MIRAI Corporation (3476)
Stable and defensive growth combined withan attractive credit enhancement profile
Initiating coverage

21 May 2024

Share price: ¥45,750

Market cap: ¥87.3bn• Diversified and set for stable growth - MIRAI Corporation is adiversified J-REIT with core assets in B-class properties. Positioned in
the mid-sized office property market where new building supply islimited and urban retail properties with potential rent hikes andhotels with variable rents, we expect the company to achieve higher
revenue in the medium term. By leveraging the expertise andnetwork of co-sponsor Mitsui & Co (8031), it has diversified its
portfolio into infrastructure providing higher profitability and stable
cash flows. Initiatives to boost internal growth include reducing freerents and rent holidays for offices and introducing and expanding
variable contracts for hotels. We expect external growth
opportunities via public offerings and acquisitions of undervalued
properties, allowing it to reach its medium-term AUM target of¥200bn by the end of 2025.
Source: Bloomberg

High creditworthiness is an advantage• Credit-based competitive advantage – we believe MIRAICorporation’s strengths lie in high creditworthiness and financial
stability backed by its sponsor Mitsui & Co. Domestic rating agency
JCR revised its outlook from Stable to Positive in February 2024; webelieve as AUM exceeds ¥200bn, the issuer rating will likely be raised
from the current A+.
• Medium-term management targets – the company aims to achieve a
NAV per unit of ¥53,000 and a (semi-annual) DPU of ¥1,300 between
2022-25. The AUM target of ¥200bn is set for the end of 2025.
• External growth – in addition to POs (public offerings), the external
growth strategy involves M&A with credit enhancement backed by
Mitsui & Co.’s high creditworthiness.
• ESG – we score the company as ‘Amber’ under our AstrisSustainability model scorecard, scoring relatively highly in the ‘Social’
category.
• Valuations – on our estimates, the shares are trading on P/NAV
FY10/25 of 0.8x and a dividend yield of 5.8%. The dividend yield looks
undervalued compared to the J-REIT industry average of 4.48%.

Price PerformanceYear-end

10/22

10/23

10/24E

10/25E

10/26E

Business Overview

Revenue (¥bn)
NOI (¥bn)
NP (¥bn)
EPU (¥)DPU (¥)
Sales growth YoY (%)
NOI growth YoY (%)
NP growth YoY (%)
EPU growth YoY (%)
DPU growth YoY (%)
P/NAV (x)PER(x)
Distribution yield (%)
AFFO yield (%)
FFO/Unit
FFO payout (%)
AFFO payout ratio (%)

10.94
7.43
4.57
2,579
2,580
+8.5
+11.9
+8.4
+1.7
+1.7
0.89
17.7
5.6
7.1
3,250
79.4
79.4

12.05
7.43
4.60
2,597
2,520
+10.2
-0.1
+0.7
+0.7
-2.3
0.87
17.6
5.5
6.4
3,149
80.0
80.0

12.85
7.64
4.80
2,711
2,575
+6.6
+2.9
+4.4
+4.4
+2.2
0.81
16.9
5.6
7.1
3,219
80.0
80.0

13.25
7.92
4.98
2,810
2,650
+3.1
+3.6
+3.6
+3.6
+2.9
0.81
16.3
5.8
7.3
3,334
79.5
79.5

14.67
9.02
5.67
3,200
3,100
+10.7
+13.9
+13.9
+13.9
+17.0
0.67
14.3
6.8
8.3
3,780
82.0
82.0

Source: Company, Astris Advisory (estimates)1

Abs (%)
Rel (%)

YTD
+5.3
-11.3

1M
+5.1
-5.4

3M
+3.2
-1.9

12M
0.2
-27.4

Company sector
REITS-Diversified
Office REITs (GICS)

Stock data
Price (¥)
Mkt cap (¥bn)
Mkt cap ($m)
52-week range (¥)
Shares O/S (m)Average daily value ($m)
Free float (%)
Foreign shareholding (%)
TickerExchange
Net Debt/Equity (x)FFO leverage (x)BBG BUY│HOLD│SELL

45,75087.3
564.3
42,350-47,900
1.9
2.5
99.0
16.1
3476
TSE
1.0
6.5
0│0│0
Source: Bloomberg

MIRAI Corporation is a mid-sized, diversified J-REIT jointly owned
by Mitsui & Co. and IDERA Capital Partners.

Astris-Sustainability ESG rating
Reference Ratings
MSCI
Sustainalytics
Refinitiv
S&P Global
Bloomberg
CDP

N/A
N/A
N/A
1.0
1.28
N/A

Next events

FP4/x`24 results June 2024
Tel: +81 3 6868 8797
Email: Corporateresearch@astrisadvisory.com

This report has been commissioned and paid forby the company

Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Contents
Summary.................................................................................................. 3
Company description ............................................................................... 5
Sponsors ................................................................................................ 10
Business model ...................................................................................... 11
Response to the pandemic .................................................................... 19
Peer group analysis ............................................................................... 21
Medium-term plans ................................................................................ 25
Recent results ........................................................................................ 27
Astris earnings estimates and key assumptions .................................... 28
Company information ............................................................................. 29
Astris Quant Sheet ................................................................................. 33
Astris-Sustainability ESG assessment ................................................... 35
Areas of discussion ................................................................................ 37

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Summary
A diversified J-REITwith a focus on
mid-sized offices

MIRAI Corporation (“MIRAI”) is a diversified J-REIT jointly sponsored by Mitsui & Co. (8031)
and IDERA Capital Management (majority owned by the Fosun Group (0656 HK)). Almost
half of the assets consist of B-class office properties in three metropolitan areas (Tokyo,
Osaka, and Nagoya), which have limited supply and will face a smaller risk of rental
reductions than the larger A-class office buildings.
The four largest B-class office buildings with more than ¥10bn acquisition prices make up
36% of the portfolio. The rest of the properties are smaller with acquisition prices below¥10bn. The variations in size and property type provide diversification.

Rapid acquisitionsof properties in
FP4/24

Internal growththrough rent hikes& external growththrough potential
M&A

More than 80% of its portfolio comprises properties in major metropolitan areas in Tokyo,
Osaka, and Nagoya. The company plans to expand AUM to ¥200bn during the current
medium-term plan, which will bring more diversification to the portfolio. Five properties
have been added in FP4/24 after the fifth PO as part of a post-COVID reversal. There waslimited AUM expansion during the pandemic when the market was stagnant because thecompany’s focus was more on portfolio reconstruction to enhance the stability of theportfolio than expansion of assets.
As part of its external growth strategy, MIRAI will focus on properties that can benefit fromstructural changes such as domestic inflation and further improvement in inbound demand
from overseas, rather than being confined to investment ratios by asset type alone.
Specifically, this may involve introducing variable rents in hotels, including those with
expiring contracts, as well as considering urban commercial facilities that are more likely tobenefit from inflation or have rents linked to sales. Furthermore, there is an expectationthat opportunities for external growth through M&A, backed by the creditworthiness ofsponsor Mitsui & Co., will also be pursued.
Major Japanese credit agency JCR has an A+ credit rating for MIRAI but revised its outlook
from stable to positive in February 2024. The reasoning was based on an expectation of
stable cash flows driven by MIRAI’s efforts to add more defensiveness to its portfolio. As it
continues to expand AUM, the likelihood of a credit rating upgrade will increase, in ourview. Any upgrade would open up investment in MIRAI to regional financial institutions
that invest in J-REITs, but only those with credit ratings of AA or higher.
The company has embarked on a medium-term strategy (2022-25) based on the following(all increases are compared to FP10/21):•

DPU: ¥1,300 (vs. ¥1,289 in FP10/21)•

NAV/U: Over ¥53,000 (CAGR about +2%)•

AUM: ¥200bn (CAGR about +7%)

Astris Advisory estimates that MIRAI Corporation will drive medium-term growth via thefollowing factors:•
NOI yield
improvement
through rent hikes
and operational
optimisation

Termination of free rent periods and rent holidays – the main driver for internal
growth in our view as more than 50% of the portfolio consists of offices that will
benefit from the termination of free rent periods (a period of rent exemption after
occupancy begins), which were offered to tenants after COVID-19 and rent
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

•

•

•

holidays (a period of rent exemption during a certain period of the contract term)in future.
Increasing variable rent ratio – A shift towards tenancy contracts with variable
rents will expand NOI and DPU on the back of inbound demand from overseas, astrong appetite for domestic travel, and domestic inflation. In particular, hotels
and urban retail properties should benefit.
Improving profitability through office conversions for hotels – MIRAI’s proventrack record in enhancing asset value through operational optimization. For
instance, it has improved profitability by converting some hotels that wentbankrupt during the pandemic into serviced offices.
Acquisition of properties – We believe that external growth through property
acquisitions with POs will be a key driver.

Whilst there is a near-term headwind against offices in Tokyo due to excess supply of S andA class offices, we believe this impact is somewhat mitigated for MIRAI due to their
exposure to mid-sized offices where new supply is relatively limited. The mid-sized officemarket has limited new supply due to budget constraints associated with recent increases
in construction costs. This is why MIRAI puts more focus on mid-sized offices.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Company description
Overview
MIRAI is a diversified J-REIT jointly sponsored by Mitsui & Co. and IDERA CapitalManagement. Listing on the Tokyo Stock Exchange in 2016, it was added to the FTSE/EPRA
Nareit Global Index in 2021. Its investment fund is classified as a diversified REIT with morethan 50% invested in offices, about 21% in retail, and about 18% in hotels. Regionally the
focus has been on three metropolitan areas (Tokyo, Osaka, and Nagoya) with highpopulation concentrations. Properties in these areas make up more than 80% of theportfolio. Most properties are classified as B-class which is defined as buildings older than
15 years and below 30,000 m2 in size. Unlike A-class offices which target a smaller numberof large domestic and foreign corporates, it is relatively easier for B-class office buildings tomaintain more stable occupancy rates and more sustainable cash flows over time becauseof a broader tenant base and limited new supply.

