K.K. davinci Select Private Placement Presentation for Investors

Transcription

1 May 15, 2008 K.K. davinci Select Private Placement Presentation for Investors

2 1 Disclaimer: This presentation includes forward-looking statements about DA Office Investment Corporation and davinci Select. To the extent that statements in this presentation do not relate to historical or current facts, they constitute forward-looking statements. These forward-looking statements are based on the current assumptions and beliefs of the Group in light of current information and involve known and unknown risks, uncertainties and other factors. Such risks, uncertainties and other factors may cause actual performance to be materially different from any future results, performance, achievements or financial position expressed or implied by these forward-looking statements. This document is not intended as an inducement or invitation to purchase or invest in the products or investment shares of the Group. Nor is the document intended to provide comprehensive information about the business performance and strategies of the Group. Each investment decision requires the independent exercise of judgment in fully reviewing the merits and risks. Investment decisions should not rely solely on the information contained herein and should consider multiple factors using various sources of information. The Group undertakes no obligation to publicly update any forward-looking statements after the date of this presentation.

3 Contents 1. Summary of Private Placement 2. Background of Private Placement 3. Use of Funds 4. Effect on Results 5. Future Financial Strategy 6. Target Dividend for the Investment Corporation

4 3 1. Summary of Private Placement Summary of Private Placement and Allottee The table below summarizes the private placement being conducted by the Investment Corporation and the allottee. Item Number of new investment units to be issued Issue price and total issue prices Allottee and number of investment units to be allotted Summary of Private Placement Date of payment June 4, 2008 Item Business name Business Description 138,905 units (total number of investment units issued: 343,905 units) 431,949 yen (total is 59,999,875,845 yen) K.K. Columbus (number of units to be allotted: 138,905 units) Outline of Allottee K.K. Columbus Established November 2, 2007 Representative Capital Major shareholder, holding, and relationship with asset management company Description (1) Concluding anonymous association contracts and managing investments (2) Acquiring, holding and trading securities (3) Operations incidental or relating to the above President & Representative Director Tsutomu Koyama million yen K.K. davinci Advisors (Holding: %) An interested party with respect to the asset management company Use of Funds The Investment Corporation will appropriate the funds raised through the private placement for the payment of short-term borrowings and the redemption of Investment Corporation bonds. Reasonableness of Issue Terms The issue price is set at 95% of the average closing price of an investment unit of the Investment Corporation in regular transactions in the Tokyo Stock Exchange for the three months until the business day (May 13, 2008) immediately preceding the date of resolution for the issue (May 14, 2008), or from February 14, 2008 to May 13, The issue price is 8% more than the closing price on the business day immediately preceding the date of resolution. Others Issue price Closing price on May 13, 2008 (1) Lock-up for six months 431,949 yen 400,000 yen (2) The Investment Corporation has concluded an agreement with the allottee on cooperation in the event conduit requirements are violated.

5 4 2. Background of Private Placement Rise in Borrowing Costs and Refinancing Risk As shown in graph 1, the average borrowing cost of the Investment Corporation, including loan handling commissions, has increased much more sharply than the average three-month TIBOR rate with interest rate changes. This was caused by a significant increase in the spread requested by securitization lenders, including foreign lenders, which have played a significant role in financing, and the tightening of financing by financial institutions to the real-estate sector in the wake of the subprime mortgage crisis. The Investment Corporation believed that the current situation would continue for some time and assumed record borrowing costs when preparing forecasts for the sixth period. However, the spread required by financial institutions rose beyond the assumption because of the refinancing risk inherent in loans of close to billion due within this year, as shown in graph 2. Cost Cutting and External Growth by Mitigating the Refinancing Risk Although we believe we need to eliminate the refinancing risk as soon as possible, refinancing only through borrowings from financial institutions will be expensive given the circumstances described above. We have consequently elected to raise funds through a private placement in addition to borrowings from financial institutions. In this way, we believe we can reduce borrowing costs and LTV, a situation that will allow us to achieve external growth. LTV = Interest-bearing debt / total assets (on an acquisition price basis) (Note) (Rate of rise (%)) Repayment amount ( million yen) (Accounting period) May 2009 Graph 1: Rising borrowing costs Increase in costs with a change in the financial markets Average borrowing cost Average basic interest rate The average borrowing cost includes loan handling commissions. The average basic interest rate is the simple average of threemonth TIBOR rates with interest rate changes. Rates of increase from the first accounting period are expressed graphically Graph 2: Refinance risk Risk arising from the concentration of due dates (the orange part will be refinanced by December 3, 2008). May Repayment period May May

