To Our Unitholders
I would like to express our sincere gratitude for your continued and loyal patronage. SHR has completed the financial results for the 17th fiscal period ended April 2023. We appreciate the support from our unitholders, and hereby would like to report on the management status and financial results.
Management Status for 17th fiscal year ended April 2023
As for the sale and purchase of properties in the fiscal period under review, SHR announced on March 29, 2023, the disposition of Gotenyama SH Building, which accounts for 9.3% of the investment ratio of the overall portfolio. SHR was approached by the current tenant regarding the acquisition of the property, and upon consideration of the progression in office building leasing activities, which is an ongoing challenge for SHR, the uncertainty regarding the future of the office leasing market, and the soaring prices in the real estate transaction market, decided to an installment disposition over a period of five years and 10 fiscal periods, determining that it will contribute to maximizing unitholders' profits by improving the profitability of the portfolio while enjoying the effect of elevated distributions through gain on disposition.
Going forward, SHR plans to improve the profitability of the portfolio and maintain stable distribution levels by utilizing the disposition price to regularly acquire new assets, mainly the Prime Maison Series in the sponsor pipeline, and to flexibly consider the acquisition of investment units, etc. while closely monitoring trends in the financial markets.
In terms of the operating status of each asset during the fiscal year under review, regarding office buildings, it will take time for the office leasing market to recover, and there are concerns about the impact of a large supply in central Tokyo. Under such circumstances, it is also taking time to backfill the vacancies for owned office buildings in the Tokyo metropolitan area. With regard to residentials, the relaxation of regulations of COVID-19 resulted in a positive shift of population inflows into central Tokyo. In addition to the recovery of occupancy rates recovering to pre COVID-19 levels, SHR was able to realize an increase in rents. As for hotels, the lease contract for the one property owned is a fixed-rent master lease agreement, thus is not affected by the operating status of the hotel; however, the hotel itself is in good condition due to a recovery in inbound demand.
In terms of ESG initiatives, our efforts to date have been evaluated, and we have been newly selected as a component of the FTSE4GoodIndex Series, which is one of the ESG Indices, and received an MSCI ESG rating of “AA” in May 2023. Furthermore, we achieved 70% or more of the portfolio with green certification within FY 2022, which was set as a materiality/KPI.
Financial Results for 17th fiscal year ended April 2023
Management performance resulted in operating revenue of 15,365 million yen, operating income of 7,508 million yen, ordinary income of 6,637 million yen and net income of 6,637 million yen, with a distribution per unit of 1,781 yen which reflects net income per unit of 1,514 yen. The overall portfolio’s total assets as of the end of the fiscal period under review was 266.8 billion yen for office buildings, 270.4 billion yen for residentials, and 17.2 billion yen for hotels with a total of 554.4 billion yen unchanged from the previous fiscal period. The occupancy rate as of the end of the fiscal period under review was 93.6% for office buildings, 97.2% for residentials, and 100.0% for hotels with an occupancy rate of 96.5% for the total portfolio.
Forecasts for the management performance for the fiscal period ending October 31, 2023 (18th fiscal period) is operating revenue of 16,331 million yen, operating income of 8,059 million yen, ordinary income of 7,094 million yen and net income of 7,093 million yen, with a distribution per unit of 1,895 yen which reflects net income per unit of 1,618 yen.
The operating environment for office buildings, which is considered our greatest challenge, continues to be difficult; nevertheless, we will work with the sponsor group to consider a wide range of measures to maintain and improve the profitability of the entire portfolio.
SHR will continue to steadily implement management that leverages its superiority as a diversified REIT with the aim of improving the profitability of its portfolio. SHR will continue to strive to maximize unitholder value by providing high-quality real estate, which will become a social capital for a new era under SHR’s vision “Managing assets to better provide for people, society and the future”.
I sincerely ask for the continued support and encouragement of our unitholders.