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- Investment Strategy
- Overview
- Macroeconomic Indicators
- Size of Infrastructure Properties
- Decline in Government Fiscal Investment and Loan Program
- Shift from Public Sector to Private Sector
- Our Market Opportunity—Industrial and Infrastructure Properties in Japan
Overview
After Japan's so-called “bubble economy” burst in the early 1990s, the Japanese economy experienced difficult conditions. Since 2002, however, industry data suggest that corporate earnings have improved, capital expenditures have increased, and private consumption has gradually improved such that the Japanese economy appears to be steadily recovering from its prolonged downturn.
Macroeconomic Indicators
Increases in the Number and Size of Storage Facilities in Japan
Along with the recent trend toward economic recovery in Japan, the number of storage facility construction starts has steadily increased since 2003, with storage facilities larger than 5,000 square meters representing a growing percentage of total storage facility construction starts.
Storage Facility Construction Starts by Size
| (1) | The above figures were calculated by IIF by adding the floor area of buildings with reinforced concrete construction, steel frame construction or both, used as warehouses. |
| (2) | The percentages were determined by IIF based on the figures calculated using the method described in Note (1) above. |
Increases in the Number and Size of Manufacturing Facilities in Japan
Similar to storage facilities, the number of manufacturing facilities construction starts has steadily increased since 2002, with manufacturing facilities larger than 5,000 square meters representing a growing percentage of total manufacturing facility construction starts.
Manufacturing Facility Construction Starts by Size
| (1) | The above figures were calculated by IIF by adding the floor area of buildings with reinforced concrete construction, steel frame construction, or both, used as a manufacturing facility or workshop. |
| (2) | The percentages were determined by IIF based on figures calculated using the method described in Note (1) above. |
Growth in Shipments of Manufactured Goods
As can be seen in the following graph, the aggregate value of shipped goods manufactured in Japan has been increasing since 2002.
Changes in Manufactured Goods Shipments
| Source: | Preliminary Report on Census of Manufacturers 2005 (with 10 employees or more), Research and Statistics Department, Economic and Industrial Policy Bureau,Ministry of Economy, Trade and Industry, or METI. |
| (1) | Due to the addition of certain locations in the 1998 survey, the year on year comparison is calculated using a time series. |
| (2) | Due to revisions to the Japan Standard Industry Classification, the 2001 to 2002 comparison is based on a reclassification of the 2001 data. |
| (3) | The 2004 figures include the results of a supplementary survey (including some estimates) that covered the region affected by the 2004 Niigata earthquake that could not be included in the initial Census of Manufacturers 2004. |
Growing Capital Investment in Japan
Although aggregate capital investment in Japan has a volatile history, capital investment has generally been rising since 2002, particularly in the manufacturing sector.
Changes in Capital Investment
| Source: | Annual Financial Statement Statistics of Corporations by Industry, (original figures), Ministry of Finance. |
| (1) | Figures exclude investment in software. |
| (2) | The Financial Statement Statistics of Corporations by Industry is a sample survey of business corporations (i.e., partnership corporations (gōmei kaisha), limited partnership corporations (gōshi kaisha), stock corporations (kabushiki kaisha), and limited liability corporations (yūgen kaisha) that have a principal office in Japan), excluding financial and insurance companies. Sample corporations are selected by a random sampling method from stratifications of corporations with capital of less than 2 million yen; at least 2 million yen but less than 3 million yen; at least 3 million yen but less than 5 million yen; at least 5 million yen but less than 10 million yen; at least 10 million yen but less than 20 million yen; at least 20 million yen but less than 50 million yen; at least 50 million yen but less than 100 million yen; and at least 100 million yen but less than 1 billion yen. Corporations with capital of at least 1 billion yen are also subject to the survey. |
Increases in Japan's Transportation (Domestic Cargo), and Mining and Manufacturing Indices
As can be seen in the following graphs, Japan's transportation index has been rising. In addition, since 2002, Japan's mining and manufacturing index has also exhibited growth.
Domestic Transportation and Mining and Manufacturing Indices
| Source: | Transportation Index, MLIT, and Mining and Manufacturing Production, Shipment, and Inventory Indices, METI. |
| (1) | The transportation index was created for the purpose of understanding domestic transportation activities in Japan and international transportation activities of Japanese companies as well as for the purpose of observing the trends of transportation as an economic activity. The transportation index is calculated by converting the transportation volume of each mode of transportation (in principle, freight ton kilometers), (weighted according to the gross added value amount and production amount), into the economic effect generated by each mode of transportation. The above graph uses the transportation activity index of the domestic freight transport business. |
| (2) | The transportation, and mining and manufacturing production indices are seasonally adjusted and calculated in comparison with the average of the benchmark year 2000, which is assigned a value of 100. |
| (3) | The transportation index figures from October 2006 to February 2007 are tentative. |
Increases in the Number of Manufacturing and Research Facilities in Japan
In line with the recent trend toward recovery in the overall economy, the number of new manufacturing and research facilities being built annually has been increasing since 2002.
Number of Manufacturing and Research Facilities
| (1) | The survey included land (including land scheduled for reclamation) of 1,000 square meters or greater that is acquired (including by lease) for the purpose of constructing manufacturing facilities or business establishments for the manufacturing, electric power (excluding hydraulic power stations and geothermal power plants), gas, and heat supply industries. Land for research facilities (limited to private testing research institutes for research, primarily in the aforementioned four industries) were also subject to the survey. |
| (2) | The 2006 data is preliminary. |
Size of Infrastructure Properties
Changes in Public Capital Stock
According to Japan's Cabinet Office, the amount of public capital stock in Japan has experienced nearly continuous growth and is approaching 400 trillion yen.
