J-REIT Property Database -ARES- The Association for Real Estate Securitization

The method of calculation of the ARES J-REIT Property Index and other indices in the event of a merger, the data used, etc.

The treatment of property data for J-REITs affected by merger at the time of calculation of the ARES J-REIT Property Index (AJPI) and other indices and the method of calculation of the various index figures are as indicated below.

1．Treatment of properties acquired through merger

(1) Data included in calculation of AJPI and other indices

The properties acquired by the surviving J-REIT or the newly created J-REIT from the extinct J-REIT at the time of a merger are not excluded from the calculation of the various index figures but are included in the calculation from the fiscal period in which the acquisition is made, provided that the data required for the calculation of the various index figures have been disclosed.

(Note): In the case of regular property acquisition other than through merger, the acquired property is excluded from the calculation of the various indices for the fiscal period in which the acquisition is made and is included from the fiscal period after the fiscal period in which the acquisition is made. In the calculation of cap rate, the relevant data are included from the next fiscal period but one. The treatment outlined in (1) above is an exceptional measure for merger-related acquisitions.

(2) Treatment of beginning market value (BMV) for first fiscal period after merger

For the purposes of index calculation, the beginning market value (BMV) of properties owned by merged J-REITs is as outlined below. (In all calculations, ending market value (EMV) is the property appraisal value at the first fiscal period end following the merger.

(i) Where property appraisal value at the end of the fiscal period immediately before the merger is disclosed:: BMV in the first fiscal period after the merger = property appraisal value at the end of the fiscal period immediately before the merger

(ii) Where property appraisal value at the end of the fiscal period immediately before the merger is not disclosed:: For the purposes of index calculation, the beginning market value of properties owned by merged J-REITs is as outlined below.
(a) Where property appraisal value at a timepoint during the fiscal period immediately before the merger is disclosed:: BMV in the first fiscal period after the merger = property appraisal value at the timepoint closest to the merger

(b) Where property appraisal value during the fiscal period immediately before the merger is not disclosed:: Data on beginning market value for the first fiscal period after the merger are judged to be unavailable and the relevant property is excluded from the calculation of index figures in which beginning market value is a factor (AJPI, cap rate).

Note 1:: Under regular circumstances not involving merger, the general rule is that beginning market value = property appraisal value at the end of the previous fiscal period. The treatment outlined in (ii)(a) above is therefore an exceptional measure for the event of a merger.
Note 2:: In the case of properties to which the treatment outlined in (ii)(a) above is applied, not only is ending property appraisal value for the fiscal period immediately before the merger not usually disclosed at the end of the period, but NOI for the period is generally also not made available , meaning that it is not possible to calculate income return on individual property. The general rule is that properties with this disclosure pattern are excluded from the calculation of index figures for the period immediately before the merger.

2． Revision of calculation method for return on individual property in calculation of AJPI

(1) Basic approach

Income return is calculated based on the NOI (Net Operating Income) published for the first fiscal period after the merger (fiscal period months). Therefore the income return calculated for individual property is the return for months.
Capital return is calculated based on the change in market value during the period ( months) from the time of BMV to the time of EMV. Therefore the income return calculated for individual property is the return for months.
The formula below is applied to calculate the average investment balance during the period, the denominator used in the calculation of income return and capital return on individual property.

Note 1:

in the calculation of the denominator in the above formula, the following two assumptions are made:

Assumption 1: CIk and PSk occur at the midpoint of the period months between BMVk and EMVk.
Assumption 2: in the calculation of the denominator, in the period from the time of BMVk to the time of EMVk ( months) NOIk is constant for each month:

Note 2:

under the assumptions outlined in and Note 1, the NOI coefficient

in the denominator used in the calculation of return on individual property is calculated using the following formula:

An explanation of the assumptions made in the above formula and an illustration of the calculation of the NOI coefficient for cases where no merger is involved

can be found at the webpage indicated below.
< Reference 1 > Basis of calculation formula for real estate investment return 2. Calculation formula when using data from listed J-REITs
Where no merger is involved, the NOI coefficientis the figure obtained from the above formula rounded off to the third decimal place 0.417 .

3. Calculation formula for return on individual property (based on U.S. NPI formula)

Income return and capital return on individual property are calculated using the formulae below:

Key:

: Ending Market Value of Individual Property k
: Beginning Market Value of Individual Property k
: Partial Sales of Individual Property k
: Capital Improvement / Expenditures on Individual Property k
: Net Operating Income of Individual Property k

Note:: for the basis of the calculation formula for the denominator, see above "2. Revision of calculation method for return on individual property in calculation of AJPI".

4．Calculation method for monthly return on individual property

Monthly return on individual property k is calculated from income return on individual property (return for months) calculated in (3) above and capital return on individual property (return for months) using the formula below.

5. Calculation of AJPI

Based on monthly return for individual property as calculated using the method shown above, AJPI monthly return and AJPI are calculated. The method used is the same as the method used in regular circumstances where no merger is involved. For details please follow the link below.

See here for AJPI calculation method

6. Calculation of AJPI cap rate

In the case of a merger having taken place, AJPI cap rate is calculated using the formula below.

(i) Calculation of cap rate of individual property (Step 1): The cap rate of individual property k (CRk) following a merger is calculated using the formula below (the cap rate of individual property of non-merged J-REITs is carried out via the usual method).; Key:; : Net Operating Income of Real Property k; : Beginning Market Value of Real Property k
(ii) The individual property AJPI cap rate is aggregated (Step 2): The cap rate of individual property (CRk) of J-REITs affected by merger and the cap rate of non-merged J-REITs are aggregated to calculate AJPI cap rate. The calculation method used is as usual. For details please follow the link below.

See here for AJPI cap rate calculation method

7. Treatment in indices other than AJPI and AJPI cap rate

The calculation method of indices other than the AJPI and AJPI cap rate (average occupancy rate, average rent per unit) is the same as for regular circumstances and can be viewed by following the link below.

See here for calculation method of average occupancy rate and average rent per unit.