PEJR Prospect EP.

 

TIDMPEJR 
 
RNS Number : 4146R 
Prospect Epicure J-REIT Val Fd PLC 
30 April 2009 
 

Prospect Epicure J-REIT Value Fund PLC 
Quarterly Update to Quarter End March 2009 
Report to Shareholders 
A FORMATTED VERSION OF THIS REPORT IS AVAILABLE FROM THE COMPANY'S 
ADMINISTRATOR, GALILEO FUND SERVICES LIMITED, ISLE OF MAN UPON REQUEST. PLEASE 
CONTACT enquiries@galileofs.co.im TO REQUEST A COPY. 
Disclaimer 
The contents of this document have been prepared by Prospect Asset Management 
Inc. as Investment Adviser to Prospect Epicure J-REIT Value Fund PLC ("PEJR" or 
"the Company"). This document has been prepared solely for information purposes 
and for the use of the recipient. It does not constitute an offer or an 
invitation by or on behalf of the Investment Adviser or the Company to any 
person to buy or sell any security or investment product. Any reference to past 
performance is not necessarily a guide to the future. The information and 
analyses contained in this publication have been compiled, or arrived at from 
sources believed to be reliable, but the Investment Adviser and the Directors of 
the Company do not make any representation as to their accuracy or completeness, 
and do not accept liability for any loss arising from their use. The investments 
discussed in this report may not be suitable for all investors. and are provided 
for information purposes only. The ordinary shares and warrants in the Company 
have not been, and will not be, registered under the United States Securities 
Act of 1933 as amended (the "Securities Act") or qualified for sale under the 
laws of any state of the United States or under the applicable laws of any of 
Canada, Australia, Republic of South Africa or Japan and, subject to certain 
exceptions, may not be offered or sold in the United States or to, or for the 
account or benefit of, US persons (as such term is defined in Regulation S under 
the Securities Act) or to any national, resident or citizen of Canada, 
Australia, Republic of South Africa or Japan. None of the Company, the Manager 
or any of their respective members, directors, officers or employees nor any 
other person accepts any liability whatsoever for any loss, however arising, 
from any use of such information or opinions. 
 
Company Description 
Prospect Epicure J-REIT Value Fund plc (" the Company") was established to 
capitalise on attractive investment opportunities in the Japanese real estate 
investment trust (J-REIT) market. The Company is actively managed in order to 
capture valuation discrepancies, in particular discounts to Net Asset Value 
(NAV), as identified by the Investment Adviser, Prospect Asset Management, Inc. 
("the Adviser"). The Company typically invests in listed securities, but is also 
permitted to invest a portion of its assets in unlisted securities expected to 
list within twelve months, in addition to securities that have ceased to be 
listed. 
Investment Overview 
The Adviser's investment stance focuses on NAV discounts and high dividend 
yields. The resulting portfolio holdings have been chosen because the Adviser 
considers them to be among the most undervalued, highest yielding stocks within 
their universe. The Company currently holds eight positions in what the 
Investment Adviser believes to be undervalued J-REITS. 
 
 
The position held in LCP Investment (8980) was sold and FC Residential 
Investment (8975) added to the portfolio holdings. The holding in LCP Investment 
was liquidated as a result of the Adviser's concern that the Company carried a 
significant refinancing risk, with Y1.5bn maturing at the end of April and a 
further Y16.2bn maturing at the end of May. Conversely, FC Residential has one 
of the lowest LTV ratios in the sector (25.5 per cent), with only one 
outstanding loan for Y5.6bn maturing in October. At the time of purchase, FC 
Residential had one of the highest implied net operating income cap rates in the 
J-REIT sector. 
 
 
The table below shows the weighting of holdings in the consolidated portfolio, 
the percentage ownership of total outstanding shares, the discount to NAV and 
the dividend yield of each J-REIT as of 31 March 2009. 
 
 
Embedded image removed - please refer to the Company's website 
www.prospect-epicure.com for a table depicting the weighting of holdings in the 
consolidated portfolio. 
 
 
Source: Prospect Asset Management as of 31March 2009 
A subsidiary of the Company owns 2.3% of 8969, Prospect Residential Investment 
Corporation, a J-REIT that is managed by a company affiliated to the Investment 
Adviser, Prospect Asset Management 
 
 
Portfolio Gearing 
During the quarter, the Company maintained zero gearing due to the volatile 
nature of market conditions. Going forward, a view on gearing will be taken 
based on close observation of the market environment. 
 
 
 
 
Sponsor Changes 
 
 
In the first quarter, two J-REITs (Nippon Residential Investment and Nippon 
Commercial Investment) lost their sponsor, Pacific Holdings, when it was forced 
to file for bankruptcy protection. While new sponsors have yet to be announced 
for both J-REITs, there was significant unit price appreciation due to an 
expectation of stronger sponsor support and/or a merger. 
 
