Industrial & Infrastructure Fund Investment Corpor : IIF to Acquire and Lease Eleven Properties in Japan (3.3MB)

Industrial & Infrastructure Fund Investment Corporation (Tokyo Stock Exchange Company Code: 3249) News Release - January 24, 2017

IIF to Acquire and Lease Eleven Properties in Japan

Mitsubishi Corp.-UBS Realty Inc., an asset manager, to which Industrial & Infrastructure Fund Investment Corporation ("IIF") entrusts its asset management, announced today that it has decided to acquire and lease the following domestic real estate and trust beneficiary interests in real estate as outlined below.

1. Summary of Anticipated Acquisitions (the "Anticipated Acquisitions")

   Property number (Note 1)	Property name(Note2)	Location	Seller	Anticipated acquisition price (¥ million)	Appraisal value (¥ million)	NOI yield (before depreciation) (Note 3)	NOI yield (after depreciation) (Note 3)	Anticipated acquisition date
   F-11	IIF Yokosuka Technology Center	Yokosuka-shi, Kanagawa	Komatsu NTC Ltd. (Note 4)	4,000	4,430	7.2 %	6.6 %	February 20, 2017
   F-12	IIF Shonan Technology Center	Koza-gun, Kanagawa	Komatsu NTC Ltd. (Note 4)	1,200	1,320	6.6 %	6.2 %	February 20, 2017
   L-31	IIF Osaka Konohana Logistics Center (49% Co-ownership Interest)	Osaka-shi, Osaka	SPC(Note 4) (Note 5)	4,263	4,340	4.9 %	4.1 %	February 20, 2017
   L-34	IIF Fukuoka Hakozaki Logistics Center I (60% Co-ownership Interest)	Fukuoka-shi, Fukuoka	SPC(Note 4) (Note 5)	3,115	3,170	4.5 %	3.5 %	February 20, 2017
   L-35	IIF Fukuoka Hakozaki Logistics Center II (60% Co-ownership Interest)	Fukuoka-shi, Fukuoka	SPC(Note 4) (Note 5)	5,451	5,530	4.4 %	3.6 %	February 20, 2017
   L-36	IIF Itabashi Logistics Center (60% Co-ownership Interest)	Itabashi-ku, Tokyo	SPC(Note 4) (Note 5)	1,031	1,070	4.4 %	3.7 %	February 20, 2017
   L-37	IIF Sendai Taiwa Logistics Center	Kurokawa-gun, Miyagi	Godo Kaisha Industrial Asset Holdings 4	1,480	1,560	6.0 %	4.8 %	February 21, 2017
   L-38	IIF Ota Logistics Center	Ota-shi, Gunma	Sumitomo Mitsui Finance and Leasing Company, Limited	1,010	1,140	6.6 %	5.7 %	February 21, 2017
   L-39	IIF Osaka Suminoe Logistics Center I (75% Co-ownership Interest)	Osaka-shi, Osaka	Business Company in Japan(Note 4) (Note 5) (Note 6)	9,075	10,100	4.2 %	3.3 %	March 21, 2017
   L-40	IIF Osaka Suminoe Logistics Center II (75% Co-ownership Interest)	Osaka-shi, Osaka	Business Company in Japan (Note 4) (Note 5) (Note 6)	1,905	2,000	4.7 %	4.1 %	March 21, 2017
   L-41	IIF Morioka Logistics Center II	Shiwa-gun, Iwate	Business Company in Japan (Note 5)	1,302	1,490	6.3 %	5.6 %	May 1, 2017

   Total annual rent

   (excluding consumption tax) 1,897 millionyen

   (Note 1) "Property number" numbers and classifies properties owned by IIF into three categories, L (logistics facilities), F (manufacturing and research and development

   facilities) and I (infrastructure facilities).

   (Note 2) The property names that IIF will be using after the Anticipated Acquisitions. These properties do not have registered names as of the date of this news release.

   (Note 3) For "NOI yield (before depreciation)" and "NOI yield (after depreciation)", please refer to "Reference: Definitions of Individual Calculation Formulas" at the end of this news release.

