24th Aug 2007 12:31
Japan Residential Inv. Co. Ltd24 August 2007 Japan Residential Investment Company Limited ("the Company") Interim Results Japan Residential Investment Company Limited (AIM: JRIC) is a closed-endedGuernsey registered company established to make and hold investments inresidential property in Japan. The Company presents its unaudited consolidatedinterim financial results for the period from incorporation on 15 September 2006to 31 May 2007. Highlights: - The Company was admitted to trading on AIM on 13 October 2006 - On admission, the Company raised £100 million (before expenses) - As at 6 August 2007, the Company (through firms in whichit has beneficial ownership) had acquired, contracted for, or negotiatedagreements in principle for the purchase of 33 properties totaling JPY28.58billion (approximately £117.8 million) - Estimated stabilised net yield of the portfolio of 5.2% before leverage Raymond Apsey, the Company's Chairman, stated: "The Company has made pleasing progress in a highly competitive market since itslaunch in October 2006. The Investment Advisor continues to identify attractiveinvestments and anticipates the pace of acquisitions to increase in comingmonths." 24 August 2007 For further information on the Company, please refer to the website,www.jricl.com, or contact: K.K. Halifax Asset Management Alec Menikoff +81 (0)3 5408 8784 Fairfax I.S. PLC John Korwin-Szymanowski +44 (0)20 7460 4376 Smith & Williamson CorporateFinance Limited Azhic Basirov +44 (0)20 7131 4000 Chairman's Statement I am pleased to present the Consolidated Interim Financial Statements for theJapan Residential Investment Company Limited ("the Company"). The Company experienced a loss of £2,805,732 during the period fromincorporation to 31 May 2007. As anticipated, this is mainly attributed toexpenses associated with property acquisitions including brokerage fees and other closing costs as well as non-refundable consumption tax charges in the cost of the investment properties which are taken into account in the latest valuation. As Company income streams and assets are predominantly yen-based, the impact of appreciation in sterling during the period was significant. On therevenue side, this takes the form of a net foreign exchange loss of £209,729. Net asset value per share was 85p at the end of the period. This reflects costs associated with fund launch and property acquisitions as well as foreign exchange loss. As the majority of funds raised were converted to yen upon listing, the difference in foreign exchange rates between October and the end ofthe period generated a loss of £7.3 million on the Balance Sheet. The currency profile of net assets as at the balance sheet date was 99% Japanese yendenominated. The net cash flow position is expected to improve as more properties areacquired and the lease-up of vacant space continues. The financial statementsdetail underlying income and expenditures against an initial 20-propertyportfolio acquired between December 2006 and May 2007. They reflect the initialstages of the investment cycle rather than the income generating potential ofthe portfolio once stabilised. The portfolio represents a combination ofproperties purchased with stabilised income streams and those acquired uponcompletion or in early stages of lease-up. During the interim period, due to opportunistic purchases, the percentage ofproperties acquired on completion, prior to full lease-up, was greater thananticipated at the time of admission. Although properties are leasing-up welland generating increasing levels of cash flow, the delay in income is expectedto have an adverse impact on first year income and distributions. The purchaseof properties on a forward commitment basis contributed to the assembly of aquality portfolio that should perform well over the long term from theperspective of both income and capital growth. The residential real estate market in Japan has continued to strengthen. Land price rises are accelerating in major cities. Led by Tokyo, prices on both new and existing condominiums are increasing in major urban areas. In Greater Tokyo,newly built condo prices rose at the rate of 14% yoy as at June 2007, while inGreater Osaka prices grew 10%. Furthermore, economic improvement is beginning totranslate to higher residential rents in major urban locations. Interest ratesare also increasing but incrementally, at a moderate pace. As of 6 August 2007, the Company, through entities in which it has beneficialownership (referred to collectively as "the Fund") had acquired, contracted for,or negotiated agreements in principle for the purchase of 33 properties totalling JPY28.58 billion (approximately £117.8 million). This represents roughly 40% of the