Tuesday, Oct 24, 2017
Finance | Real Estate | Asia-Pacific | Japan

Mitsui & Co. Logistics Partners

Japan’s first publicly listed J-REIT sharpens its focus on logistics


2 years ago

Takayuki Kawashima, President of Mitsui & Co Logistics Partners
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Takayuki Kawashima

President of Mitsui & Co Logistics Partners

Established only 15 years ago, J-REITs (Japanese Real Estate Investment Trusts) invest in a wide variety of real estate assets, from office buildings to residential buildings, retail facilities and hotels. Japan Logistics Fund, Inc. (JLF) is Japan’s first REIT to own and operate exclusively logistics facilities. Takayuki Kawashima, President of Mitsui & Co. Logistics Partners (asset manager of the JLF), offers his views on the Japanese economy, the mid-long term future of a currently booming logistics market, and the increasing role the J-REIT market is playing in the overall development and growth of Japan’s economy.

 

You have stated that you wish to contribute to the development of the Japanese economy and the welfare of the next generation – how are you currently achieving this?

Our company operates a REIT investing in large-scale logistics facilities. Up until 14 to 15 years ago, Japan’s logistics facilities or warehouses were obsolete and old. They were 40 to 50 year-old warehouses without any air-conditioning. Large, modernized facilities were required for two reasons: warehouses were used for the repackaging of products, not only for storing but also transporting, and there were many part-time female employees. At the time, investments were made in office buildings and condominiums, but no one – including banks, investment bankers and pension funds – would invest in logistics facilities.

As a result of this absence of investments, the facilities continued to depreciate, age and dilapidate. So, in order to renovate them, we were going to establish Japan’s first listed J-REIT to attract investments to build new logistics facilities, and renovate the existing ones. That was about 10 years ago.

Having modern and efficient logistics facilities and warehouses helps improve the process of storage, transporting, and repackaging the products. One of the arteries of any economy is the flow of goods – these facilities will allow a better flow, and will contribute to the Japanese economy and the lives of its citizens.

Investors also need a diverse investment destination, so in addition to office buildings and condominiums, offering a new asset and a variety of real estate is a great advantage to investors. In the US, 10% of the REIT market is the logistics sector; however, in Japan a decade ago, it was 0%. That is when, for the aforementioned reasons, we started and listed the new REIT and succeeded in attracting investors for logistics real estate.

 

How did the idea of developing a logistics property-focused REIT come to pass?

The investors and logistics companies’ needs were there. Investors were looking for new investment destinations besides office buildings. Logistics companies were in search for new logistics facilities. We were able to match up their needs.

The consumers’ perspective was important as well. I knew e-commerce would become a hit for families raising children and the senior citizens who cannot go far for shopping.

 

What is your mid-long term view on the future on the logistics market in Japan?

It is certain that the needs of e-commerce will increase – pushed by our rapid aging of population and low birth rate. We started the logistics REIT due to these needs.

My own child-rearing experience is what motivated me to build modernized logistics facilities. I realized how hard it was to go to a shopping mall carrying a baby. Amazon had just started to enter the market back then and I realized this system would allow consumers to purchase goods such as diapers with a click of a button. I felt certain this would become a big hit.

The increased usability of online shopping is a key to promote women’s roles and status in Japan.

 

How prepared is the market for this extensive forecasted growth?

Logistics facilities are being built and investments are being made on the assumption that the e-commerce sector will increase and users also want e-commerce to expand, so based on these reasons, yes, I believe the market is ready.

 

How do you foresee the logistics market growing even further as countries/industries become ever more globally integrated?

In the domestic market, I believe Japanese logistics companies’ services are the most advanced. Many foreign companies have entered the Japanese market, but they cannot compete with the detailed delivery system of Japanese companies, although some of them have been trying.

However, in foreign markets, detailed services cannot be reflected in the price, and some users may not be requiring such services. Japanese logistics companies have yet to establish a solution to deal with this issue.

The logistics sector will boost when the economy takes off and when e-commerce expands. Those are the real impacts of Abenomics.

 

How do you compare the leased space market against competitor markets such as China, Hong Kong etc?

I can say that Japan’s leased space market is booming compared to those countries. Hong Kong is small, so comparison is not really possible. However China, where the economy is growing, reflects well for such a comparison. China does not require the type of logistics facilities offered in Japan because they do not require such a detailed delivery system.

 

How has the growth and development of J-REITS made a contribution to enhancing the function and heightening the position of Tokyo as a financial center within an ever more global marketplace?

Large amounts of investments in real estate are essential to the growth of a country’s economy. That is why the REIT system in the United States and United Kingdom has developed. The same can be said for Japan as well as Tokyo. This will continue to be the trend.