A potential
improvement
towards AA- could
further expand theinvestment
universe

Assets under management totaled ¥178.2bn as of March 2024 with an appraisal value of¥196.2bn and an occupancy rate of 99%. Appraisal NOI yield (based on appraisal value) is
4.7% based on purchase value.
A key competitive strength lies in credit enhancement opportunities backed by Mitsui &Co.’s creditworthiness. The credit rating by JCR is already A+ but a potential improvement
towards AA- or higher could further expand the investment universe to include local
financial institutions that can only invest in J-REITs above an AA credit rating.

Snapshot of achievements
Since its IPO in 2016, MIRAI has achieved the following:•

AUM: +¥77.4bn (+76.9%); ¥100.7bn to ¥178.2bn•

NAV/U: +¥6,810 (+14.9%); ¥45,640 to ¥52,450•

Transactions: acquisitions of ¥110.8bn, dispositions of ¥33.3bn•

Index weight: +0.31%; 0.25% to 0.56%

Timeline summary
Key dates

November 2015
December 2016
May 2018
October 2018
July 2019
August 2019
December 2019
December 2021
December 2021
November 2023
February 2024
Source: Company

Details

Establishment of MIRAI Corporation by Mitsui & Co. & IDERA Partners
IPO
1st PO (public offering)
2nd PO
Attempt to rescue Sakura Sogo REIT Investment as a white knight from Star Asia Group’s TOB. The
acquisition would have expanded MIRAI’s AUM above ¥200bn, facilitating inclusion into a global index.
This was the first TOB in the J-REIT sector.
The attempt of the white knight fell short. Sakura Sogo was acquired by Star Asia at the end
3rd PO
Inclusion into the FTSE/EPRA Nareit Global Index
4th PO
5th POJCR improved MIRAI’s outlook from stable to positive on an A+ credit rating

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Overview of real estate rental income business
Rental income is the only reporting segment:•

Rental income segment (77.9% of FP10/23 operating revenue) – managing
offices, retail, hotels, residential buildings, and other properties.
o Office – accounts for 49.1% of rental income (as of FY10/23 and similarly
for the following) and more than 50% of the portfolio with an appraisal
NOI of 4.4% and after-depreciation yield of 3.6%. There are 12 offices intotal which consist of four larger properties (71% of the office portion of
the portfolio by acquisition price) and eight mid-sized properties (29% byacquisition price). Most of the larger offices are based in Tokyo andKanagawa whereas the mid-sized offices are located across major cities inregional areas.
o Retail – accounts for 25.7% of rental income and more than 21% of theportfolio with appraisal NOI of 4.8% and after-depreciation yield of 4.0%.
Major properties are Mi-Nara, a renovated shopping mall with anappraisal NOI yield of 5.8% and an NOI yield after depreciation of 2.4% aswell as AEON Kasai with an appraisal NOI yield of 5.0% and an NOI yield
after depreciation of 4.1%. We believe that the proportion of urban retailproperties with variable rent contracts is higher for MIRAI than it is forhotels. Furthermore, rent is adjusted to consumption trends as the lengthof tenancy contracts tends to be about three to five years. Therefore, we
see less headroom for further increases than for hotels. Notwithstanding
that, in our view, the trajectory is to expand investments in urban retailproperties to capture the upside stemming from inflation and expansionof inbound consumption.
o Hotel – this business is comprised of 15 regionally diverse budget hotels,
making up about 14.6% of rental income and 18% of the portfolio.
Currently, 52% of properties are managed on variable rent contracts. The
company is on a trajectory to increase this ratio to benefit from rent
increases supported by higher occupancy rates on the back of inbounddemand. In FP4/24, MIRAI added five properties to the portfolio, three of
which are hotels.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

About 50% of rental income is generated by office
FY10/23 rental income by asset type

Residential

Others

1%
10%

Hotel
Hotel
14%

FY10/23

49%

26%

RetailOfficeSource: Company

More than 50% of the portfolio is composed of offices
As of the end of March 2024 (by asset type)

Others
10.0%

Hotel
18.3%

End March
2024

21.0%

50.7%

OfficeRetailSource: Company

Office weighting is falling due to the focus on other property types
Portfolio weighting by asset type (%)

100
90
80
70
60

6.0

7.9

9.2

9.6

10.7

20.4

18.1

17.2

15.9

15.6

17.7

16.4

19.1

21.9

20.9

55.9

57.6

54.5

52.6

52.8

FY22

FY23

50
40
30
20
10
0
FY19

FY20
OfficeFY21
RetailHotel

Others

Source: Company

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

More than 80% of the portfolio is in the three metropolitan areas
End March 2024 property by location

Other areas
17.2%

FP10/23
82.8%

Three metropolitan
areas
Source: Company

NOI trend
Due to the pandemic, NOI declined by 2.5% YoY and 1.9% in FY10/20 and FY10/21
respectively. However, NOI grew by 11.9% YoY in FY10/22 on the back of a recovery fromCOVID-19. NOI growth was also driven by portfolio reconstruction to enhance defensive
characteristics in response to COVID-19.

NOI has significantly increased on the back of a recovery fromCOVID-19
Annual NOI trend and NOI growth rate(¥ mn)

7,600

14

7,400

12
8

7,000

6

6,800

4
2

6,600

Growth % YoY

10

7,200

0

6,400

(-2)

6,200

(-4)
FY19

FY20

FY21
NOI

FY22

FY23

NOI growth rate

Source: Company

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

AUM and diversification expanded through portfolio reconstruction
to enhance defensive characteristics
AUM trend – total and by asset type (¥ bn)

180
160

15.69

15.69

25.93

25.93

29.35

35.73

34.71

87.09

83.84

85.78

87.72

FY20

FY21

FY22

FY23

11.90

14.20

27.42

26.51

24.81

79.99

FY19

143.13
8.65

120

29.17

80

166.26153.90140100

163.13151.20

25.32

2.21

60
40
20

0
OfficeRetailHotel

Residence

Others

Source: Company

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverageSponsors
Access to branding, expertise, and credit enhancement
MIRAI is jointly backed by two sponsors; Mitsui & Co. and IDERA Capital Management:•

Mitsui & Co – one of the largest general trading companies in Japan with a market
cap of ¥11.2tn and a long-term credit rating of A by S&P (as of April 2024). Their
resilient credit rating enables credit enhancement for MIRAI. Being a general
trading company with exposure to comprehensive business realms, Mitsui & Co’s
expertise and network in various projects particularly in New Type assets brings
synergies to MIRAI in the acquisition and management of various properties.

•

IDERA Capital Management – a Japanese real estate manager established in 2001
(formerly MK Capital Management) and majority-owned by the Fosun Group. Its
AUM is ¥472.9bn with 86 properties (excluding MIRAI) as of December 2023. Their
strength lies in the value enhancement of properties and lease management.
Unlike Mitsui & Co., IDERA has expertise in value enhancement for traditional
properties such as offices, hotels, and retail properties.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Business model
Key concepts and unique selling points
MIRAI’s primary focus is to select prime real estate in the three major metropolitan areas inJapan by leveraging its sponsors, Mitsui & Co and IDERA Capital Management. The fundclassifies assets by “Core”, “Core-Plus and “New Type” (the company combines Core Plus
assets and New Type assets and terms these as "Growth" assets). MIRAI aims to add Core
Plus and New Type assets with cap rates higher than the implied cap rate to the portfolio
mix i.e. undervalued assets to achieve a balanced portfolio:•Core – traditional assets including office buildings, retail properties, hotels,
residential properties, and logistics properties with stable rental income and an
occupancy rate of more than 80%. As of the end of March 2024, 88.4% of theportfolio was made up of Core assets.

•

Core Plus – growth assets with better profitability than Core but also offer stable
cash flows. Profitability enhancement is pursued by boosting lease income throughlease-up and small-scale renovation or conversion during the management period.
As of the end of March 2024, Mi-Nara, a shopping mall, is the sole property
classified as Core Plus, making up 2.8% of the portfolio.

•

New Type – Under-penetrated assets in the realm of healthcare, hospital,
education, industrial, infrastructure, entertainment, and forest. In other words,
New Type assets are an area where MIRAI has less experience in investing but also
faces limited competition. These assets are less liquid than Core and Core Plus but
cash flows are more stable than Core Plus. As of the end of March 2024, 8.8% of
the portfolio was made up of New Type assets with an appraisal NOI yield of 5.3%
(vs. portfolio appraisal NOI yield of 4.7%) and an after-depreciation NOI yield of
4.5% (vs. 3.8% for the portfolio).

Based on the above definitions, we ascertain that the current portfolio composition reflects
management’s tilt towards growth but also a strong preference for stable cash flows. As ofthe end of March 2024, Growth assets account for 11.6% of the portfolio. From a risk
management point of view, the company caps Growth assets at a maximum of 20% of theportfolio.

Competitive advantages•

Diversified portfolio – posing resilience in an economic downturn.

•Mid-size offices with stable cash flows – a positive supply and demandenvironment.

•

Credit enhancement with Mitsui & Co’s sponsorship – Mitsui & Co has highcreditworthiness with an ‘A’ LT credit rating by S&P. As a result, MIRAI can secureloans at a competitive interest rate. For example, as of FY10/23, the averageborrowing cost is 0.61%.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage•

Synergies from sponsors – Mitsui & Co and IDERA Capital Management, which
possess different strengths respectively, support acquisitions and portfolio
management.

Value enhancement of properties through synergies with sponsors
Utilizing Mitsui & Co’s expertise and network has been beneficial in the following mannerfor New Type assets:•

Development and acquisition of logistics facility Rokko Island DC with threetemperature zones, which was sourced through Mitsui & Co’s global network(development and property management were undertaken by an affiliatedcompany before the acquisition)

IDERA’s experience in value enhancement of properties was used in BizMiiX Yodoyabashi,
where a hotel was converted into an office. Furthermore, IDERA has great expertise inlease management and its strength lies in traditional assets such as offices, hotels, andretail properties. IDERA owns a hotel operator called The COURT, which operates 17 hotels
in Japan as of April 2024, helping IDERA accumulate know-how in hotel management.
Other cases where IDERA’s knowhow was successfully reflected include:•

Acquisition of and leasing support after the acquisition of large offices such as
Shinagawa Seaside Parktower and Tokyo Front Terrace.