targeted Fund size on full investment of JPY70 billion (approximately £300 million). The portfolio properties are well located with 80%of the portfolio by value in the top four most populous cities (Tokyo, Yokohama,Osaka, and Nagoya). The estimated stabilised net yield of properties in the portfolio is 5.2% before leverage. Total leverage upon full investment is estimated to reach JPY50 billion(approximately £215 million). Currently, the Company has debt financing in theamount of JPY11.5 billion at an interest rate of 2.16%. Although most Japaneselenders and investors in Japanese debt securities are expected to haverelatively limited exposure to the US subprime debt market, the impact (if any)of the present turmoil in global credit markets on Fund access to debt capitalor financing terms is currently unclear. The Investment Advisor reportsfollowing recent discussions that lenders active in the market remain eager toextend property debt financing to the Fund. Strong market fundamentals continue to attract investment capital to Japanesereal estate resulting in upward pressure on prices and downward pressure onyields. Due to intense competition, properties with stabilised cash flow aredifficult to source and frequently priced at prohibitively high premiums to"fair market value". Therefore, in addition to purchasing quality assets withstabilised income, the Company will continue to invest in properties uponcompletion provided the associated leasing risk or deferment of income aresufficiently accounted for in the purchase price. It is the policy of the Company and intention of the Directors to establishsemi-annual distributions based on profits of the Fund when full investment andprofitability has been attained. Dividends will not be paid out of capital. Dueto the loss experienced in the period ending 31 May 2007, the ongoing investmentprogramme and present deficiency of stabilised income, the Company is notcurrently in a position to declare dividends. However, the profit position ofthe Company will benefit from the increase in committed capital and furtherstabilisation of the portfolio. The Investment Advisor continues to identifyattractive investments and anticipates the pace of acquisitions to increase incoming months. The Directors of the Company expect the Fund to be fully investedby April 2008, within 18 months of Admission. Raymond ApseyChairman23 August 2007 Unaudited Interim Consolidated Income StatementFor the period from incorporation on 15 September 2006 to 31 May 2007 2007 Notes £ Gross rental income 6 495,243Property operating expenses 7 (263,173) ----------Net rental income 232,070Net loss from fair value adjustment on investment properties 12 (2,541,879)Administrative expenses 8 (374,871)Other income 4,187 -----------Net operating loss before net financing costs (2,680,493) Interest Income 97,607Interest on Borrowings (13,117)Net foreign exchange losses (209,729) ----------- (125,239) -----------Operating loss (2,805,732)Taxation - -----------Loss for the period (2,805,732) ===========Attributable to:Equity holders of the company (2,805,732) ===========Loss per share - Basic and diluted 9 2.81p =========== Unaudited Interim Consolidated Balance SheetAs at 31 May 2007 2007 Notes £AssetsNon-current assetsInvestment property 12 73,445,075 Current assetsTrade and other receivables 10 585,089Cash and cash equivalents 14 32,500,031 ----------- 33,085,120 -----------Total assets 106,530,195 -----------LiabilitiesNon-current liabilitiesSecurity Deposits from tenants 262,472 Current liabilitiesTrade and other payables 11 549,515Borrowings 13 20,700,023 ------------ 21,249,538 ------------Total liabilities 21,512,010 -------------Net assets 85,018,185 =============EquityShare capital 3 10,000,000Special reserve 4,5 85,081,500Translation reserve (7,257,583)Retained loss (2,805,732) ------------Total equity 85,018,185 ============Net asset value per share 85.0p ==== Unaudited Interim Consolidated Statement of Changes in EquityFor the period from incorporation on 15 September 2006 to 31 May 2007 Share Share Premium Special Translation Retained Notes Capital Account Reserve Reserve Earnings Total £ £ £ £ £ £Issue ofordinaryshare capital 3 10,000,000 90,000,000 100,000,000 Transactioncosts 4 (4,918,500) (4,918,500) Conversion ofshare 4,5 (85,081,500) 85,081,500 -premium account Net loss for 2,805,732) (2,805,732)the period Currency translationdifferences 7,257,583) (7,257,583) ----------------------------------------------------------------------------------At 31 May 10,000,000 - 85,081,500 (7,257,583) (2,805,732) 85,018,1852007 ================================================================================== Unaudited Interim Consolidated Cash Flow StatementFor the period