Japanese Condo Developer Tightens Belt

Source : The Business Times, July 8, 2008

Joint Corp to focus on reducing assets to ride out negative business climate

(TOKYO) Japanese condominium developer Joint Corp plans almost no new investments this year as it focuses on reducing its assets to ride out an increasingly negative business environment including an exodus of foreign investment, a company executive said on Monday.

Shares of Joint and other Japanese real estate developers have been hit hard in recent sessions amid concerns about the health of the sector due to the global credit crunch and weak consumer spending.

Japan's property sector has also been hurt by tighter bank lending and soaring prices for steel and other construction materials.

To survive this business environment and improve its cash situation, Joint is mulling selling off some of its vacant land, said director and executive officer Hisahi Oribe.

'We don't want to be seen as having passive business plans, but our business is currently up against a really strong headwind,' Mr Oribe told Reuters in an interview.

'For a while, all we can do is simple things just to improve our business,' he said. The Tokyo-based midsized developer plans to sell land, buildings and other inventories to reduce its fixed assets to 150 billion yen (S$1.90 billion) for the year ending in March 2009 from 230 billion yen as at March this year.

Joint may post special losses this year for writing down such assets, but the amount will likely be small as it already wrote down 11 billion yen worth last business year, said Mr Oribe.

'About 80 per cent of our condominium-development projects have already been inked or paid,' said Mr Oribe.

He added that the company would not have to spend much on new projects during the course of this business year.

The recent sell-off of Japanese real estate-related stocks comes as the global credit crisis muddies the outlook for Japan's once-soaring property market.

Adding fuel to investors' worries over the sector's financial health, a series of Japanese contractors and real estate developers including Suruga Corp have fallen into bankruptcy.

The Tokyo Stock Exchange's Reit index has dropped about a quarter this year.

Japanese Reits' market value tumbled to 4 trillion yen in March this year from 6.8 trillion yen in May last year when it hit its peak.

Mr Oribe said, however, that although there was a slew of bad news in the sector, the recent sell-off of Joint shares was 'abnormal and emotional'.

'It is abnormal that even big real estate players have a PBR (price to book value ratio) of below one,' he said. 'Our business environment really is tough, but I think investors have been a bit too emotional,' he added.

Joint shares, which have a PBR of 0.29, fell as low as 440 yen during morning trade yesterday, their lowest intraday level since August 2003, but bounced back to finish up 5.4 per cent at 509 yen. -- Reuters