REIT ASIAPAC
L E G I S L AT I O N
Given the issues raised about J-REITs’ corporate governance, we asked what should be done, and what
has been the impact for those who have embarked on ESG initiatives. Below are the responses from
analysts, J-REITs and fund managers:
W H AT S H O U L D R E G U L ATO R S
OR MINORITY SHAREHOLDERS
DO TO IMPROVE GOVERNANCE
AMONG J-REITS?
W H AT H AV E
BEEN THE
OUTCOMES
OF ESG
I N I T I AT I V E S ?
Junnosuke Shinkawa, Senior Equity Research, UOB-
Sumitomo Mitsui Asset Management:
Sheraton Grande Tokyo Bay Hotel
“These offerings resulted in a 20.6%
increase in DPU, whereas if we did not do
any offerings, DPU would have been flat.”
contributing to NOI growth. The new Minpaku regulations have
taken out over half of the shadow supply which is now clearly
defined as illegal. Furthermore, the Rugby World Cup and 2020
Olympics will further help Revenue-Per-Available-Room and
NOI in Tokyo and other cities.
Importantly, the Westin Grand Cayman and Sunshine Suites have
provided some diversification to Invincible’s NOI source and also
contributed to growth as well as mitigating seasonal fluctuation.
2018 NOI is estimated to be 0.8% above initial budgeting at
the time of the associated equity offering in July 2018 and is
estimated to be 2.4% higher in 2019. Overall, these offerings
have allowed Invincible to assemble a more diversified, higher
quality, and NOI growing portfolio totalling JPY 448 billion
(acquisition base) across 132 assets.
“In most governance matters, JREITs have operated under
soft rules rather than hard rules. Therefore, it is difficult
for shareholders and external party to judge whether
the REIT’s management is making any endeavours
to avoid conflict of interests coming from sponsor-
related transactions, caused by a lack of independence
of board members at the fund management company,
as well as shareholder’s approval at EGM for potential
transactions. In addition, JREITs management tends to
be conservative when they approach activity such as
share buyback and overseas acquisitions and greenfield
redevelopments due to lack of detailed written rules.
Eventually, regulators should introduce and update
corporate governance code and rules particularly for
J-REITs to enhance transparency and governance.”
Ichigo Investment
Advisors, Hiroshi
Iwai, Statutory
Executive Officer,
Head of the Hotel
REIT division, tells
REIT AsiaPac:
Hiroshi Iwai,
“We believe these
initiatives
have
helped us to increase
value for our shareholders, both in terms of share price
gains and higher dividend payments. In particular,
our governance initiatives have been well received by
investors, who welcomed our share buybacks and the
introduction of performance-based fees. This positive
evaluation is apparent in the gains in our share price. We
also hope we have contributed to the development of
the REIT market in Japan by raising the market’s trust in
REITs as attractive investment opportunities.”
Statutory Executive Officer, Head
of the Hotel REIT division
Rico Kanthatham, Managing Director and Portfolio
Manager at Barings:
“Regulators must not stay silent on the issue and
take some action to address the persistent problem.
They should create mechanisms, like Annual General
Meetings to allow minority shareholders to have a
voice and vote to influence significant activities by
companies, counteracting the hegemony of sponsors. In
the meantime, shareholders should continue to support
those companies with good governance characteristics
and avoid those with poor characteristics, sending
a message to poor performers that improvement is
required.”
Koichiro Nobata, Investor Relations, for Kenedix
Retail REIT:
“Our introduction of the unit performance-linked
management fee structure has been well received by
investors. Support from our investors will lead to our
growth as well.
We believe that one of the reasons that Kenedix Group
survived the Global Financial Crisis was that Kenedix
had won investors’ support with its sound governance.”
Editor’s Note: The private temporary lodging, or "minpaku," law,
which came into effect June last year, requires hosts to register with
the government and imposes other rules and restrictions. The new
law limits home-sharing to 180 days a year and leaves the final
decision-making to local governments, some of which have imposed
even stricter rules to protect security.
Royal Parks Tower Minami-Senju
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