from incorporation on 15 September 2006 to 31 May 2007 2007 Notes £Cash flows from operating activitiesOperating loss (2,805,732)Adjustments for:Loss on fair value adjustment of investment property 12 2,541,879Interest income (97,607)Interest on borrowings 13,117Foreign exchange losses 209,729 ----------Operating loss before changes in working capital (138,614) Increase in receivables (585,089)Increase in payables 803,749 ----------Net cash inflow from operating activities 80,046 ----------Cash flows from investing activitiesInterest received 97,607Purchase of investment property 12 (78,653,158) ----------Net cash inflow from investing activities (78,555,551) ----------Cash flows from financing activitiesProceeds from issue of ordinary share capital 100,000,000Issue costs (4,918,500)Proceeds from borrowings 20,700,023Interest paid (4,879) -----------Net cash inflow from financing activities 115,776,644 -----------Net increase in cash and cash equivalents 37,301,139 Effect of exchange rate fluctuations on cash held (4,801,108) -----------Cash and cash equivalents at end of the period 14 32,500,031 =========== Notes to the Unaudited Consolidated Interim Financial Statements 1. General Information Japan Residential Investment Company Limited ("the Company"), its subsidiariesand special purpose entities (together "the Group") is an investment propertygroup with its portfolio in Japan. The Company was established to make and holdinvestments in residential property in Japan. The Company is incorporated and domiciled in Guernsey. The Company has its primary listing on AIM, a market of the London StockExchange. These unaudited consolidated interim financial statements were approved forissue by the Board of Directors on 24 August 2007. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these unauditedinterim consolidated financial statements are set out below. These policies havebeen applied consistently from incorporation. 2.1 Basis of preparation The consolidated unaudited interim financial statements of the Group have beenprepared in accordance with IAS 34 Interim Financial Reporting. They have beenprepared under the historical cost convention except investment property whichis carried at fair value. The unaudited consolidated interim financial statements do not include all theinformation and disclosures required for the annual financial statements. 2.2 Consolidation The unaudited consolidated interim financial statements incorporate thefinancial statements of the Company and special purpose entities meetingrequirements of SIC-12 to be treated as subsidiaries. Interests in investment properties have been acquired through special purposevehicles (SPVs). In the opinion of the Directors, these transactions did notmeet the definition of a business combination as set out in IFRS 3 "BusinessCombinations". Accordingly the transactions have not been accounted for asbusiness acquisitions and instead the financial statements reflect the substanceof the transactions, which is considered to be the purchase of investmentproperties. All intra-group transactions and balances are eliminated on consolidation. 2.3 Foreign currency translation (a) Functional and presentation currenciesItems included in the financial statements of each of the Group's entities aremeasured using the Yen which is the currency of the primary economic environmentin which the entity operates (the 'functional currency'). The consolidatedinterim financial statements are presented in Sterling. The directors havechosen the sterling as the presentation currency as this is the currency inwhich shares were issued. (b) Foreign currency transactionsForeign currency transactions are translated into the functional currency usingexchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at the period end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. (c) Group companiesThe results and financial position of all the group entities (none of which hasthe currency of a hyperinflationary economy) that have a functional currencydifferent from the presentation currency are translated into the presentationcurrency as follows: Assets and liabilities for each balance sheet presented are translated at theclosing rate at the date of the balance sheet; Income and expenses for each income statement are translated at average exchangerates (unless this average is not a reasonable approximation of the cumulativeeffect of the rates prevailing on the transaction dates, in which case incomeand expenses are translated at the dates of the transactions); and all resulting exchange differences are recognised as a separate component ofequity. 