•

At the operator selection competition for Ise City Hotel, which reached the end ofits lease agreement term with the tenant, The COURT was chosen as the new
operator (the company offered the most favorable rental terms).

Internal growth drivers
MIRAI takes various initiatives to improve NOI internally as follows:•

Termination of free rents and rent holidays –to prioritize the improvement ofoccupancy rates in large-scale office properties, free rent periods and rent holidays
were offered during the leasing period during the pandemic and its aftermath.
However, it is anticipated that these measures will be lifted after a certain period.
Furthermore, considering the improvement in market conditions, MIRAI isconsidering reductions of the free rent and rent holidays for new leasingtransactions in the future. We believe these initiatives will be the main source ofinternal growth for NOI and DPU. This is because more than 50% of the portfolio
consists of offices that will benefit from the termination of free rent and rent
holidays.

•

Increasing variable rent contracts – with the recovering business environment,
MIRAI is set to expand variable rent contracts to capture the upside forincremental rental income for hotels and retail properties.

•

Improvement of occupancy rates – MIRAI continuously makes efforts to improve
occupancy rates through initiatives such as converting hotel properties into offices
and leveraging a sponsor's expertise and experience in real estate valueenhancement and lease management. The medium-sized office market, which
MIRAI particularly focuses on, benefits MIRAI's occupancy rates positively due to12
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

limited new property supply and abundant potential tenant candidates. For its
large offices, MIRAI has secured prospective new tenants to fill vacant spaces after
Mercedes-Benz's departure at the Shinagawa Seaside Park Tower, thus avoiding adecrease in occupancy rates. These efforts are likely to result in rent increases overtime.
A downside risk to rental income arises from higher interest rates. However, we believethat MIRAI is better positioned to borrow at more favorable rates than peers, considering
its high creditworthiness and its stable credit rating backed by sponsor Mitsui & Co.

MIRAI expects occupancy rates to decline in the near term
temporarily(¥)
16,40098

16,20096

16,00094

15,80092

15,60090

15,40088

15,20086

15,00084

Occupancy rate %Company forecasts for average occupancy rate and average rent-generating occupancy rate for
offices

10/23* Dotted lines and bars are company forecasts
Avg contract rent (¥) per 1 tsubo (= 3.3 m2) (actual)
Avg occcupancy rate (actual)
Avg rent generating occupancy rate (actual)
Source: Company

External growth drivers
We identify PO (public offerings) and potential M&A key external growth drivers:•

Property acquisitions after POs – management appears conscious of valuations toprevent BPU dilution. At the same time, they are willing to carry out a PO evenwhen P/NAV is below 1x as long as BPU dilution is avoided and expansion of NAV
and DPU can be achieved through acquisitions of undervalued properties. POs
speed up property acquisitions, putting the ¥200bn AUM target in sight. Other
expected benefits include improvements in liquidity and market cap, which will
widen the investor base, and DPU growth.

•

Potential M&A – we believe that MIRAI is well positioned to carry out M&A due tosponsor creditworthiness providing a credit enhancement opportunity for thetarget company. The extent of credit enhancement may vary but past cases offinancing led by a J-REIT with JCR’s A+ rating suggest a 0.2% reduction ofborrowing cost for a target company (assuming debt duration is the same as
MIRAI). We believe that MIRAI’s chances to acquire another REIT would be even13
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

higher if its credit rating was upgraded. Although we view M&A as a catalyst rather
than the underlying thesis, we believe that market consolidation is increasingly
probable in the J-REIT sector on the back of mature market growth. In 2019, MIRAI
attempted an acquisition of Sakura Sogo REIT Investment (as a white knight) after
a TOB by Star Asia Group. Although Star Asia ended up acquiring Sakura Sogo REIT,in our view, this event highlights MIRAI’s proactive stance on M&A.
We believe that a higher unrealized gain margin could also support acquisitions ofproperties; MIRAI can accelerate dispositions and raise cash leading to lower LTV by
repaying debts and also more willingness to acquire assets.

Unrealized gain margin has consistently increased since COVID
Unrealized gain margins (%)

10

8.8

9
7.4

8
7

6.0

6

6.3
5.6

5
4
3
2
1
0
FY19

FY20

FY21

FY22

FY23

Unrealized gain margin
Source: Company

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Portfolio Overview
As of FY10/23, MIRAI’s portfolio consisted of 38 properties in diverse asset categories suchas office, retail, hotel, residence, industrial, and educational buildings. It added three
hotels, one office building, and one retail property from December 2023 to March 2024, fora total of 43 properties now. MIRAI’s office properties face a limited supply in terms ofcompetition from new properties whilst office buildings account for more than 50% of its
portfolio. We believe this is why its portfolio tends to have as high an overall occupancy
rate as 98.5%.
As for office buildings, securing a new tenant is relatively easier for smaller offices thanlarge ones because the pool of candidates is wider, considering more than 99% ofcompanies are SMEs (i.e., main targets for mid-size offices) in Japan.
FY10/23 MIRAI’s portfolio (before pending acquisitions, October 2023)
Asset Type

OfficeProperty Name

Address

Number of
Tenants

Rentable Area (sqm) Occupancy Rate

PML

Shinagawa-ku, Tokyo

20.3

2016

20,288

12.2%

4.4%

3.7%

24

22,206

91.4%

3.1%

Kawasaki-shi, Kanagawa

35.7

2016

23,182

13.9%

4.8%

3.7%

26

22,737100.0%

2.6%

Core

Shinjuku Eastside Square

Shinjuku-ku, Tokyo

11.6

2016

10,000

6.0%

3.5%

2.8%

43

5,774

100.0%

2.3%

CoreTokyo Front Terrace

Shinagawa-ku, Tokyo

31.4

2017

10,592

6.4%

3.6%

3.0%

31

9,721

94.1%

3.0%

Core

MI Terrace Nagoya-Fushimi

Nagoya-shi, Aichi

30.7

2019

8,886

5.3%

4.7%

4.1%

8

11,625100.0%

4.9%

Core

Hiroshima Rijo-dori Building

Hiroshima-shi, Hiroshima

30.5

2020

2,250

1.4%

5.2%

4.4%

13

3,612

100.0%

5.0%

Core

BizMiiX Yodoyabashi

Osaka-shi, Osaka

6.8

2018

2,041

1.2%

3.9%

2.8%

40

1,005

85.1%

5.7%

Core

TCA Building

Osaka-shi, Osaka

29.7

2021

2,120

1.3%

4.5%

3.6%

8

3,213

100.0%

10.6%

Core

Ehime Building/Hiroshima

Hiroshima-shi, Hiroshima

32.3

2022

2,780

1.7%

4.9%

4.2%

21

4,700

100.0%

4.3%

Core

MI Terrace Sendai Hirose-doriSendai-shi, Miyagi

32.3

2022

2,022

1.2%

4.8%

4.2%

18

3,804

92.1%

3.1%

Core

MI Terrace Kita-Ueno

Taito-ku, Tokyo

31.5

2023

3,557

2.1%

4.3%

3.8%

7

3,552

100.0%

5.4%

87,719

52.8%

4.4%

3.6%

239

91,950

96.8%

-

1,702

100.0%

9.1%

27.1

Core

Shibuya World East Building

Shibuya-ku, Tokyo

39.0

2016

3,200

1.9%

5.6%

5.2%

8

Core

THINGS Aoyama

Minato-ku, Tokyo

17.8

2020

2,912

1.8%

3.7%

3.6%

1

998

100.0%

5.1%

Core

MI Cube Sendai Clisroad

Sendai-shi, Miyagi

32.7

2020

1,330

0.8%

4.8%

4.7%

3

1,024

100.0%

3.2%

Core

MI Cube Machida East

Machida-shi, Tokyo

34.5

2023

1,977

1.2%

4.9%

4.2%

9

2,176

85.9%

4.8%

Core

AEON Kasai

Edogawa-ku, Tokyo

40.9

2016

9,420

5.7%

5.0%

4.1%

1

28,338100.0%

10.2%

Core

CAINZ MALL Hikone (land)

Hikone-shi, Shiga

-

2021

3,598

2.2%

5.1%

5.1%

1

85,324100.0%-Core

MaxValu Takatori (land)

Hiroshima-shi, Hiroshima

-

2021

950

0.6%

4.6%

4.6%

1

5,749

100.0%-

Core

Tsurumi Fuga 1

Yokohama-shi, Kanagawa

38.1

2022

5,300

3.2%

4.4%

3.6%

1

9,579

100.0%

3.3%

Core

BIGMOTOR Ginan (land)

