REIT ASIAPAC MAGAZINE REITASIAPAC 4Q 2018 ISSUE | Page 16

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 16 17