantage of A-TRUCK’s refrigerated distribution capabilities.
Under its second medium-term management plan, the company is aiming to accelerate the pace at which core LIP companies HAPILOGI, APT, and A-TRUCK generate earnings.
▷ Small rental variations
▷ Large fluctuations in vacancy rates
▷ High cap rates
▷ Expected increase in demand for modern logistics facilities
▷ Creation of new land for development (other than redevelopment)
The figure below shows asking rents for medium-sized and large rental logistics facilities in Greater Tokyo and office building rents in central Tokyo (based to 100 in Q2 CY2008). Asking rents for office buildings were basically cut in half following the global financial crisis of 2008, and from late 2012 began recovering and reached pre-financial crisis levels by Q3 CY2018. In contrast, rents for logistics facilities fell to just under 90% directly after the financial crisis. There have been no large changes since then, and rents seem to be gradually recovering.
Logistics rents fluctuate less than those for offices because tenants tend to move less frequently from logistics facilities. When tenants move into logistics facilities, they install packaging, conveying, and other machinery, and may need to dispose or write off this equipment when moving out. If they mainly hire residents of that area as part-time workers in packaging and processing, they must reemploy and train new workers when moving to a new location.