Hashima-gun, Gifu

-

2022

1,080

0.6%

4.2%

4.2%

1

6,545

100.0%

-

34.2

2017

4,944

3.0%

5.8%

2.4%

59

43,330

95.3%

9.9%

Nara-shi, Nara

34,711

20.9%

4.9%

4.0%

85

184,764

98.7%

-

Core

Hotel Sunroute Niigata

Niigata-shi, Niigata

30.1
31.2

2016

2,108

1.3%

6.2%

4.5%

1

8,255

94.6%

7.7%

Core

Daiwa Roynet Hotel Akita

Akita-shi, Akita

17.4

2016

2,042

1.2%

5.8%

4.0%

1

7,439

100.0%

4.7%

CoreSuper Hotel Sendai/Hirose-doriSendai-shi, Miyagi

16.8

2016

1,280

0.8%

5.9%

4.9%

1

3,284

100.0%

5.9%

CoreSuper Hotel Osaka/Tennoji

Osaka-shi, Osaka

19.8

2016

1,260

0.8%

5.3%

4.8%

1

2,486

100.0%

14.3%

Core

Super Hotel Saitama/Omiya

Saitama-shi, Saitama

17.3

2016

1,123

0.7%

5.5%

4.3%

1

2,947

100.0%

5.3%

CoreSuper Hotel Kyoto/Karasumagojo

Kyoto-shi, Kyoto

19.8

2016

1,030

0.6%

5.3%

4.7%

1

2,144

100.0%

13.1%

Core

Ise City Hotel Annex

Ise-shi, Mie

32.0

2018

1,800

1.1%

6.0%

4.8%

1

4,099

100.0%

6.9%

Core

Comfort Hotel Kitakami
Hotel Wing International SelectUeno/Okachimachi

Kitakami-shi, Iwate

14.8

2018

820

0.5%

5.5%

3.3%

2

2,961

100.0%

10.2%

Taito-ku, Tokyo

5.6

2018

3,720

2.2%

4.2%

3.6%

1

3,079

100.0%

2.4%

Core

Smile Hotel Naha City Resort

Naha-shi, Okinawa

35.4

2018

4,000

2.4%

4.4%

3.9%

1

9,698

100.0%

2.5%

Core

Smile Hotel Hakataeki-Mae

Fukuoka-shi, Fukuoka

6.7

2018

3,800

2.3%

3.6%

3.2%

1

2,433

100.0%

2.7%

Core

Smile Hotel Nagoya-Sakae

Nagoya-shi, Aichi

15.1

2018

2,950

1.8%

4.2%

3.7%

1

2,909

100.0%

2.6%

25,933

15.6%

4.8%

4.0%

13

51,735

99.1%

-

Hotel

Educational

NOI Yield After
Depreciation

Kawasaki Tech CenterCore

Industrial

Appraisal
NOI Yield

Shinagawa Seaside Parktower

RetailResidence% of thePortfolio

CoreCore-Plus Mi-Nara

HotelAcquisition Price(¥ mn)Core

OfficeRetailProperty age Acquisition year

Core

Fiel Johoku

18.9
Hamamatsu-shi, Shizuoka

22.7

2023

2,210

1.3%

5.1%

4.4%

1

8,747

100.0%

11.0%

New Type Rokko Island DC
Kobe-shi, Hyogo
Odawara Material Storage and Delivery
New Type
Odawara-shi, Kanagawa
Center (land)
Yokohama-Daikokucho Maintenance Center
New Type
Yokohama-shi, Kanagawa(land)

7.5

2018

7,996

4.8%

5.4%

4.1%

1

15,563100.0%

11.3%

-

2021

2,300

1.4%

4.9%

4.9%

1

16,529100.0%

-

-

2022

1,490

0.9%

3.9%

3.9%

1

3,500

100.0%-New Type Tokyo Eiseigakuen Senmongakko

37.6

2020

3,900

2.3%

5.8%

5.1%

1

4,220

100.0%

9.2%

Ota-ku, Tokyo

New Type

13.2

15,686

9.4%

5.3%

4.5%

4

39,813100.0%

-

Total

25.1

166,260

100.0%

4.7%

3.8%

342

377,008

98.5%

2.8%

Source: Company

Strategic asset allocation – hotel
As a diversified REIT, MIRAI will continue to maintain diversification in the portfolio byadding more hotels. This move will be beneficial in many aspects; hotels are located acrossJapan, improving geographical diversification; and NOI improvement for properties with
15
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coveragevariable rent contracts due to strong inbound demand. Given the continuously weak Yen,
we take the view that domestic travel will continue to be a preferred choice for Japanese
tourists as well. This will be a key growth driver alongside inbound demand. With that inmind, we believe that the company will acquire budget hotels across Japan moreproactively.

RevPAR for variable rent hotels (three existing hotels) shows apositive streak after reopening
RevPAR for variable rent hotels (three existing hotels; ¥ ‘000))

7.4

8
7

6.7

6.6

7
6

5.4 5.5

6
5

3.9

4

4.3

4.7 4.8

4.6

4
2.7

3
2

0.4

1

1

1.4

1.7

1.4

1.7

0
01/19

07/19

01/20

07/20

01/21

07/21

01/22

07/22

01/23

07/23

Source: Company

Higher variable rent ratio for hotel and retail
MIRAI has been proactively switching fixed rental contracts to variable contracts on theback of strong inbound and domestic travel demand. For hotels, including the threeproperties acquired within FP4/24, about 52% have variable rents in place. We believe thatthe variable rent contract ratio is already significantly higher for retail properties, which
partly reflects tenancy periods of about three to five years and hence, the feasibility of rent
hikes. Therefore, we believe there is plenty of room for increasing the variable rent ratios,
particularly for hotels.

Shifting away from the three metropolitan areas
MIRAI has strategically shifted its allocation away from the three metropolitan areas overthe past few years to address excessive office supply in the Tokyo area. As MIRAI sought a
better investment environment with a more favorable supply and demand balance andhigher NOI yield, it started expanding into regional offices and hotels. Unlike Tokyo,
regional areas see a limited supply of new properties on the back of higher construction
costs, resulting in higher profitability and stable cash flows. The company sets theminimum exposure to the metropolitan areas as above 70% whilst the current exposure is
83%. Depending on POs in the future, we see room for the metropolitan ratio to decline
further, possibly significantly. This would contribute to NAV improvement.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

MIRAI’s geographical diversification is having a positive impact on
NOI
NOI and portfolio weighting of three metropolitan areas(¥ mn)
7,600

90

7,200

85

7,000
6,800
80

6,600

% of portfolio

7,400

6,400
6,200

75
FY19

FY20
NOI

FY21

FY22

FY23

Three metropolitan areas

Source: Company

Departure of Mercedes-Benz
It is worth mentioning that the occupancy rate for Shinagawa Seaside Parktower, thesecond largest asset in its portfolio, suffered temporarily due to the departure of one
tenant (Mercedes-Benz), which accounts for about 10% of space at the property. The
departure will be completed in May 2024. As a replacement tenant appears to have been
secured, the occupancy rate is expected to recover to 94%, which is slightly lower than thehistorical trend. Considering the attractiveness of the building stemming from office quality
and relatively inexpensive rent, we do not believe this event will pose a major risk to stableproperty management. However, investors seem to view the seaside area in Tokyo as arisky location in response to the recent departures of large tenants in nearby properties
managed by other J-REITs.
Generally, MIRAI intends to increase rents across various properties.
•

Office – Shinagawa Seaside Parktower and Tokyo Front Terrace, which made up
17.3% of the portfolio as of the end of March 2024, are expected to enjoy a rent
recovery with the termination of free rents and rent holidays and potential rent
increases on the back of improving market environment post-COVID. It is worth
noting that office tenancy length tends to be as short as about two years ingeneral. As such, in an inflationary environment, rent hikes can be carried out on amore timely basis.

•

Retail – MIRAI has successfully implemented a rent hike of 10% at the Shibuya
World East Building (1.8% of the portfolio) whilst securing new tenants to replace
previous ones that departed after the pandemic. We think urban retail properties
will likely continue to be in a favorable environment for rent hikes on the back ofrobust inbound consumption and positive consumer sentiment.

•

Hotel – Provided rapid increases in RevPAR thanks to inbound demand as well as astrong appetite for domestic travel by Japanese residents due to the weak Yen. We
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coveragesee ample room for rent hikes for properties with variable rent contracts. About
52% of properties have variable rent contracts in place, including upside-type
contracts where current fixed rents can be revised up if hotel performance exceeds
a certain threshold. Even for the remaining 48% of the properties with fixedtenancy contracts without any upside clause, we believe MIRAI will be able tointroduce variable rent contracts as existing contracts get reviewed. Four existing
properties have tenancy contracts that will expire by 2027, out of a total of eight
hotels with fixed rent contracts. Another reason why hotels managed by MIRAI
may find it relatively easier to implement rent hikes is the company focuses on
smaller, budget hotels. These properties do not command high rental levels
compared to resort hotels or full-service hotels. That said, because of construction
cost inflation, it has become less feasible to develop such smaller hotels from abudgetary point of view. Therefore, hotel operators will likely be more aggressive
in expanding entrusted operations (i.e. signing lease agreements) for existing hotel
properties, which should lead to structural upward pressure on hotel rents andexisting tenancy contract renewals.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Response to the pandemic
During COVID-19
MIRAI’s large office buildings such as Shinagawa Seaside Parktower and Tokyo Front
Terrace suffered a decline in occupancy rates because of the partial tenancy termination by
the JTB Group, a major Japanese travel agency, from the property due to deterioration in
their deteriorating business environment and the introduction of working-from-home bylarger corporates. In response, MIRAI offered longer free-rent periods as well as rent
holidays to new tenants to retain occupancy rates.

Occupancy rates saw some recovery after COVID but there is stillroom for further recovery
Occupancy rates by asset type (%)

100
99
98
97
96
95
94
93
92
FY19
OfficeFY20

FY21

RetailHotel

FY22
Others

FY23
Total

Source: Company

Post COVID-19
As of FY10/23, the occupancy rate for offices recovered to nearly 97% but this was still
below the pre-COVID-19 level. However, as of March 2024, the office occupancy rate was
98.6%, close to the FY10/19 level. Likewise, the occupancy rate for retail is in recovery but
still below the level seen in FY10/19.
Rent for these larger offices is around ¥15,000-¥16,000 per month, which is below prepandemic levels. We believe that MIRAI will be able to increase the monthly rents as theoffice market continues to recover. At the same time, we believe that MIRAI will be able toterminate the rent holidays and free rents offered for the leasings that were triggered by
the pandemic, which should improve profitability. For mid-sized offices, MIRAI has
managed to increase monthly rents whilst maintaining occupancy rates.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

The departure of JTB Group dragged down the occupancy rate ofTokyo Front Terrace
Occupancy rates of MIRAI’s larger office buildings (%)

100

95

90

85

80
FY21

FY22

FY23

Shinagawa Seaside Parktower

Tokyo Front Terrace

Source: Company

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Peer group analysis
We have selected the following peers to assess MIRAI’s returns and valuations:
Domestic companies
Company
Heiwa Real Estate REIT, Inc.
Star Asia Investment Corp.
Ichigo Office REIT Investment
Corporation
Global One Real Estate
Investment Corporation
One REIT. Inc.
Tosei Reit Investment
Corporation
Marimo Regional Revitalization
REIT, Inc.