2.4 Revenue recognition Revenue includes rental income, service charges and management charges fromproperties. Rental income from operating leases is recognised in income on astraight-line basis over the lease term. Service and management charges arerecognised in the accounting period in which the services are rendered. 2.5 Interest income Interest income is accrued on a time basis, by reference to the principaloutstanding and the effective interest rate applicable. 2.6 Expenses All expenses are accrued for on an accruals basis and are included in theconsolidated income statement, except for expenses that are incidental to thedisposal of an investment, which are deducted from the disposal proceeds, andcertain set up expenses and borrowing costs (see notes 2.12 and 2.15). 2.7 Investment property Property that is held for long-term rental yields or for capital appreciation orboth is classified as investment property. Investment property is measured initially at its cost, including relatedtransaction costs. After initial recognition, Investment property is carried at fair value. Thefair values, whether determined by an independent valuer or internal valuer arebased on market values, being the estimated amount for which a property could beexchanged on the date of valuation between a willing buyer and a willing sellerin an arm's length transaction after proper marketing wherein the parties hadeach acted knowledgeably, prudently and without compulsion. Changes in fair values are recorded in the Consolidated Income Statement. 2.8 Leases Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Properties leased out under operating leases are included in investment propertyin the balance sheet (Note 12). Lease income is recognised over the term of thelease on a straight-line basis. 2.9 Trade and other receivables Trade and other receivables do not carry interest and are short-term in nature.They are accordingly stated at their nominal value as reduced by appropriateallowances for estimated irrecoverable amounts. 2.10 Trade and other payables Trade and other payables are not interest bearing and are stated at theirnominal value. 2.11 Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Cashequivalents are short-term, highly liquid investments that are readilyconvertible to known amounts of cash and which are subject to an insignificantrisk of changes in value. 2.12 Transaction costs The preliminary expenses of the Company directly attributable to the InitialPublic Offer that would otherwise have been avoided are dealt with in equity andtaken to the share premium account. 2.13 Share capital Ordinary shares are classified as equity where there is no obligation totransfer cash or other assets. External costs directly attributable to the issueof new shares are shown as a deduction, in equity from the proceeds. 2.14 Borrowings Borrowings are recognised initially at cost. Subsequent to initial recognition,interest-bearing borrowings are stated at amortised cost with any differencebetween cost and redemption value being recognised in the income statement overthe period of the borrowings on an effective interest basis. 2.15 Interest expense Interest expenses on borrowings are recognised within 'interest on borrowings'in the income statement using the effective interest rate method. 3. Share capital 31/05/07 £Issued share capital:Balance at 15 September 2006 -100,000,000 Ordinary Shares of 10p each issued 10,000,000 ----------Balance at 31 May 2007 10,000,000 ========== The total authorised number of ordinary shares is 250 million with a par valueof 10p. Ordinary shares carry no right to fixed income but are entitled todividends as declared from time to time. Each share is entitled to one vote atmeetings of the Company. 4. Share premium 31/05/07 £Premium arising on issue of ordinary shares 90,000,000Transaction costs on issue of ordinary shares (4,918,500)Conversion to special reserve (85,081,500) ------------Balance as at 31 May 2007 - ============ On 12 January 2007 the Royal Court of Guernsey confirmed the reduction of theshare capital of the company by way of cancellation of the Company's sharepremium account. The amount cancelled has been credited to a distributablereserve. 5. Special reserve 31/05/07 £On conversion from share premium 85,081,500 ------------Balance as at 31 May 2007 85,081,500 ============The special reserve is a distributable reserve to be used for all purposespermitted under Guernsey company law, including the buy back of shares and thepayment of dividends. 