 
Pacific Holdings 
During the quarter, worries over J-REIT sponsor Pacific Holdings were allayed by 
an equity investment by Chinese backed Chuhaku Japan. Subsequent investments 
were delayed and finally cancelled, and Pacific Holdings was forced to file for 
bankruptcy protection on 10 March 2009. 
 
 
As uncertainty overshadowed Pacific Holdings during the first part of the 
quarter, the unit prices of two J-REITs that it sponsored, Nippon Residential 
Investment (8962) and Nippon Commercial Investment (3229), fell by 51.8 per cent 
and 54.7 per cent respectively. After Pacific Holdings filed for civil 
rehabilitation, they rose by 99.0 per cent and 93.3 per cent respectively on 
speculation that they would be rescued by stronger sponsors and/or merged with 
existing J-REITs. 
 
 
New City Residence 
On 9 October 2008 New City Residence Investment Corporation (NCR) (8965) 
announced the initiation of Civil Rehabilitation proceedings due to its 
inability to refinance its debt in a timely fashion or to secure financing for 
the pre-committed acquisition of a property. During the quarter, there were few 
updates on the status of the bidding for control. Among the major events was the 
revelation that the Development Bank of Japan (DBJ) had entered the process, 
bidding jointly with Daiwa House Industries. 
 
 
Finally, on 7 April 2009, NCR announced the selection of Lone Star Real Estate 
as its new sponsor. Reports cite the total bid amount as Y120bn, representing a 
cap rate of 7.5 per cent. NCR plans to issue 400,000 new units at Y15,000 per 
unit to Lone Star group company KF Capital (total of Y6bn). There are also plans 
for a Tender Option Bond at Y35,000 per unit, a 146 per cent premium to the last 
traded price. 
Government Support Measures 
After initial promises of working capital assistance to J-REITs in December 
2008, the government announced several other initiatives in Q1 aimed at 
supporting the sector. These measures include efforts to stimulate lending, to 
ease M&A hurdles and to enable direct purchases of J-REIT units and/or portfolio 
property. 
 
 
Q1 2009 Support Measures 
 
 
  1.  Eligibility of J-REIT units as part of a plan to buy shares held by banks by the 
  Bank's Shareholdings Purchase Corporation (BSPC). The BSPC is to restart stock 
  purchases for a three year period beginning in April 2009. 
  2.  Expanded DBJ lending support to J-REITs to acquire property 
  3.  In an effort to increase transparency, the Financial Services Agency (FSA) has 
  amended its guidelines for J-REITs to disclose forward commitment obligations, 
  and the calculation method and value of money transfers expected to result from 
  any proposed merger. 
  4.  Negative goodwill generated through J-REIT mergers will not be counted in the 
  assessment of 90 per cent dividend payout condition for qualifying as a J-REIT. 
 
 
 
Recent Developments 
 
 
During the quarter there were no cases of J-REITs being unable to secure 
refinancing, though several J-REITs repaid portions of maturing loans through 
asset sales. Credit conditions continue to be tight, with interest rate 
increases for J-REITs lacking strong sponsor support. The Adviser believes that 
upward pressure on lending rates is likely to continue. Focus is also shifting 
towards the next round of J-REIT corporate bond maturities, scheduled to begin 
in Q3 2009. Given lender reticence to extending new loans, the ability of 
issuers to refinance these bonds is a concern. The first scheduled corporate 
bond maturity will be 8962 Nippon Residential Investment's (Y6.0 billion) in 
September this year. 
 
 
Key Events and TSE REIT Index Movement 
 
 
Embedded image removed - please refer to the Company's website 
www.prospect-epicure.com for a graph depicting the TSE Reit Index Movement 
Source:Bloomberg 
 
 
Key Events 
 
 
7 January - New City Residential restructuring announcement is postponed to 7 
April. 
22 January - BOJ announces acceptance of J-REIT bonds as collateral 
10 March - Pacific Holdings files for bankruptcy protection 
14 March - Report that Banks Shareholding Purchase Corp programme to include 
J-REIT shares 
7 April - Lone Star announced as new sponsor for New City Residential 
9 April - Japan's ruling Liberal Democratic Party (LDP) approves Y15.4 trillion 
stimulus package 
 
 
 
 
Refinancing Completed 1Q 2009 
 
 
 
 
Embedded image removed - please refer to the Company's website 
www.prospect-epicure.com for a table depicting refinancing completed  in 1Q 
2009. 
Source: Prospect Asset Management as of 31March 2009 
 
 
The more significant of the two refinancings during the period was Prospect 
REIT's Y3.5bn through Aozora Bank, which was last refinanced in November 2008 
for TIBOR+600. The drastically lower interest rate (TIBOR +195) came about 
through improved lender attitude towards J-REITs and, reportedly, a verbal 
reprimand from the FSA. The Japan Single Residence refinancing was also 
facilitated by Aozora bank for TIBOR+200, the same terms as before. 
 