Description
Invests mainly in offices and residentials in the Tokyo and Osaka areas.
Well-diversified J-REIT, which competed over an acquisition of Sakura Sogo
REIT Investment with MIRAI Corporation in 2019.
Focuses on older offices with the age of about 30 years on average in Tokyo
and Osaka areas.
Office-focused J-REIT with multiple sponsors such as Meiji Yasuda Life
Insurance Company, Kintetsu Corporation, and Mori Building Co., Ltd.
Office J-REIT is backed by Mizuho Financial Group.
Tokyo-based J-REIT with the main focus on residential and office buildings.
Invests predominantly in residential and commercial properties across various
regions in Japan.

Source: Companies, Bloomberg

This is a customized and limited peer group within the scope of mid-cap, diversified, office
J-REITs. We did not include overseas peers as REITs are subject to local market
characteristics making like-for-like comparisons difficult.

Core findings•

Valuations – The average 1-year dividend yield is 3.8%, which is significantly higher
than the JGB 10-year yield and indicates undervaluation. P/NAV also remains below 1x,
which makes the sector appealing. The J-REIT with one of the lowest valuations (P/NAV
0.78x, PBR 1.05x) is Global One Real Estate Investment Corporation (8958). We believe
its valuations are low due to a concentration of relatively new office buildings with highpurchase prices. On the other hand, well-diversified J-REITs such as Tosei Reit
Investment Corporation (3451) and Star Asia Investment Corp. (3468) are valued higher
in the peer group on P/NAV. We believe this highlights investors’ preference for morediversified portfolios. That said, they still appear undervalued on dividend yields.

•

Leverage – Peer group LTV remains at 53.3%. This indicates that MIRAI with an LTV of
51.0% has a conservative stance on debt policy. Whilst all companies in the peer group
have more or less similar levels of LTV, interestingly there are more variations in net
debt to EBITDA. For instance, net debt to EBITDA at Ichigo Office REIT Investment
Corporation (8975)is the lowest whilst its LTV is the highest in the peer group.
Conversely, MIRAI’s net debt to EBITDA is the highest whilst its LTV is one of thelowest. This is partly because of the mechanics of net debt to EBITDA, which comparesa static (i.e. balance sheet) item to a flow item (i.g. P/L) unlike net debt to equity, which
compares two static items. Therefore, as profitability normalizes, the variations in theleverage metrics should revert to the mean over time.

•

Portfolio characteristics:o

NOI yield - Compared to peers, MIRAI’s NOI yield and PML are slightly below
the average, indicating that MIRAI's portfolio has more stability.

o

Diversification - In comparison with other well-diversified J-REITs such as Star
Asia and Marimo, MIRAI is more tilted towards office buildings.
21
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverageoAverage age of properties - MIRAI's properties are slightly older than the peer
average. This is because it focuses more on mid-sized offices and budget
hotels where there is a limited supply of new buildings.

oNumber of tenants - Compared to its peers, MIRAI has fewer numbers oftenants per property. This shows that MIRAI's properties tend to be smaller
than their peers.

Our view is that MIRAI is undervalued. MIRAI looks undervalued both on dividend yieldand P/NAV compared to peers. MIRAI trades at 0.87x on P/NAV, which is below the closest
comparable J-REITs with more diversified portfolios such as Heiwa Real Estate REIT, Inc.
(8966), Star Asia Investment Corp. (3468) and Marimo Regional Revitalization REIT, Inc.
(3470). We believe investors may be overlooking the diversification of MIRAI’s portfolio
and more stable cash flows. From a dividend yield perspective, the 5.1% dividend yield for
MIRAI looks undervalued compared to Global One Real Estate Investment Corporation(8958), which lacks portfolio diversification and has a lower NOI yield.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Despite attractive dividend yields, P/NAV remains below 1x in the J-REIT sector
Peer analysis of key profitability and valuation metrics
Valuations
Company

Dividend yield (%)
10 Yr
FY1 Yield
Ave
Yield
5.1
na
4.0
3.2
5.5
3.8
4.9
na

MIRAI Corporation
Heiwa Real Estate REIT, Inc
Star Asia Investment Corp.
Ichigo Office REIT Investment
Corporation
Global One Real Estate
4.0
Investment Corporation
One REIT. Inc.
5.1
Tosei Reit Investment
5.3
Corporation
Marimo Regional Revitalization
5.2
REIT, Inc.
Average
4.9
Source: FactSet, Bloomberg, Astris Advisory

P/ NAV (x)Reported

10 yr Avg

10 yr StDev

SD from
Mean

na
3.2
3.8
na

0.87
0.94
0.97
0.82

0.84
0.96
0.87
0.97

0.30
0.14
0.19
0.14

5.6

4.5

0.78

0.74

na
na

na
na

0.92
0.95

2.5

2.5

3.8

3.5

FY2 Yield

PER (x)12M Fwd

10 yr Avg

10 yr StDev

SD from
Mean

PBR (x)Reported

10 yr Avg

10 yr StDev

SD from
Mean

0.1
(0.1)
0.5
(1.0)

na
37.4
27.0
na

20.3
32.6
21.1
22.4

8.3
9.5
5.5
3.0

na
0.5
1.1
na

0.99
1.36
1.13
1.19

1.07
1.27
1.04
1.29

0.20
0.26
0.09
0.16

(0.4)
0.4
1.1
(0.6)

0.28

0.2

18.7

36.0

11.5

(1.5)

1.05

1.12

0.13

(0.5)

0.90
0.91

0.25
0.07

0.1
0.5

na
na

na
34.3

na
2.7

na
na

1.15
1.27

1.13
1.12

0.24
0.10

0.1
1.5

0.92

1.00

0.19

(0.4)

46.8

37.5

5.5

1.7

1.23

1.19

0.13

0.3

0.90

0.90

0.19

(0.0)

32.5

29.2

6.6

0.4

1.17

1.15

0.16

0.2

KPI and leverage
KPI (%)
Company

MIRAI Corporation
Heiwa Real Estate REIT, Inc
Star Asia Investment Corp.
Ichigo Office REIT Investment Corporation
Global One Real Estate Investment Corporation
One REIT. Inc.
Tosei Reit Investment Corporation
Marimo Regional Revitalization REIT, Inc.
Average
Source: FactSet, Bloomberg, Astris Advisory

Occupancy
Rate
98.5
97.6
97.9
95.9
96.3
98.7
96.4
99.0
97.5

Leverage

NOI Yield/Implied Cap
Rate
4.0
3.5
4.1
3.8
3.6
4.4
5.0
4.4
4.1

Cap Ratebased on BVNOI Yield
After Deprec

FFO Payout
Ratio

AFFO Payout
Ratio

LTV(%)Net debt/
Equity (x)Net debt/
EBITDA (x)JCR LT
IssuerJCR
Outlook

3.9
4.6
4.4
4.4
3.7
4.8
5.6
4.8
4.5

3.0
3.7
3.6
3.5
2.8
3.8
4.5
4.0
3.6

80.0
87.6
85.1
138.5
86.9
n.a.
75.7
78.3
90.3

80.0
87.6
84.9
138.5
85.4
n.a.
75.7
77.6
90.0

51.0
54.1
50.9
56.5
50.4
54.8
54.2
54.2
53.3

1.0
0.8
0.7
0.9
0.9
0.9
0.8
1.0
0.9

12.0
9.1
8.8
7.2
10.4
9.6
7.9
9.1
9.3

A+
AAA+
A+
AAA+
A
A-

POS
STABLESTABLESTABLESTABLESTABLESTABLESTABLE

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Portfolio data (1)TickerCompany

Portfolio data
Key sponsors/shareholders

Year oflisting

No. ofassetsNo. oftenants

Totalpurchaseprice (¥bn)

Total GBA
(m2)

Purchaseprice/asset(¥bn)

GBA/asset

Avg age ofproperties

3476 JPMIRAI Corporation

Mitsui & Co.,Asset Management Holdings Ltd(50%), IDERA Capital Management Ltd. (50%)

2016

43

342

178

393,916

4.1

9,160

26.2

8966 JP

Heiwa Real Estate REIT, Inc.

HEIWA REAL ESTATE CO., LTD. (100%)

2005

127

5,921

232

263,123

1.4

2,072

23.3

3468 JPStar Asia Investment Corp.

Star Asia Asset Management LLC. (100%)

2016

71

1,742

244

585,164

2.5

8,242

21.6

8975 JP

Ichigo Office REIT Investment Corporation

Ichigo Inc. (100%)

2005

88

1,008

212

269,107

2.0

3,058

30.6

8958 JP

Global One Real Estate Investment Corporation

Meiji Yasuda Life Insurance Company (10%), Kintetsu
Corporation (10%), Mori Building Co., Ltd. (10%)

2003

15

207

209

153,228

11.9

10,21518.43290 JPOne REIT. Inc.

Mizuho Realty One Co.,Ltd. (100%)

2013

32

574

124

256,859

5.6

8,027

33.6

3451 JP

Tosei Reit Investment Corporation

Tosei Corporation (100%)

2014

62

2,469

83

196,171

2.9

3,164

30.2

3470 JP

Marimo Regional Revitalization REIT, Inc.

Marimo Co., Ltd. (100%)

2016

52

1,591

50

230,552

3.4

4,434

15.7

-

61

1,732

-

-

4.2

5,981

25.0

Osaka
area

Other areas

Other data(%)
Probable
Maximum
Loss (PML)

Average
Source: Japan-REIT.com, company

Portfolio data (2)TickerCompany

Asset Type(%)
OfficeResidential

RetailHotel

Logistics

OthersGeographic
diversification
Tokyo area

3476 JP
8966 JPMIRAI Corporation
Heiwa Real Estate REIT, Inc.

50.7
47.0

1.2
49.6

21.0
3.4

18.3
-

4.5
-

4.3
-

57.8
73.9

14.4
16.6

27.8
9.5

2.7
3.9

NOI Yield(NOI/totalpurchaseprice)
4.5
4.9

3468 JPStar Asia Investment Corp.

31.1

16.1

11.5

28.8

11.6

0.9

63.2

19.7

17.1

n.a.

4.8

8975 JP8958 JP
3290 JP

Ichigo Office REIT Investment Corporation
Global One Real Estate Investment Corporation
One REIT. Inc.

