Real estate trust beneficiary rights
Risk of Price Fluctuations
Although the method is different from direct investment in real estate there are similar risks of price fluctuation caused by various factors such as economic situation, interest rate movements and real estate market condition.
Risk of Occupancy Rate for Real Property
There are risks of decrease in value and dividend caused mainly by three factors below;
- Fluctuation in occupancy rate due to moving of the tenants
- Fluctuation of income due to fluctuation of the rent
- Cost increase in renting business (such as building maintenance expense)
Risks Relating to Tenant
Credit risk such as late payment or unpaid rent may be generated due to alteration of credit condition including business and financial condition of the tenant of real estate subject to investment.
Furthermore, risk of unreasonable loss caused by various activities of a malicious tenant and/or that cannot be controlled for anti-social forces moving in as a tenant could be generated.
Risk of Defects
The value and dividend may decrease due to defects relating to property rights, building structure and function and, ground and geological conditions.
Liquidity Risk (Convertibility into Cash)
Regarding real estate trust beneficiary rights, the liquidity is low in general since there is no exchange institution currently; the acquisition and disposition as well as conversion to cash or buying at proper price may not be available if the transaction must be done at the time specified by the investor.
Risk Relating to Tax and Public Dues
Due to tax system revisions the value and dividend may decrease and accordingly, tax imposed on acquisition, possession and disposition of real estate trust beneficiary rights may increase.
Risks on natural disaster
The value and dividend may decrease due to loss, destruction, and/or deterioration of the real estate caused by unexpected contingencies such as natural disasters or terrorism.
Risks on Currency Rate Fluctuation
In case of the investment in foreign real estate, yen-denominated value and dividend may decrease due to currency rate fluctuation which may affect the investment principal denominated in local currency.
Value and dividend may decrease in case of trading default occurring after the transfer of the payment due to contingencies including system trouble in financial institutions, terrorism, or natural disasters.
Risks on Laws and Regulations Relating to Establishment/Abolishment of Real Estate
Value and dividend may decrease due to increase in the cost caused by establishment/abolishment of laws and regulations relating to trust, trust business, real estate, financial products and other cabinet orders in the future.
Equity Interest in Anonymous Partnership for the Purpose of Investment
in Trust Beneficial Interests in Real Estate
Risk caused by Trust Beneficial Interests in Real Estate
With respect to equity interest in a silent partnership with a purpose of investment in trust beneficial interests in real estate, the same risk as trust beneficial interests in real estate stated above may occur since it is equity interest in anonymous partnership to limited companies that invest in trust beneficial interests in real estate.
Risk of Rising Interest Rate
- a. Risk of Fluctuation in Market Interest Rate
- Dividend may decrease due to rising interest rate since it increases cost for interest payment of bank loans.
- b. Risk on Borrowing Rate Spread
- In general, credit spread that depends on borrowers’ credit capability is added to the market interest rate. However, when the economy slows down or concerns over credit risk in market increase, the same disadvantage generated for interest rate rising may be incurred due to credit spread expansion. The risk becomes larger with floating rate loans or short term funding.
Risk on Ratio for Bank Loans (Leverage)
In general, the higher the bank borrowing ratio is, the more vulnerable the amount available for dividend becomes to fluctuation of interest rate and thus, rising interest rate may decrease the dividend. Moreover, the value and dividend may decrease when the value of the beneficial interest decreases due to financial institution making loans executing security interest to trust beneficial interests in real estate.
Liquidity risk (convertibility into cash)
The liquidity is low in general for equity interest in silent partnership since there is no exchange institution currently. Thus, the acquisition and disposition as well as conversion to cash or buying at proper price may not be available if the transaction must be done at the time specified by the investor.
Risk Relating to Establishment/Abolishment of Real Estate Related Laws and Regulations
Value and dividend may decrease due to establishment/abolishment of laws and regulations relating to real estate, financial instruments and exchange and other cabinet orders in the future. In addition, difficulty may arise in continuing fund operation.
Risk of Investment Instruments and Relevant Persons
Value and dividend may decrease due to difficulty arising in smooth property management for contingencies such as lacking or impaired business execution capability by, or bankruptcy and/or corporate reorganization of real property management and disposition trust trustees, asset management companies, or property management companies. In addition, value and dividend may decrease due to difficulty in smooth property management since liability indemnity may be imposed on the damage given to building facilities and structure due to inappropriate management of them.
Risk Relating to Party-in-Interest Transactions
Any related parties such as real property management and disposition trust trustee, asset management companies and property management companies have been operating or will operate fund management and are in charge to pursue their interests as well as of the third parties over transactions with the customers or of real property funding invested by the customers. Therefore, value and dividend may decrease due to transaction conditions unfavorable for the customers.
Risk of Dependency on Operational Systems or Certain Personnel
Each of our corporate members carries out not only operations relating to proposals on administration policy and/or business strategy and trading but also a significant role in our business operation. However, value and dividend may decrease in case when smooth operation is affected for certain members becoming not able to execute operation for any reason even we endeavor to minimize the risk of dependency on certain members by consolidating our operational system.
Investment Advice “El Camino”
Fluctuations of stock, fixed income, forex, real estate and commodity markets and/or any events on businesses or financial conditions of the issuers or the guarantee companies of securities can make those stock prices highly volatile and cause trading losses.
Emerging Market Risk
Emerging market stocks, including many latest IPO stocks, have merely satisfied the original requirements for such markets, which are substantially milder than those for “Main Market”. In addition companies listed on emerging markets have relatively shorter histories than those listed on Main Market and, therefore, can be fiscally unstable because they are yet to establish firm foundation of their businesses. Since emerging market companies in general are small caps, liquidity of their stocks are limited. Thus their stocks are highly volatile and sometimes difficult to get cashed.
Service Charge Paid by the Customers
Service charge is defined through discussion with clients for each case. Although rates are stated on asset management agreement, we do not disclose the rates to the public in order to protect the customer confidentiality.