Pensions require a stable income and can be a part of a diversified portfolio, which includes stocks and bonds. Investment in real estate, including pensions, is very important to investors. REIT, which offers this in a small scale, is a very useful product.

 

The United States has a long and established REIT market whereas Japan is still in its infancy in comparison. With such an interesting product, is the US market of interest to you over the long term?

We do not plan to invest in US logistics facilities. However, we are of course looking to increase the number of investors from the US. Yet in this sector, transparency is important. Japan’s REIT still ranks low in terms of transparency. Also, many of the Japanese corporate managers are not committed to the investors and their needs, so that may refrain US investors.

 

How much increased exposure do you think the TPP, if ratified, will provide Japan?

40% of the global GDP will be accounted for by the countries within the Trans-Pacific Partnership, and Korea and other countries may enter in the future. This is the first main reason for the attention we are gaining and will gain. The second reason is the high abolition rate of tariffs. It is close to 100%, in the upper 90%. For these two reasons, the world, including the Japanese, is showing great interest towards the TPP.

The TPP will have a large impact on trade and logistics. There will be imports of goods never imported before and exports of goods never exported before; we will need a logistics system and facilities able to support that.

 

One of this current administration’s cornerstone policies is to promote the positioning and status of women in society and business, what initiatives do you have in place to promote women within your organization?

Our company has various measures to promote the role of women in the workplace, and I would like to give you a few examples.

First, we communicate clearly to our employees that the workplace is for talented persons to succeed in, regardless of gender. In other words, we offer equal opportunity for men and women. However, we also make clear that there are differences in gender. We offer equality, but we do recognize those differences.

Let me give you an example of the difference I just mentioned. There is a female employee who has just returned from maternity leave. We gave her a great deal of attention. When babies are taken to a nursery for the first time, they are left there for short hours at the beginning, and the hours increase day by day. Similar to that, our female workers have the opportunity to work short hours when they return from maternity leave. She may work one hour the first day, two hours after a week, and half a day after a month.

Maternity leave in Japan is one year. We believe that, because a female worker has been away from the workplace for a year, it may be difficult for her to start working full-time right away, so we give our female employees this type of opportunity.

 

You promote a variety of work plans and flexibility within your organization – how does this compare with the majority of other companies and cultures established in Japan?

Many Japanese companies do have systems and platforms to promote women in the workplace; however, in many cases, the female employees cannot take advantage of them because their supervisors of management level do not understand the systems or platforms provided.

 

Last week we met with Mr. Ishige, the Chairman of Jetro, who said that this was a common misconception and Japan today is very different to that imagined in the West. To what extent do you think Japan can improve its external communication?

That is a very important point. One of the biggest reasons why the Japanese cannot be recognized in this global world is ambiguous. The Japanese cannot speak confidently. Expressions are vague so this leads to a great deal of miscommunication. In a conversation in a global world where language and culture differ, the Japanese must be less abstract and adopt a clearer and more direct style of communication.

For example if I were a manager, a more typical Japanese manager, and I am asked by an investor about the next forecasted period, I would simple say ‘it will grow.’ – It’s very vague and not enough for a potential or existing investor. I, however, will inform him that a certain amount of profit will be made and to achieve that we will take certain measures. I believe clarity is important.

 

To what extent do you think lessons could be learnt and exchanged between the American and Japanese business models?

We should not force them on each other. It is a mistake for the Japanese to do something just because it is the “American style.” As mentioned earlier, the Japanese are extremely detail oriented, and have a very strong spirit of hospitality. Japanese employees always do more than what is described in a job description. These are all good qualities of the Japanese and should be preserved. On the other hand, the negative aspect of Japan is the excessive service. The degree of hospitality may be more than what the consumers need. Changing this may lead to reduction of costs, which will eventually serve businesses and consumers alike.

 

USA Today and its broad readership act very much as a platform to reach the US audience. What message would you like to send them today?

There are two reasons which may trigger interest in our company and which investors may gain advantage from. First, the Japanese logistics sector will go through many changes in the near future with effects from the just mentioned TPP. We are Japan’s first listed J-REIT specializing in logistics properties investment. We are the pioneers in this field, so we are positive we can become the pioneers in the next new paradigm conversion in the logistics sector.

Second, the enhanced role of women in society is the key for Japan. In other words, companies where women can succeed are the only ones that will grow. Our company is the most advanced in Japan in terms of taking progressive measures to support the growth of women in society, and I myself have become quite well known for that.

These are the reasons which offer you a motive to become interested in our company and which will provide you only with advantages. 



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