97.6

-

2.4

-

-

-

75.9

14.4

9.7

3.4

5.3

100.0
100.0

-

-

-

-

-

75.3
70.7

16.5
19.8

8.2
9.5

1.8
5.6

4.0
5.0

3451 JP

Tosei Reit Investment Corporation

41.0

52.1

6.9

-

-

-

99.1

0.9

-

4.6

6.0

9.5

42.0

33.8

5.0

2.3

7.4

19.0

30.6

50.4

1.3

6.3

59.9

20.1

9.5

6.5

2.3

1.7

66.9

18.3

14.9

3.3

5.1

3470 JP
Marimo Regional Revitalization REIT, Inc.
Average
Source: Japan-REIT.com, company

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Medium-term plans
POs will be key for NAV and DPU targets
MIRAI is targeting ¥200bn for AUM and a DPU of ¥1,300 (semi-annual) by the end of 2025.
Management keeps close track of P/NAV and seems hesitant to raise capital at low valuations.
This stance should be positively viewed by investors. However, we also see risks in acontinuously low valuation, which could act as a barrier for a PO. Conversely, as the shareprice recovers, the likelihood of a PO may increase, leading to more acquisition of properties
and potential M&A of a peer company in our view.

DPU has declined due to COVID but it is in a recovery trend
Annual MIRAI’s DPU (¥)

3,500
3,000
2,500
2,000
1,500

2,999

3,100

2,990
2,537

2,580

FY21

FY22

2,520

2,575

2,650

FY23

FY24

FY25

1,000
500
0
FY19

FY20

FY26

*Dotted areas are Astris' estimates

Source: Company, Astris Advisory

Acquisition of own investment units
MIRAI does not rule out an option to buy back its investment units. This would signal thatmanagement regards the unit price as undervalued and potentially improve DPU and NAV/U.
The challenge is upward pressure on LTV levels which trend at around 50% currently.

Credit enhancement and M&A
MIRAI has been consistently given an A+ rating by JCR, a Japanese credit agent. Considering
the recent AUM expansion and creditworthiness supported by Mitsui & Co’s sponsorship,
we believe that the possibility of a credit rating upgrade to AA- has increased. Moreover,
JCR revised its outlook from stable to positive in February 2024, which also indicates thatMIRAI is better positioned for a potential credit rating upgrade. An AA- rating would
expand the investment universe and facilitate investments by regional investors who can
only invest in J-REITs above an AA credit rating. This would be positive for the investment
unit price and future potential POs. Should that be realized, the already reasonably high25
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

MIRAI credit rating would be attractive to other J-REITs that are struggling due to poorer
creditworthiness if they decide to consider a merger with MIRAI. The extent of credit
enhancement of a target company may vary but past cases of financing led by a J-REIT with
JCR’s A+ rating suggest a 0.2% reduction in borrowing costs for a target company (assumingthat the remaining debt durations are the same). We believe that MIRAI’s chances toacquire another REIT will be even higher if its credit rating is upgraded.

DPU will likely increase thanks to internal growth initiatives andinflation
Inflation can increase real estate management expenses but we believe this can be morethan offset by the termination of free rents and rent holidays, rent hikes, an improvementof occupancy rates, and higher NAV of the portfolio. This should be positive for DPU overall.

Higher interest rates can negatively impact dividends
Whilst we believe NOI expansion will result in stable dividend payments, higher borrowing
costs can hurt J-REIT distributions. However, MIRAI is relatively better-positioned thanks tocredit enhancement support from Mitsui & Co, which should mitigate borrowing costpressure better than at peers.

M&A
MIRAI is considering M&A to augment growth and is likely to be proactive should the righttarget come along. A potential target would be a J-REIT that has failed to execute external
growth and carry out a PO over an extended period or initial sponsorship plans announced
at IPO. Another crucial aspect is credit enhancement. A J-REIT with poor creditworthinesscould enjoy credit enhancement thanks to Mitsui & Co.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Recent results
FP 10/23 rental income increased but higher other expenses hurt net
incomeKey financials(¥bn)

FP 10/22

FP 10/23

YoY (%)

Operating revenue
Real estate expenses
Net operating income (NOI)
Other expenses - total
Tax expense/benefit
Net income

5.67
1.83
3.72
1.51
0.00
2.32

5.74
1.99
3.75
1.59
0.01
2.15

+1.4
+8.8
+0.8
+5.4
-7.4

DPU
FFO payout ratio (%)

1,313
81.0

1,215
75.2

-7.5

Source: Company

Inbound demand continued to support growth in hotels whilst
offices enjoyed a recovery in occupancy ratio
Per business segment(¥bn)

FP 10/22

FP 10/23

YoY (%)

5.67
2.31
1.18
0.67
0.43

5.74
2.31
1.27
0.64
0.07
0.45

+1.4
+0.0
+7.5
-4.2
+4.8

Operating revenue
OfficeRetailHotel
Residential
Others
Source: Company

Key highlights
FP 10/23 results were mixed. In the office rental market, there is a trend of increasingly
going into the office, particularly in the Tokyo metropolitan area. Therefore, the occupancy
rate in large-scale offices in the Tokyo area increased in the previous period. Since thisnormalization impact was already incorporated, the occupancy rate has remained flat.
Hotel properties continued to see benefits from inbound demand but performance
declined YoY because a property in Naha, which had been fully utilized as a facility for thetreatment of mild COVID-19 cases, returned to normal operation. Retail showed a positive
result YoY with rental income growth from Mi Nara, which achieved the highest level ofrent on record.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Astris earnings estimates and key
assumptions
Our current earnings estimates conservatively reflect slow growth in FY10/25 due todownward pressure on office rents inflected by the excessive supply of new large offices inTokyo in 2025. However, we expect a strong recovery in FY10/26 on the back of thenormalization of the large-scale office market and positive impacts associated with thetermination of free-rent and rent holidays, improvement of occupancy rates, and rent hikes
across various types of properties.
Our key earnings forecasts are as follows:
Astris Advisory earnings estimates
Year-end
Revenue (¥bn)
Growth YoY (%)

FY10/24E
12.85
+6.6
+6.6

NOI (¥bn)
NOI growth YoY (%)
NOI Margin (%)
NP (¥bn)
NP growth YoY (%)

59.5
4.80
+4.4

FY10/25E
13.25
+3.1
+3.1
7.92
+3.6
59.8
4.98
+3.6

EPU (¥)EPU growth YoY (%)

2,711
+4.4

2,810
+3.6

3,200
+13.9

DPU (¥)DPU growth YoY (%)

2,575
+2.2

2,650
+2.9

3,100
+17.0

7.64
+2.9

FY10/26E
14.67
+10.7
+10.7
9.02
+13.9
61.5
5.67
+13.9

Source: Astris Advisory

The core assumptions of our estimates are as follows:•

Revenue growth – single-digit revenue growth expectations in FY10/24 and FY10/25
followed by double-digit growth in FY10/26. We believe that internal growth fromoffice operations will be the most important driver for the growth given that morethan 50% of the portfolio consists of offices.

•

Profitability – a gradual improvement in NOI margin with increasing revenue YoY;
internal growth will drive a margin recovery.

•

DPU – the company is guiding a ¥1,300 (semi-annual) DPU target for the current
medium-term management plan ending in FY10/25. We estimate internal growth
will lead to DPU expansion.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Company information
MIRAI Corporation Management (3 members, 0% female ratio, 67%
outside members) (As of 31 March 2024)
Executive Director
Number of shares held
Career history
April 1989
March 2002
November 2006
April 2007
July 2007
January 2009
September 2016
September 2016

Supervisory
Director
Number of shares held
Career history
May 2001
July 2010
April 2012
September 2016
January 2017
October 2021

Supervisory
Director
Number of shares held
Career history
November 1995
April 2003
June 2003
July 2005
November 2012
April 2015
December 2015

Michio Suganuma
Joined Long-Term Credit Bank of Japan Co., Ltd. (Now SBI Sumishin Net Bank, Ltd.)Real Estate Finance Department (same company)
Joined Mitsui & Co., Ltd., Financial Products Department, Structured Finance Division
REIT Department, Financial Products Department (same company)
Head of Asset Management Department, Mitsui & Co., Realty Management Co., Ltd.
Director, Head of Asset Management Department, (same company)
Mitsui & Co., Asset Management Holdings Co., Ltd.
President, Mitsui & Co., IDERA Partners Co., Ltd. (Current)
Executive Director, MIRAI Corporation (Current)

Takahiko Negishi
Joined Hamada Matsumoto Law Firm (Now Mori Hamada & Matsumoto Law Firm)
Joined Masuda Partners Law Firm
Mitsui & Co., Logistics Partners Co., Ltd.
External Specialist, Internal Control Committee (Current)
MIRAI Corporation, Supervisor (Current)
Joined Vanderfalke Law Firm (Current)
Mitsui & Co., Digital Asset Management Co., Ltd.
External Member, Compliance Committee (Current)

Hidehiro Nishii
Joined Yubiki Accounting Center Co., Ltd.
Shin Nihon Audit Corporation (Now EY Shin Nihon LLC)
Azusa Audit Corporation (Now Azusa Audit LLC)KPMG Tax Corporation
Hidehiro Nishii Certified Public Accountant & Tax Accountant Office
Axel Partners Co., Ltd. President (Current)
IDERA REIT Investment Corporation (Now MIRAI Corporation) Supervisor Director(Current)

Management from senior officers from Mitsui & Co and IDERA
Capital Management (7 members, 0% female ratio, 43% outside
members) (As of 31st March 2024)
President and CEO
Number of shares held
Career history
April 1989
March 2002
November 2006
April 2007
July 2007
January 2009
September 2016
September 2016