 
Upcoming Events 
 
 
Refinancing Schedule 2009 
 
 
Embedded image removed - please refer to the Company's website 
www.prospect-epicure.com for a table depicting the refinancing schedule for 
2009. 
Source: Prospect Asset Management as of 31March 2009 
 
 
OUTLOOK 
Cautious Optimism 
The Investment Advisor maintains its conclusion that external impetus is needed 
for continued re-rating of J-REIT valuations. The price corrections of the first 
quarter support this stance, as sponsor issues and renewed pledges of government 
support again resulted in the marked outperformance of the sector towards the 
end of the Japanese fiscal year.  The market clearly prefers domestic sponsors 
with strong credit ratings (e.g. Daiwa House) over foreign players (e.g. 
Oaktree), and the Adviser expects to see these domestic players leading the way 
in sponsor changes and M&A activity. The speed and manner in which the 
government clears the way for industry consolidation will also be vital to 
continued market confidence. 
There has been a string of recent positive developments for the J-REIT sector, 
including the success of New City Residence in finding a new sponsor, various 
government support measures and successful refinancing activities. Going 
forward, the greatest uncertainty continues to revolve around the ability of 
J-REITs to refinance corporate bonds, with the first (Nippon Residential) on 11 
September 2009. 
Retail investors continue to help support the sector, with Tokyo Stock Exchange 
data for February 2009 showing this investor category as the largest net 
purchasers of J-REITs by value (Y8.2bn). Banks were also net purchasers by 
Y4.4bn and investment trusts by Y900m. The Advisor believes that this trend will 
continue, with a stronger yen triggering the interest of retail investors 
looking for high yielding, yen-denominated products. 
 
 
NAV Update 
NAV at launchGBP 0.965 
NAV as at 26 March 2009                    GBP 0.076 
The NAV is estimated weekly net of fees and expenses at the close of business 
every Thursday and announced through the Regulatory News Service of the London 
Stock Exchange each Tuesday. 
 
 
Market Price-Shares, 26 March  2009GBP 0.600 
Market Price-Warrants, 26 March  2009GBP 0.051 
 
 
Inception Date                             November 2006 
 
 
Key Features 
 
 
Domicile             Isle of Man 
Shares Issued    131,000,000 
Warrants Issued     20,200, 000 
MaturityContinuation vote at 2012 AGM 
Year end    31 December 
Annual Fee        1% of GAV 
 
 
Performance Fee 
The performance fee is 20% of the increase in adjusted NAV per share from the 
placing price of GBP 1.00, subject to the achievement of two tests (i) the 
Adjusted NAV per share exceeds an amount equal to the placing price of GBP 1.00 
increased by 8% (compound), and (ii) a high watermark. 
 
 
 
 
 
 
 
 
Investment Manager    Epicure Managers Japan Ltd. 
Investment Adviser      Prospect Asset Management Inc. 
Administrator         Galileo Fund Services Limited, Isle of Man 
Custodian              Anglo Irish Bank Corporation, (International) PLC 
Nominated Broker       Panmure Gordon (UK) Limited 
Auditor & Tax Adviser   KPMG 
Legal Adviser         Stephenson Harwood 
 
 
Ordinary Shares 
Valoren    2752791 
ISIN         IM00B1FW6C18 
SEDOL    B1FW6C1 
Bloomberg Ticker  PEJR LN Equity 
 
 
Warrants 
Valoren    2787085 
ISIN         IM00B1FXTQ94 
SEDOL    B1FXT7Q9 
Bloomberg TickerPEJW LN Equity 
 
 
Website address: www.prospect-epicure.com 
 
 
Contact Details 
Nominated Adviser & Broker 
Panmure Gordon (UK) Limited 
Moorgate Hall 
155 Moorgate 
London EC2M 6XB 
Tel:+44 207 459 3600 
Website: www.panmure.com 
 
 
Administrator and Registrar 
Galileo Fund Services Ltd. 
Third Floor 
Britannia House 
St George's Street 
Douglas 
Isle of Man, IM1 1JE 
Tel: +44 1624 692600 
E-mail enquiries@galileofs.co.im 
Website www.galileofs.co.im 
 
 
Media/PR Contact 
Tim Draper 
MCommunications 
Tel: +44 20 7153 1267 
 
 
Marylene Guernier 
MCommunications 
Tel: +44 20 7153 1269 
1 Ropemaker Street 
Ninth Floor 
London 
EC2Y 9HT 
www.mcomgroup.com 
 
 
Curtis Freeze       Prospect Asset Management 
Tel:                +1 808 396 7077 
 
 
Leonard O'Brien  Prospect Epicure J-REIT Value Fund PLC 
Tel:               +41 (0)22 908 1190 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
 MSCBLGDSCXDGGCC 
 

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