Changes in Public Capital Stock
| Source: | Social Capital in Japan 2007, Director-General for Policy Planning, Cabinet Office. |
| Recent data, such as the total nominal investment from 1999 to 2003, were added to the original gross capital stock estimates for the following twelve sectors (out of twenty sectors that were included in the earlier Cabinet Office statistical survey): roads and highways, ports and harbors, aviation facilities, the former Japan National Railways, Japan Railway Construction Public Corporation and other similar bodies, subway and other such facilities, the former Nippon Telegraph and Telephone Public Corporation, drainage and sewage systems, waste disposal, water services, postal services, and industrial-use water systems. Average useful life, deflation, and other relevant values have been taken into account and updated. |
Decline in Government Fiscal Investment and Loan Program
As can be seen in the following two graphs, both the aggregate spending and funds outstanding of Japan's fiscal investment and loan program have been steadily decreasing as a result of reforms to the program, which were implemented in fiscal year 2001.
Changes in Amount of Fiscal Investment and Loan Program Spending
| Source: | Fiscal Investment and Loan Program Report 2006, Finance Bureau, Ministry of Finance. |
| (1) | Based on the initial plan. |
| (2) | Figures for fiscal year 2000 and earlier are based on general fiscal investment. |
Changes in Balance of Fiscal Investment and Loan Program Funds Outstanding
| Source: | Fiscal Investment and Loan Program Report 2006, Finance Bureau, Ministry of Finance. |
| (1) | Figures through fiscal year 2005 are actual results. |
| (2) | Figures for the fiscal years 2006 and 2007 are estimates as of December 20, 2005. |
Shift from Public Sector to Private Sector
Privatization or Transfer of Local Government-Owned Corporations to Private Corporations (Cumulative Total Since Fiscal Year 2002)
There has been a sharp rise in the number of local government-owned corporations that have been privatized or transferred to private corporations. This restructuring of the public sector has accelerated, particularly since fiscal year 2004.
Number of Businesses Transferred to Private Sector
| Source: | Performance Status of Overall Review of Local Municipal Corporations' Management, Ministry of Internal Affairs and Communications. |
Changes in the Number of PFI Projects and Project Costs
Since the Law Relating to the Promotion of the Creation of Public Facilities by Using Private Funds (Law No. 117 of 1999, as amended) was enacted in 1999, the number of private finance initiative, or PFI, projects has grown steadily each year.
PFI Trends
Our Market Opportunity—Industrial and Infrastructure Properties in Japan
We believe that a number of characteristics unique to industrial and infrastructure properties as well as developments in the Japanese economy present opportunities to generate attractive investment returns from the acquisition and operation of industrial and infrastructure properties in Japan. These characteristics and developments include:
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Increasing demand for large-scale distribution centers.
Recently, the Japanese economy has been expanding, as indicated by the upward trends in the aggregate value of manufactured goods shipments, the aggregate amount of capital investment, and the mining and manufacturing indices. We believe that there is rising demand for more efficient distribution systems to meet the growing distribution needs of the thriving Japanese and Asian economies. Such trends have led to a recovery in the construction of new distribution facilities and an increase in the number and size of such facilities, resulting in abundant investment opportunities.
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Increasing number of new manufacturing and research and development facilities.
Recently, there has been an increase in the number of new manufacturing and research and development facilities constructed in Japan, reflecting the overall trend in the Japanese manufacturing sector towards a re-examination of existing product lines and a repatriation of manufacturing facilities, particularly high-technology facilities, back to Japan.
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The need to renovate existing facilities and the increased capital investment requirements for infrastructure facilities, especially in energy, environmental and communications-related fields.
As the Japanese economy continues to improve, there is a growing demand by companies operating in Japan, especially those involved in the newly developing energy, environmental or telecommunications sectors, for financing to make capital investments in new facilities and to renovate antiquated facilities constructed during Japan's high-growth period. See “Overview of the Industrial and Infrastructure Property Market in Japan. Macroeconomic Indicators”.
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Shifting attitude of management toward real estate assets.
Both the recent introduction of loss impairment accounting and the development of more efficient asset management capabilities in Japan are encouraging companies to outsource management of their real property holdings to professionals.
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Shift of public sector assets to the private sector.
Recently, there has been a scaling back of national and local public sector investments. Furthermore, the national government has begun selling stateowned assets. See “Overview of the Industrial and Infrastructure Property Market in Japan. Decline in Government Fiscal Investment and Loan Program”. New approaches to the provision of public services are also being adopted, such as PFI and the designated manager system, in which the public and private sectors share responsibility for the funding, development and management of important economic and social infrastructure assets. See “Overview of the Industrial and Infrastructure Property Market in Japan. Decline in Government Fiscal Investment and Loan Program” and “Shift from Public Sector to Private Sector”. We recognize that trends such as these will continue, in which the public sector increasingly turns to the private sector for assistance in reassessing and reorganizing publicly-held infrastructure properties. We are confident that we can play an important role in this shift toward private financing and ownership of infrastructure facilities by acquiring and retaining infrastructure properties for investment purposes. Therefore, we intend to invest in these infrastructure properties held by the public sector after related laws or ordinances are amended to allow for such investment, if such amendment is necessary, and after necessary discussions with related parties.