Michio Suganuma
Joined Long-Term Credit Bank of Japan Co., Ltd. (Now SBI Sumishin Net Bank, Ltd.)Real Estate Finance Department (same company)
Joined Mitsui & Co., Ltd., Financial Products Department, Structured Finance Division
REIT Department, Financial Products Department (same company)
Head of Asset Management Department, Mitsui & Co., Realty Management Co., Ltd.
Director, Head of Asset Management Department, (same company)
Mitsui & Co., Asset Management Holdings Co., Ltd.
President, Mitsui & Co., IDERA Partners Co., Ltd. (Current)
Executive Director, MIRAI Corporation (Current)29
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Representative Director
Senior Vice President, CIO
Number of shares held
Career history
April 1996
September 2005
July 2006
December 2007
August 2008
December 2010
June 2011
May 2012
September 2012
August 2015
September 2016
January 2018
April 2019

Director, CFO, and General Manager
of Operations
Number of shares held
Career history
April 1997
November 2000
April 2002
June 2003
July 2007
November 2019
December 2020
November 2022
November 2022

Director
Head of Investment Operations
Number of shares held
Career history
April 1999
February 2007
April 2013
January 2018
March 2018
August 2020
May 2022
June 2022
July 2022

Hironori Iwasaki
Joined Yamada Construction Co., Ltd.
Joined Globance Co., Ltd.
Head of Acquisition Division (same company)
Executive Officer, Head of Acquisition Division (same company)
Joined Atlas Partners Co., Ltd. (Now IIDERA Capital Management Co., Ltd.)
Head of Real Estate Asset Management Department (same company)
Executive Officer, Head of Real Estate Asset Management Department (samecompany)First Group Leader of Asset Management, IDERA Capital Management Co., Ltd.
First Group Leader, Asset Management Department, IDERA Capital Management Co.,
Ltd., concurrently Deputy Department Head, Director
Director, Head of Investment Operations Department, IDERA Asset Management Co.,
Ltd. (Now Mitsui & Co., IDERA Partners Co., Ltd.)
Head of Investment Operations Department, Mitsui & Co., IDERA Partners Co., Ltd.
Director, Head of Investment Operations Department, (same company)
Senior Executive Vice President, CIO, same company (Current)

Shinkan Ueda
Joined Mitsui & Co., Ltd.
Mitsui & Co. (Shanghai) Ltd.
Mitsui & Co., Ltd.
Mitsui & Co. (Guangdong) Ltd.
Mitsui & Co., Ltd.
Mitsui & Co., Asset Management Holdings Co., Ltd. General Manager of Operations
Head of Business Strategy Department and General Manager of Operations (samecompany)
Deputy General Manager, Business Department, Mitsui & Co., IDERA Partners Co.,Ltd.
Director, CFO, and General Manager of Operations, same company (Current)

Tomoki Kohara
Joined Nissho Iwai Corporation (Now Sojitz Corporation)
Morgan Stanley Properties Japan Co., Ltd. (Now Morgan Stanley Capital Co., Ltd.)
Hulic Co., Ltd.
Hulic REIT Management Co., Ltd. Deputy Head of Investment Operations
Star Asia Management Japan Limited, Tokyo Branch Director
Star Asia Investment Advisory Co., Ltd. Director and Head of Investment Operations
Star Asia Management Japan Limited, Tokyo Branch Director
IDERA Capital Management Co., Ltd. Director
Mitsui & Co., IDERA Partners Co., Ltd. Deputy Head of Investment Operations
Director, Head of Investment Operations (same company) (Current)30
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Director(Non-executive)
Number of shares held
Career history
April 1990
April 1995
August 1995
August 1996
July 1998
April 2003
April 2004
February 2006
April 2010
January 2014
March 2015
July 2016
October 2017
May 2019

April 2020

Director(Non-executive)
Number of shares held
Career history
April 1999
December 2007
January 2019
September 2019
April 2022
April 2023

Auditor(Non-executive)
Number of shares held
Career history
April 1986
June 1997
November 2002
April 2005
October 2006
April 2008
November 2009
July 2012
July 2013
June 2023

Tamotsu Hagino
Joined Mitsui & Co., Ltd.
Development Department, Development Project Division, same company
Trainee in Indonesia (in Jakarta), same company
Jakarta Office (same company)
China Branch Office (same company)
Urban Development Business Division, Service Business Department, same company
Japan Real Estate Asset Management Co., Ltd.
Consumer Services Business Department, Urban Development Business Division,
Mitsui & Co., Ltd.
MBK REAL ESTATE Holdings Inc., Senior Vice President (based in California, USA)
Business Coordination Department, Mitsui & Co., Ltd.
Consumer Services Business Division, Business Support Section Chief, concurrently
Investment General Coordination Office, Business Coordination Department (samecompany)
Urban Development Business Division, Consumer Business Headquarters, Fourth
Overseas Development Section Manager, same company
MBK REAL ESTATE ASIA PTE LTD., Chief Administrative Officer (based in
Singapore)
President, Mitsui & Co., Asset Management Holdings Co., Ltd. (Current)
Director (Non-executive), Mitsui & Co., Realty Management Co., Ltd. (Current)
Director (Non-executive), Mitsui & Co., Logistics Partners Co., Ltd. (Current)
Director (Non-executive), Mitsui & Co., IDERA Partners Co., Ltd. (Current)
Director, Mitsui & Co., Digital Asset Management Co., Ltd.

Seiji Takeuchi
Joined The First Bank of Mitsui (Now Mizuho Bank, Ltd.)MK Capital Management Co., Ltd. (Now IDERA Capital Management Co., Ltd.)
Nisshin LLC, Business Executive Officer (Current)
IDERA Capital Management Co., Ltd.
Head of Acquisition Department
Senior Executive Vice President and Head of Acquisition Department (same company)
President (same company) (Current)

Jun Notoya
Joined Mitsui & Co., Ltd.
TRI-NET LOGISTICS (ASIA) Pte. Ltd.
Mitsui & Co., Ltd.
TRI-NET LOGISTICS (EUROPE) GmbHMITSUI & CO. DEUTSCHLAND GmbHMITSUI & CO. EUROPE PLC
Mitsui & Co., Ltd.
Mitsui & Co., Human Resources Development Co., Ltd. President
Mitsui & Co., Ltd.
Mitsui & Co., Asset Management Holdings Co., Ltd. Auditor (Current)
Mitsui & Co., Realty Management Co., Ltd. Auditor (Non-executive) (Current)
Mitsui & Co., Logistics Partners Co., Ltd. Auditor (Non-executive) (Current)

Source: Company

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverageContact details
Address
Tokyo Office2-1, Nishi-Kanda 3-chome, Chiyoda-ku, Tokyo, Japan
Investor Relations Dept.:
Tel: +81-3-6632-5960

Source: Company

Unitholder details by the number of units (as of October 2023)
Major shareholders

Custody Bank of Japan, Ltd. (Trust account)
The Master Trust Bank of Japan, Ltd. (Trust account)
The Nomura Trust and Banking Co., Ltd. (Investment trust account)
JP MORGAN CHASE BANK 385771
STATE STREET BANK WEST CLIENT - TREATY 505234
MITSUI & CO. ASSET MANAGEMENT HOLDINGS LTD.
IDERA Capital Management Ltd.
SSBTC CLIENT OMNIBUS ACCOUNTSMBC Nikko Securities Inc.
JAPAN SECURITIES FINANCE CO., LTD.
Source: Company

Stake (%)
14.2
11.9
5.0
1.7
1.6
1.1
1.1
1.0
0.9
0.9

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Astris Quant Sheet
200

80,000180

70,00060,000160

50,000140

40,000120

30,000100

20,0008060Jan-17

Share price (¥)

January 2017 = 100

Share price chart and factor analysis (from January 2017)

10,0000
Jan-18

MomentumJan-19Jan-20QualityJan-21

GrowthJan-22

Jan-23

Value

Jan-243476 JP

Source: FactSet

Factors
Momentum: 12 Month - 1 Month Performance
Quality: Free Cash Flow Yield
Growth: Operating Profit Growth
Value: Book to Market

1 Year Corr
0.09
-0.06
0.26
0.08

Source: FactSet

3 Year Corr
0.31
0.15
0.16
-0.12

Since IPO
0.03
0.07
-0.01
-0.10

MIRAI Corporation exhibits moderate momentum factor correlation over the medium
term. However, its correlation with other standard equity factors is negligible.

Calculation method and definition of factors in the time series
Universe
TOPIX500
Factor return calculation
Quartile Range Analysis: Calculate the element return by subtracting the average performance of the lower
quartile from the average performance of the upper quartile for each element forecasted for one month. This
analysis is repeated monthly without considering transaction costs.
FactorMomentum
1-month return
12-month return
Subtracting the most recent 1 month
Quality
FCF yield (estimate)
GrowthOperating profit growth (estimate)
Value
Book-to-Market ratio (actual)
Source: FactSet

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Drivers of stock price performance and multiple regression analysis (since January 2017)
SectorIdiosyncratic

MacroMarket
0.00

0.10

0.20

Market

Macro

0.30

0.40
Idiosyncratic

0.50

0.60

0.70

0.80

Sector

Source: FactSet

The company is significantly influenced by sector conditions, with sector factors accounting
for over 70% of its price movements. The impact of idiosyncratic influences outweighs themacro and broad market impacts.