6 5 3. Use of Funds Repayment of Interest-Bearing Debt Funds to be raised through the private placement will be appropriated for the repayment of part of the interest-bearing debt due within this year. As a result, interest-bearing debt will be markedly reduced, the refinancing risk caused by the concentration of repayment and redemption dates will be substantially mitigated, and funding costs will be reduced. Mitigation of the financing risk through substantial debt elimination Before private placement ( million yen) 45 (to be repaid with cash reserves) Loan balance ( million yen) After private placement Loan balance Amount to be repaid 900 Balance after repayment Repaying 64.5 billion in debt before the private placement ( 99.0 billion) and attenuating refinancing risk Repayment through the private placement A heap of debt reduced through repayment (*) 2008 (Including loans due on December 3) May 2009 (Excluding loans due on December 3) ~~ May * The principal was 30 billion, of which 5.5 billion was repaid (Including loans due on December 3) May 2009 (Excluding loans due on December 3) 2009 May

7 6 4. Effect on Results Change in Dividends The dividend for the sixth period will be 14,232 (down 3.2%) after the private placement. Operating performance for the sixth period will fall to 6,746 ((2) in the table below) from 8,967 (1) after the private placement. However, since gains from the sale of Believe OMORI and davinci MITA will be posted, EPS for the sixth period will decline only a small amount to 14,232 (3) from 14,706. Operating performance for the seventh and subsequent periods will rise from about 8,500 (4) before the private placement to about 9,000 (5) after the placement because of an expected reduction in interest-bearing debt costs. While operating performance will remain largely unchanged, from 8,967 (1) before the placement in the sixth period to about 9,000 (5) in the seventh period after the placement, LTV will fall significantly after the placement after the seventh period, showing external growth potential. Item Before placement (disclosed on Jan. 23) 6th period (*1) 7th and subsequent periods (estimate *1) After placement (disclosed on May 14) Before placement After placement EPS 14,706 14,232 (3) yen yen Gain on sales 5,739 7,486 yen yen EPS less gain on sales (operating performance) 8,967 (1) 6,746 (2) About 8,500 (4) About 9,000 (5) Balance of Interest-bearing debt (million yen) 152,095 83, ,395 83,395 (-43.6%) LTV 54.3% 30.1% 51.8% 30.1% Interest-bearing debt cost (million yen) 2,270 1,805 2,394 1,082 (-54.8%) (*1) Figures for the sixth period and seventh period and thereafter are estimated, based on data available now and involve uncertainties. Estimates for the seventh period and thereafter are computed, based on the figures for the sixth period, considering a certain rise in the basic interest rate. LTV = Interest-bearing debt / total assets (on an acquisition price basis)

8 7 5. Future Financial Strategy Dispersing repayment and redemption dates To respond flexibly to rapid changes in the real-estate market and financial market, we will use leveraged control at an interest-bearing debt rate of 40-50%, and will endeavor to stabilize financing. To prevent refinancing from being concentrated on a certain period, we will disperse repayment and redemption dates so that the amount of repayment and redemption will be about 20 billion in each accounting period. We will increase the rate of long-term loans to 60-70%. Borrowing from a diverse array of lenders, especially domestic financial institutions The Investment Corporation was unable to deal flexibly with the effect of the subprime mortgage crisis because it raised funds primarily from securitization lenders including foreign ones. To respond flexibly to rapid changes in the real-estate market and financial markets, we will borrow from a diverse array of lenders, especially domestic financial institutions. We are negotiating with domestic financial institutions (two city banks, two trust banks, four regional banks, and one life and non-life insurance company) to borrow 20 billion in June through August. Considering secured financing The Investment Corporation has sought unsecured financing to issue Investment Corporation bonds on favorable conditions. Given the deterioration in the market environment, however, it has become difficult to issue Investment Corporation bonds at the financing costs assumed by the Investment Corporation. With a tightening in the financing made available to the real-estate sector by financial institutions, the Investment Corporation is negotiating loans from domestic financial institutions. We will consider secured financing, which will help to negotiate with a greater number of domestic financial institutions.

9 8 6. Target Dividend for the Investment Corporation Target Dividend for the Investment Corporation Internal growth Rent gap in the total portfolio: 31.3% External growth Falling property prices Rising distribution of properties Target dividend High 14,000s Sale of properties Giving priority to the sale of small and regional properties