   (Note 4) IIF will acquire this property by using a bridging function, which will be through a business company in Japan. (IIF has not obtained the necessary permission from the bridge seller to disclose its name and thus IIF sets out the information "business company in Japan" based on its nature.) The same shall apply hereinafter. With respect to IIF Osaka Suminoe Logistics Center I (75% co-ownership interest) and IIF Osaka Suminoe Logistics Center II (75% co-ownership interest), the company is different from the original seller.

   (Note 5) IIF has not obtained the necessary permission from the seller to disclose its name and thus IIF sets out the information "SPC" or "business company in Japan" based on its nature.

   (Note 6) A business company in Japan, the current owner of IIF Osaka Suminoe Logistics Center I and IIF Osaka Suminoe Logistics Center II, is currently scheduled to approve the sale of IIF Osaka Suminoe Logistics Center I and IIF Osaka Suminoe Logistics Center II at the board of directors' meeting to be held on January 26, 2017. The building of IIF Osaka Suminoe Logistics Center I is scheduled to be acquired by the current owner from a third party, before the seller to IIF acquires the building from the current owner. Furthermore, approval of the sale from the board of directors of the current owner at a meeting is a closing condition of the obligations of the seller pursuant to the purchase and sale agreements. If the board of directors of the current owner does not approve the sale of IIF Osaka Suminoe Logistics Center I and IIF Osaka Suminoe Logistics Center II, or if the meeting of the board of directors is postponed, we may be unable to acquire these properties in accordance with the current plan.

2. Rationale for Acquisition and Lease

   IIF decided to acquire the anticipated properties based on its judgment that the characteristics of the properties are aligned with IIF's investment strategies, specifically, the acquisition of quality assets which would contribute to increase cash distributions per unit.

   In deciding whether to acquire the eleven properties, we evaluated the properties mainly in terms of profitability, long-term usability and versatility. Please refer to section "3. Summary of Anticipated Acquisitions and Leases".

   With regard to the reasons for the lease of the Anticipated Acquisitions, we are of the view that each tenant of the Anticipated Acquisitions meets the tenant selection criteria set forth in the "Report on the Management Structure and System of the Issuer of REIT Units and Related Parties", which we submitted on September 30, 2016. With regard to the reasons for the lease of the individual properties, please refer to section "3. Summary of Anticipated Acquisitions and Leases."

3. Summary of Anticipated Acquisitions and Leases

   【IIF Yokosuka Technology Center】

4. Summary of Property

   Type of asset	Trust beneficiary right in real estate	Summary of building structure evaluation	Evaluator	Tokyo Bldg-Tech Center Co., Ltd.
   Anticipated acquisition date	February 20, 2017		Evaluation date	August 31, 2016
   Anticipated acquisition price	4,000 million yen		Immediate repair cost	0 yen
   Date of trust beneficiary rights set	September 1, 2016		Short-term repair cost	0 yen
   Trustee	Mitsubishi UFJ Trust and Banking Corporation		Long-term repair cost	521,610,000 yen
   Trust period end	February 28, 2027		Repair cost for the forthcoming 12 years (annualized average)	43,467,000 yen
   Location	1-15, Shinmei-cho, Yokosuka-shi, Kanagawa, Japan
   Land area	27,000.03 m2	Structure /stories	Main building: 4-story steel structure with flat roof Annex 1: 2-story steel structure with flat roof Annex 2: 2-story steel structure with flat roof Annex 3: 1-story reinforced concrete structure with galvanized steel sheet roof Annex 4: 1-story reinforced concrete structure with galvanized steel sheet roof Annex 5: 2-story steel structure with galvanized alloy steel sheet roof Annex 6: 1-story steel structure with galvanized steel sheet roof Annex 7: 1-story reinforced concrete structure with galvanized alloy steel sheet roof Annex 8: 1-story steel structure with galvanized alloy steel sheet roof
   Zoning	Restricted industrial area
   Designated floor area ratio / building-to-land ratio	200 % / 60 %
   Type of possession	Ownership
   Earthquake PML	5.0 %	Construction date	Main building: November 30, 1995 Annex 1: November 30, 1995, April 14, 1998 (extension) Annex 2: November 30, 1995, April 14, 1998 (extension) Annex 3: November 30, 1995 Annex 4: November 30, 1995 Annex 5: July 18, 1996, August 23, 2005 (extension) Annex 6: April 14, 1998 Annex 7: September 29, 2004 Annex 8: March 20, 2007
   Collateral note	None	Gross Floor Area	13,779.77 m2 (Main building: 3,071.55 m2, Annex 1: 1,728.81 m2, Annex 2: 3,517.59 m2, Annex 3: 66.35 m2, Annex 4: 59.88 m2, Annex 5: 4,620.25 m2, Annex 6: 471.95 m2, Annex 7: 58.93 m2, Annex 8: 184.46 m2)
   		Type of building	Plant and office, etc.
   Others