6. Gross rental income 31/05/07 £Gross lease payments collected 453,489Other rental related income 41,754 -------- 495,243 ========The Group leases out its investment property under operating leases. Alloperating leases are for terms of two years or more. 7. Property operating expenses Tabled below are the amounts of property operating expenses arising frominvestment property that generated and did not generate rental income during theyear: 31/05/07 £Generated rental income 157,577Did not generate rental income 105,596 --------- 263,173 =========8. Administrative expenses 31/05/07 £Administration fees 126,267Advisory fees 21,873Directors' remuneration 71,920Legal fees 36,884Managers fees 54,438Trustee's fees 22,882Other 40,607 -------- 374,871 ========9. Loss per share - basic and diluted 31/05/07 £The calculation of the earnings per share is based on thefollowing data:Loss attributable to the equity holders of the parent 2,805,732 =========Number of ordinary shares for the purpose of basic and dilutedearnings per share 100,000,000 ===========10. Trade and other receivables 31/05/07 £Trade receivables 580,348Other receivables 4,741 ------- 585,089 =======11. Trade and other payables 31/05/07 £Trade payables 537,127Interest payable 8,238Other 4,150 ------- 549,515 =======Trade payables are interest free and have settlement dates within one year. 12. Investment Property 31/05/07 £At 15 September 2006 -Additions 76,832,468Costs capitalised 1,820,690 ----------- 78,653,158Transaction costs write off (1,820,690)Valuation loss (721,189) -----------Net loss from fair value adjustments on investment property (2,541,879)Effect of exchange rate fluctuations on investment property (2,666,204) ------------At 31 May 2007 73,445,075 ============The Group's investment properties were revalued internally at 31 May 2007 basedon previous external valuations either at the time of acquisition or near to theperiod end. The valuations were carried out by independent professionallyqualified assessors, Land Coordinating Research Incorporation and Tokyo KanteiCompany Limited. Valuations were based on current prices in an active market atdate of valuations. Investment property comprises a number of residential properties that are leasedto third parties. 13. Borrowings 31/05/07 £Current bank borrowings 20,700,023 ==========The short term loan was obtained from Orix Trust & Banking Corporation, theprincipal being JPY5,000,000,000. It is unsecured, bears interest at a fixedrate of 2.07% per annum and is repayable on 20 August 2007. This loan was repaidon 20 July 2007. 14. Cash and cash equivalents 31/05/07 £Cash at bank 32,500,031 ==========15. Group entities The Group consists of the following entities: Entity type Country of Beneficial incorporation Interest J-RIC International Limited Limited Company Guernsey 100%J-RIC Holdings Limited Limited Company Guernsey 100%GK Aegis Tokumei kumiai Japan 100%JRIC Netherlands CooperatiefU.A. Cooperative Netherlands 100% 16. Directors Remuneration Fees Expenses Total £ £ £Raymond Apsey 19,616 197 19,813Peter Atkinson 13,076 - 13,076Paul Hammerstad 13,076 6,790 19,866Ian Hawksworth 13,076 - 13,076Gregory Shenkman 13,076 925 14,001 ------ ----- ------ 71,920 7,912 79,832 ====== ===== ======17. Currency Profile The assets and liabilities of the Group had the following currency profile atthe balance sheet date: 31 May 2007 Sterling Japanese Yen Total £ £ £Non - current assetsInvestment property - 73,445,075 73,445,075Current assetsTrade and other receivables 18,899 566,190 585,089Cash and cash equivalents 484,205 32,015,826 32,500,031 --------- ------------ ------------ 503,104 106,027,091 106,530,195 --------- ------------- -------------Non - current liabilitiesRent Deposits - 262,472 262,472Current liabilitiesTrade and other payables 71,845 477,670 549,515Interest bearing loans and borrowings - 20,700,023 20,700,023 ------ ------------ ------------ 71,845 21,440,165 21,512,010 -------- ------------ ------------Net assets 431,259 84,586,926 85,018,185 ======== ============ ============Percentage 1% 99% 100% ===== ===== ====18. Post balance sheet events On 30 May 2007 the group entered into a membership agreement acquiring 100% ofJRIC Netherlands Cooperatief U.A. a cooperative set up in the Netherlands forlong term investment in Japanese real estate. A resolution was signed by theboard on 6 June 2007 to capitalise JRIC Netherlands Cooperatief U.A. with aninitial contribution of EUR50,000 (£36,000) and provide further funding for realestate investments. On 20 July 2007, the short term loan was repaid and the fund obtained long termdebt financing of JPY11.5 billion bearing interest at 2.16% and repayable overfive years. 19. Copies of Interim Financial Statements The Interim Financial Statements for the period ended 31 May 2007 will be sentto shareholders in due course and will be available from the Company'sregistered office at Investec House, La Plaiderie, St Peter Port, Guernsey GY13RP and on its website www.jricl.com. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
JRIC.L