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 November 30, 2018 (at the end of the 30th fiscal period), its asset size was 613.9 billion yen, and United Urban is one of the largest among all J-REITs in terms of asset size.

In the 30th fiscal period, United Urban acquired “Chatle Otemachi S・N”, a family-type rental apartment located in Kitakyusyu City (acquisition price: 3.4 billion yen), “Musashimurayama Logistics Center”, a logistic facility located in Musashimurayama City (acquisition price: 1.8 billion yen), and “the b fukuoka tenjin”, a limited service hotel located in Fukuoka City (acquisition price: 3.0 billion yen). On the other hand, United Urban conducted the transfer of 19% quasi co-ownership of a retail facility “Himonya Shopping Center” (sale price: 5.2 billion yen) based on the concluded purchase-sale agreement (transfer in three installments) 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 in every asset type due to the firm earnings of Japanese corporations and the increased demand by the inbound tourists. The rental revenues from the properties acquired in the mid of the previous fiscal period and those of the current fiscal period and the gains on the property-sale contributed to the fiscal results of this fiscal period despite decrease of rent revenues by the property-sale. As a result, in the 30th fiscal period, United Urban was able to achieve operating revenues of 25,733 million yen, operating income of 12,894 million yen, and net income of 11,788 million yen. A part of gains on sale was appropriated to cash distribution and 1,264 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 the negative goodwill (“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 30th fiscal period became 3,473 yen (increased by 1.5% or 53 yen per unit compared to the forecast).

In finance, United Urban raised 10.0 billion yen through “Green Trust” (a specified money trust that is invested in loans with the purpose of acquisition of properties that already have or are expected to obtain environmental certifications or its refinancing) scheme, which is the first among J-REITs. The balance of interest bearing liabilities at the end of the 30th fiscal period increased to 257.3 billion yen from 255.8 billion yen as of the end of 29th 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, the signing of Principles for Responsible Investment (PRI) by the asset management company of United Urban, Japan REIT Advisors Co., Ltd. (“JRA”), acquisition of ESG evaluation by the external appraisers, and introduction of the new system for the asset management services and accumulative investment scheme for United Urban’s investment units by JRA employees.

In the 31st fiscal period ending May 31, 2019, United Urban acquired the Annex of “the b roppongi”, a limited service hotel located in Minato-ku (additional acquisition, acquisition price: 0.9 billion yen) and “Luz Musashikosugi” a retail property located in Kawasaki City (acquisition price: 12.1 billion yen) and has concluded the agreement to acquire “Henn na Hotel Tokyo Hamamatsucho” (acquisition price: 4.5 billion yen) and “Smile Hotel Premium Sapporo Susukino” (acquisition price: 4.2 billion yen), both are limited service hotels located in Minato-ku, Tokyo and Sapporo City respectively. Also the property replacement is in progress with the contracted transfer of 30% quasi co-ownership of “Himonya Shopping Center”.

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.

January 2019

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