   • IIF requested E&E Solutions Inc. to conduct a soil and environmental survey prior to purchasing this property. According to this survey, it is unlikely that the subject land has a critical issue concerning its soil or underground water contamination, and that any soil or underground contamination or any material damage to health is caused in the future.

5. Description of Leases Relating to Anticipated Acquisitions

   Tenant(s)	Number of tenant(s)	Total leased area (occupancy rate)	Annual rent (excluding consumption tax)	Period of contract	Deposit
   Nikon Corporation	1	13,779.77 m2 (100 %)	Not disclosed (Note)	10 years (from September 1, 2016 until August 31, 2026)	Not disclosed (Note)
   Revision of rent or termination during the lease period
   Contract Type: Other type of building lease (futsu tatemono chintaishaku keiyaku) Contract Renewal and Revision: ・ Rent shall not be revised in principle. ・ The lessee is not allowed to terminate the lease agreement before the fifth anniversary of the delivery date. However, on or after the fifth anniversary of the delivery date, the lessee may terminate the lease agreement by notifying the lessor in writing at least eighteen months before the scheduled date of such termination ・ On or after the fifth anniversary of the delivery date, the lessee may send a written notice of intention of termination. In such case, the lessee and the lessor shall hold consultations about such termination before twelve months prior to the scheduled date of such termination (the "Consultation Period", and such period may be extended or shortened upon mutual consent), and the lease agreement shall not be terminated if the lessee does not send a notice of termination to the lessor before the expiration of the Consultation Period. In such cases, the termination date of the lease agreement shall be (i) the first anniversary of the date when such notice of termination is received by the lessor, or (ii) the termination date of the lease agreement as specified by the lessee in such post-consultation notice of termination, whichever comes later ・ Save that either the lessor or the lessee notifies the other party of its intention not to renew the lease agreement, in writing, at least eighteen months before the expiry of the lease period, the lease agreement shall be renewed from the next day of the expiry thereof for five years' term Other: ・ N/A

   (Note) IIF has not obtained the necessary permission from the lessee to disclose this information.

6. Reasons for the Acquisition and Lease

   • Acquisition Highlights

     • Production plant of core precision equipment products of Nikon Corporation ("Nikon")

     • Versatile facility suitable for manufacturing and assembly of variety of products, with good access to central Tokyo

     • New acquisition through CRE (Note) proposal supported by the IIF's past track record of acquisition, and IIF's first investment in a production plant which includes a building

       (Note) CRE is the term often used to describe a relatively new strategic approach increasingly employed by Japanese corporations to re-evaluate the benefits of owning real estate and to manage their real estate needs more efficiently so as to maximize corporate value.

   • Continuity (Likelihood of Long-term Use by Current Tenant)

     • Production plant of Nikon's precision equipment business, engaging in manufacturing of units and parts for industry-leading flat panel display ("FPD") lithography systems

     • The tenants have been continually making a series of capital investments since the opening in 2004 as "Yokosuka Branch of Yokohama Plant". The operation has been conducted as "Yokosuka Plant" since 2012

   • Versatility (Versatility as a Real Estate Asset)

   • Located in Kurihama Techno Park, where plants of major domestic manufacturers are concentrated and which is within walking distance of the closest station and in proximity to an expressway interchange

   • Highly-versatile plant facilities which can meet the needs of various industries' manufacturing plants as plants with eave heights of about 11 m that are equipped with open ceiling space and cranes

   • The fact that Nikon rents the property as a plant from Komatsu NTC Ltd., ("Komatsu NTC"), the seller and former user of the property, demonstrates the versatility of the property which can be adapted for various types of tenants from different industries