Principal Questions and Answers

Last updated: November 29,2011

Results Briefing for First Half of Fiscal Year Ending March 2012

The text includes additions and changes to facilitate understanding.

Leasing Business

Q1 What are your views on the likely movements in the vacancy rate?: A1 Certain tenants asked to reduce their rented area, but no tenants plan to leave a large space. Meanwhile, we have some new prospective tenants and expect to maintain the vacancy rate that prevailed at the end of September until the end of the fiscal year.
Q2 Could you tell us what the leasing situation has been like since August, when the macroeconomic environment started to worsen rapidly?: A2 Although tenants are cautious, some of them want to consolidate their leased spaces or move to new buildings. We do not sense any significant change in sentiment but will continue to pay attention to trends.
Q3 Do you have any plan to sell non-current assets?: A3 We do not have any plan to sell non-current assets. However, we have sold non-current assets to change the composition of assets. We will consider selling non-current assets in order of priority if opportunities arise.
Q4 Could you tell us the gap between market rents and your office rents in the five wards in central Tokyo, and the possibility of revenue from existing buildings declining next fiscal year?: A4 Following rent revisions, the rent gaps of major buildings have shrunk to around 10%. In future renewals of rents, we will seek to maintain the current rents, using the good relations we enjoy with our tenants. Next fiscal year, we would like to stop the downward trend in revenue in the leasing business with falls in revenue from existing properties offset by the operations of new properties and other factors.
Q5 When will the NOI of major properties bottom out?: A5 The occupancy rate is close to 100% in almost all major properties. The gaps between our office rents and market rents have shrunk through rent revisions. In future negotiations on rents, we will consider preventing the NOI of each building from falling further.
Q6 Do you expect that the rents of major properties in Otemachi will stop falling after the rent revisions in the current fiscal year?: A6 Rents have continued to fall in the Otemachi area. However, the occupancy rate is increasing, and the rent gaps are narrowing. We would like to maintain the present rents.

Residential Property Sales Business

Q1 Why did the gross margin improve in the condominium business this fiscal year?: A1 After Lehman's fall, we raised our operating margin ratio standard and carefully selected condominium sites to purchase. As a result, the gross margin in the condominium business increased to 19.1%, up from 13.4% a year ago.
Q2 What changes do you expect in the number of condominium units delivered in three years?: A2 We are carefully selecting condominium sites to buy but are continuing to purchase at a certain level. We expect we will deliver over 800 units annually, although there are some variables.
Q3 Could you translate present inventories into a number of condominium units?: A3 Our inventories excluding overseas assets are about 87 billion yen, which translates into around 3,000 units.

Development

Q1 What will revenues be from the Urbannet Kanda Building, Otemachi 1-Chome No. 2 Urban Area Redevelopment Project, and Umekita Phase 1 Development Area Project from next fiscal year?: A1 The Urbannet Kanda Building and the Otemachi 1-Chome No. 2 Urban Area Redevelopment Project will be operated for only part of the next fiscal year, and we expect that revenue from the two properties will be in the mid 0.2 billion yen range. The Umekita Phase 1 Development Area Project will generate revenue from the year after next, or the fiscal year ending March 2014. When they are operated year-round, we expect that revenues from the Urbannet Kanda Building, Otemachi 1-Chome No. 2 Urban Area Redevelopment Project, and Umekita Phase 1 Development Area Project will be almost 1 billion yen, a little less than 0.8 billion yen, and a little short of 3 billion yen, respectively.
Q2 What is the situation of leasing at the Urbannet Kanda Building?: A2 We have secured prospective tenants for a little less than 50% of the rentable space. The number of inquiries is increasing as the construction progresses.
Q3 Could you tell us about the possibility of new development projects in fiscal 2013 or later? What are your thoughts on the third phase of the Otemachi Redevelopment and the Nihonbashi Asahi Seimei Building?: A3 We have participated in a series of projects and would like to participate in the third phase of the Otemachi Redevelopment. The Nihonbashi Asahi Seimei Building is aging. We would like to redevelop it with the smaller properties around it that we have purchased.

FUND・REIT

Q1 Could you tell us your exit strategies for the private placement funds NU-6 and NU-7 currently under operation?: A1 Selling them to REITs is one option. We will consider that, taking the timing and the size and characteristics of the funds into account.
Q2 Could you tell us about the possibility of setting up new private placement funds?: A2 Private placement funds have their features and advantages. We would like to set up new funds if opportunities arise.
Q3 Could you sum up the sale of assets of NU-5 to Premier Investment Corporation, including the trend of Premier Investment Corporation investment unit prices around the time of the transaction?: A3 As the asset manager of NU-5, an off balance-sheet private placement fund, we considered exit strategies for the fund and provided information under a pipeline support agreement with Premier Investment Corporation. Overall, the transaction made full use of the features of a private placement fund and a REIT and gained the full understanding of the investors of NU-5 and Premier Investment Corporation. NU-5 and Premier Investment Corporation each made judgments independently on the sale prices.

International Operations

Q1 Do you have any plans to sell two properties in London?: A1 We have them as real estate for sale. We will sell them when we have opportunities given consideration of the market environment.

Results Forecast

Q1 What are your views on the possibility of achieving the results forecast?: A1 In the leasing business, results will be roughly on a par with the forecast despite the effect of the delayed posting of expenses, including selling, general, and administrative expenses. In the residential property sales business, we think we can achieve the forecast income for the fiscal year, considering the effect of a decrease in selling, general, and administrative expenses relating to properties where units are selling well, the posting of land sales delayed from the first half to the second half, and the delayed completion of condominiums (40 to 50 units) and other factors.
Q2 What are your views on the possibility of achieving the operating income target of 26 billion yen for the next fiscal year? Are you considering any measures, such as selling properties?: A2 In the leasing business, we would like to change the trend and increase both revenue and income in the next fiscal year by commencing operations of new properties, operating on a full-year basis the properties completed in the current fiscal year, bolstering leasing activities, and controlling costs. In the residential property sales business, the number of properties will increase, reflecting our resumption of purchases, and the number of units to be delivered will rise sharply in the next fiscal year or later. We would like to achieve our operating income target for the next fiscal year.
We are not planning an asset reshuffle.