United Urban Investment Corporation

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To Our Unitholders

Ikuo Yoshida
Executive Officer
United Urban Investment Corporation

I would like to take this opportunity to express my sincere gratitude to you for your support and patronage of United Urban Investment Corporation ("United Urban").

United Urban was listed in the real estate investment trust section of the Tokyo Stock Exchange (the J-REIT section) in December 2003 as a diversified J-REIT, investing in properties varied both in types of use and geographical location. Since its listing, United Urban has been making efforts to maintain or improve its revenues and reduce various risks for the purpose of obtaining stable earnings over the medium to long term. As of May 31, 2019 (at the end of the 31st fiscal period), its asset size was 626.0 billion yen, and United Urban is one of the largest among all J-REITs in terms of asset size.

In the 31st fiscal period, United Urban acquired the annex building of “the b roppongi”, a limited service hotel located in Minato-ku, Tokyo (acquisition price: 0.9 billion yen), “Luz Musashikosugi”, a retail facility located in Kawasaki, Kanagawa (acquisition price: 12.1 billion yen), “GRAN FONTE”, a family-type rental apartment located in Nerima-ku, Tokyo (acquisition price: 2.7 billion yen), and “Henn na Hotel Tokyo Hamamatsucho”, a limited service hotel located in Minato-ku, Tokyo (acquisition price: 4.5 billion yen). Moreover, United Urban has concluded the agreement to acquire “Smile Hotel Premium Sapporo Susukino”, a limited service hotel located in Sapporo, Hokkaido (acquisition price: 4.2 billion yen). On the other hand, United Urban conducted the transfer of 30% quasi co-ownership of a retail facility “Himonya Shopping Center” (sale price: 8.2 billion yen) based on the concluded purchase-sale agreement (transfer in three installments) and sold “Maison Ukima”, a corporate housing located in Kita-ku, Tokyo (sale price: 3.1 billion yen) with intention of improving the asset quality and portfolio profitability through the replacement of properties. Also, United Urban has made renovation work to enhance the value of office and hotel properties while improving its profitability through negotiation with the tenants for increase rent revenues or cost reduction on the property-operation.

The environment for the asset management of our existing properties has been good due to the firm earnings of Japanese corporations and the increased demand by the inbound tourists. The rental revenues from new properties acquired in this fiscal period and the gains on the property-sale contributed to the fiscal results despite increase in rental business expenses by the intensive implementation of large-scaled repair works. As a result, in the 31st fiscal period, United Urban was able to achieve operating revenues of 27,261 million yen, operating income of 13,569 million yen, and net income of 12,413 million yen. A part of gains on sale was appropriated to cash distribution and 1,305 million yen was retained in order to strengthen the capability to cope with the risk (the corporate tax was not imposed for this retention). In addition, United Urban reversed 76 million yen of reserve for temporary difference adjustments and added it to the cash distribution under the provisions of laws and regulations, etc. Consequently, the cash distribution per unit for the 31st fiscal period became 3,661 yen (increased by approx. 3.1% or 111 yen per unit compared to the forecast) achieving the highest level of our cash distribution per unit record.

In finance, United Urban issued 10.0 billion yen of Green Bonds targeting at the retail market, the first case among J-REITs (Nickname: Green Yu Yu Sai) and raised 4.5 billion yen through Green Trust continuously from the previous period. Accordingly, United Urban has enhanced its presence in the green finance market. The balance of interest bearing liabilities at the end of the 31st fiscal period increased to 282.8 billion yen from 257.3 billion yen as of the end of previous fiscal period with the new borrowings related to acquisition of the properties mentioned above.

In consideration of the recent appreciation on ESG (Environmental, Social, and Governance) Investment, United Urban has promoted several ESG related initiatives including acquisition of external environmental certifications and ESG assessments, the obtaining of ISO14001 by the asset management company of United Urban, Japan REIT Advisors Co., Ltd. (“JRA”), and introduction of the accumulative investment scheme for United Urban’s investment units by JRA employees.

In the 32nd fiscal period ending November 30, 2019, United Urban conducted the public offering for the first time in two and a half years and procured 10.7 billion yen together with the third-party allotment. United Urban acquired “Hotel Hewitt Koshien”, a full-serviced hotel located in Nishinomiya, Hyogo (acquisition price: 13.5 billion yen) mainly with the fund by the capital increase, and acquired “Smile Hotel Premium Sapporo Susukino” (acquisition price: 4.2 billion yen) based on the purchase agreement mentioned above. United Urban has also concluded an agreement to acquire “the square hotel KANAZAWA”, a limited service hotel located in Kanazawa, Ishikawa (scheduled acquisition price: 4.8 billion yen).

All of our officers and employees of United Urban and JRA shall have firm awareness of ESG and make efforts to achieve the sustained growth of United Urban while coexisting with the society and the environment.

Your continuous support and kind attention will be highly appreciated.

July 2019

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