Calculation method for multiple regression analysis
Multiple regression analysis
Perform regression analysis including all drivers, and conduct individual regression analysis by excluding one driverat a time. To quantify the specific impact of each driver, calculate the partial coefficient of determination (partial Rsquared value) using the formula: (Residual Sum of Squares from regression analysis including all drivers - Residual
Sum of Squares from regression analysis excluding one driver) / Residual Sum of Squares from regression analysis
excluding one driver.
Source: FactSet

Multiple regression analysis results
Factors
MarketTopix 1st Section
Tokyo Stock Exchange REIT
Nikkei High Yield REIT
Topix Small Cap Index
MSCI Japan
SectorMSCI Japan Real Estate
Macro
10Y JGBCPI Nationwide
Japan Housing Starts
Tokyo Condo: Avg Price per Sq Meter
Tokyo Condos for Sale
Eco Watchers Outlook

1Y Corr

3Y Corr

Since IPO

0.22
0.52
0.58
0.05
0.22

0.14
0.47
0.52
0.07
0.16

0.48
0.73
0.80
0.46
0.47

0.50

0.25

0.64

0.22
-0.47
0.52
-0.61
0.38
-0.21

-0.38
-0.09
0.28
-0.22
0.03
0.02

0.05
-0.03
0.08
0.02
-0.07
0.33

Source: FactSet

Sector correlations are the highest, consistent with the drivers' analysis. With a relatively
high dividend yield of over 5%, it is unsurprising that Mirai Corp exhibits the highest
correlation of 0.80 with the Nikkei High Yield REIT index.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Astris-Sustainability ESG assessment
Ratings and scorecard
Our in-house Astris-Sustainability ESG model rates MIRAI with a combined score of 38.2%,
placing it in the ‘Amber’ rating of our assessment in FY10/23.
Our in-house methodology* takes what we have selected as core measurable ESG factors,
ranking its performance versus its domestic GICS Equity Real Estate Investment sector witha market capitalization between ¥25bn to ¥500bn (a total of 49 companies).
Astris-Sustainability ESG model rating for MIRAI Corporation

Source: Astris Advisory (*Note – for details of our in-house rating system please contact Astris Corporate Advisory)

ESG scorecards
FY10/23
Environmental (3 factors from a selected peer group)
Astris Environmental scoreSocial (7 factors from a selected peer group)
Astris Social score
Governance (37 factors from a selected peer group)
Astris Governance score
TOTAL SCORE (Out of a total of 47 factors)

44.50
48.54
19.54
38.2

Source: Company, FactSet, Astris Corporate Advisory

Our methodology has highlighted the following key topics:

Environmental
MIRAI has disclosed CO2 emissions for scopes 1,2 and 3 alongside other numerical data forenergy and water usage as well as waste. Whilst the company sets a target to reduce CO2
emissions and energy consumption by 5% respectively throughout April 2021 and March
2026, it has not disclosed specific net zero targets as yet. As for waste management, therecycling rate is 32% for all properties owned by MIRAI. It is worth noting that MIRAI has
thoroughly assessed and disclosed both transition and physical risks.

SocialThe company has outlined policies in the following areas:•

To develop diverse human resources, all of whom gain fulfillment from their work.

•

Standards for sustainable procurement have been in place, which stipulate thecompliance of laws and regulations on local and International levels. The standards
reflect human rights protection concerning forced labor, child labor,
discrimination, occupational health, and safety among others.
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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage•

The staff training program includes compliance, sustainability, and management
training among many others. These trainings are provided both by MIRAI and its
sponsors. In addition, the company supports the acquisition of professional
qualifications for employees’ career development.

The company also discloses numerical data for various metrics such as female ratio, staff
turnover, and staff satisfaction rate.

GovernanceThe corporate governance system at MIRAI Corporation is organized in the following
manner:•Board of directors – comprised of Executive Director Michio Suganuma and two
full-time Supervisory Directors.

•

Compliance Committee – the committee is convened by the Compliance Officer,
who acts as chairperson and is held at least once every three months in principle.
The committee is composed of the Compliance Officer, Representative Director
President, Representative Director Executive Vice President & CIO, Executive
Director CFO, and outside committee members (attorneys with no vested interest).

•

Corruption and fraud prevention policy has been implemented, which includes
Rules for Prevention of Insider Trading" and "Guidelines for Handling Corporate
Relationship Information "Controversies
We note we have been unable to find major controversies that may have significant
financial or reputational repercussions for the company and its shareholders.

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Japan Corporate Research
MIRAI Corporation (3476) – Initiating coverage

Areas of discussion
Highlighting key topics for investors
We believe the following will be key areas for discussion with investors:
1. PO (public offering)a. What is the size of the next PO you have in mind?
b. Timing?
c.

What type of properties will you acquire?

2. Rental incomea. How much do you plan to increase rents for each property type?
b. How much do you think you can increase the variable rent ratio?
3. M&Aa. How much credit enhancement do you expect after an acquisition?
b. What is the timing of M&A?
4. Asset acquisition
a. Which New Type of assets will you increase your exposure to?
b. What is the target weighting of New Type assets in your portfolio over the
next 3 years?

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Japan Corporate Research
MIRAI Corporation (3476)

Financial Summary
Income statement(¥bn)
Operating revenue
Real estate
expenses
Net operating
income (NOI)NOI margin (%)
Depreciation
expenseOther operating
expenses
Interest & otherexpensesTax expense/benefit
Net income

FY
10/22
10.94
3.40

FY
10/23
12.05
4.00

FY
10/24E
12.85
5.21

FY
10/25E
13.25
5.33

FY
10/26E
14.67
5.65

7.43

7.43

7.64

7.92

9.02

67.9
1.30

61.6
1.39

59.5
1.48

59.8
1.53

61.5
1.69

1.08

1.16

0.72

0.75

0.91

0.59

0.60

0.52

0.55

0.58

0.00
4.57

0.08
4.60

0.02
4.80

0.02
4.98

0.02
5.67

Sales growth YoY(%)
NOI growth YoY (%)
NP growth YoY (%)
EPU growth YoY (%)
DPU growth YoY (%)

+8.5

+10.2

+6.6

+3.1

+10.7

+11.9
+8.4
+1.7
+1.7

-0.1
+0.7
+0.7
-2.3

+2.9
+4.4
+4.4
+0.9

+3.6
+3.6
+3.6
+3.6

+13.9
+13.9
+13.9
+14.1

FY
10/23
167.80FY
10/24E
174.03FY
10/25E
180.45FY
10/26E
187.56

3.00

3.52

2.63

5.25

0.26

0.27

0.28

0.31

1.05

1.05

1.05

1.05

2.64
174.75
0.74
7.00

2.64
181.52
0.96
7.50

2.64
187.06
0.99
8.00

2.64
196.82
1.04
9.70

85.50
0.00
0.12

91.38
00.00
0.12

96.04
00.00
0.12

103.86
0.00
0.12

93.35
0.00
81.39
81.39
174.75

99.88
0.00
81.63
81.63
181.52105.14
0.00
81.92
81.92
187.06114.72
0.00
82.10
82.10
196.82

Balance sheet
FY
(¥bn)
10/22
Real estate
164.67
portfolio
Cash and cash
4.51
equivalents
Accounts &notes
0.26
receivables
Other long-term
0.72
assetsRestricted assets
2.63
Total assets
172.79Accounts payables
0.71
Short-term liabilities
7.06
and deposit
Unsecured debt
84.00
Secured debt
0.00
Other long-term
0.00
liabilities
Total liabilities
91.76
Minority interest
0.00
Shareholder equity 81.03
Total equity
81.03
Total liabilities & 172.79
equityCash flow statement
(¥bn)
FFO
Capital expenditure
Cash from investing
Dividends paid
Cash from financing
Net cash flow
Free cash flow
EBITDAKey metrics
P/NAV (x)P/E (x)Dividend yield (%)
AFFO yield (%)
EPU
DPU
FFO Payout ratio (%)
AFFO Payout ratio (%)
FFO per unit

FY
FY
10/22 10/23
5.76
5.37
(11.79) (11.22)(11.44) (11.13)(4.38) (4.64)
5.86 (3.14)
2.26 (1.49)(3.95)
1.56
6.46
6.68

FY
10/22
0.89
17.52
5.5
7.1
2,579
2,580
79.4
79.4
3,250

FY
10/23
0.87
17.56
5.7
6.4
2,597
2,520
80.0
80.0
3,149

FY
FY
FY
10/24E 10/25E 10/26E
5.70
5.91
6.70
(7.71)(7.95) (8.80)(7.71)(7.95) (8.80)(4.56)(4.69) (5.49)
1.24
0.05
2.33
0.52 (0.89)
2.62(0.72)(0.93)
0.29
6.92
7.17
8.11

FY
10/24E
0.81
16.82
5.6
7.1
2,711
2,575
80.0
80.0
3,219

FY
10/25E
0.80
16.23
5.8
7.3
2,810
2,650
79.5
79.5
3,334

Source: Company, Astris Advisory (estimates)38
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FY
10/26E
0.67
14.25
6.8
8.3
3,200
3,100
82.0
82.0
3,780

Japan Corporate Research
MIRAI Corporation (3476)

Disclaimers
This report has been prepared by Astris Advisory Japan K.K. This report is based on information obtained from public sources that Astris
Advisory Japan K.K. believes to be reliable but which Astris Advisory Japan K.K. has not independently verified, and Astris Advisory
Japan K.K. makes no guarantee, representation, or warranty as to its accuracy or completeness. This report does not and does not
attempt to, contain everything material which there is to be said about the Company. Any opinions expressed herein reflect Astris
Advisory Japan K.K.’s judgment at the time the report was prepared and are subject to change without notice. Forward-looking
information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates ofamounts not yet determinable, and therefore involve known and unknown risks, uncertainties, and other factors that may cause theactual results, performance, or achievements of their subject matter to be materially different from current expectations.
This report has been prepared as general information, is therefore not intended as a personal recommendation of particular financial
instruments or strategies, and does not constitute personal investment advice.
The analyst hereby certifies that (i) the views expressed in this report accurately reflect the research analyst’s personal views about thecompany and the securities that are the subject of this report, and (ii) no part of the research analyst’s compensation was, is, or will be,
directly or indirectly, related to views expressed by that research analyst in this report.
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Conflict of interest
This report has been commissioned and paid for by the company and is deemed to constitute an acceptable minor non-monetary benefit
as defined in MiFID II.
Readers should assume that Astris Advisory Japan K.K. may currently or may in the coming three months and beyond be providing or
seeking to provide IR/corporate advisory or other services to the company.
Investment in securities mentioned: Astris Advisory Japan K.K. has a restrictive policy over personal dealing for its directors, officers,
employees, and service providers. Astris Advisory Japan K.K. does not conduct any investment business and does not hold any
positions in the securities mentioned in this report.
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Astris Advisory Japan K.K. assumes no liability as regards any investment, divestment, or retention decision taken by the investor basedon this report. In no event will Astris Advisory Japan K.K. be liable for direct, indirect, incidental, special, or consequential damages(regardless of whether being considered foreseeable or not) resulting from the information in this report.

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