Friday, September 02, 2005

Lawson To Launch Investment Fund For Buying Store Real Estate

Coming up next: a convenience store REIT? With 8,100 properties, I wonder how thick the prospectus will be.

Lawson To Launch Investment Fund For Buying Store Real Estate
2005/08/30, The Nihon Keizai Shimbun, page 0, 403 words

TOKYO (Nikkei)--Lawson Inc. (2651) on Tuesday will establish a real estate investment fund for acquiring and leasing properties for its convenience stores.
By eliminating the cost of purchasing land, the convenience store operator will reduce the financial burdens associated with opening new outlets. And the arrangement will also shield the company from impairment losses that would be incurred if property values were to fall.
The fund will invest in land and buildings that could be used for Lawson outlets. The rental income paid by Lawson -- tied to the store's sales -- would be used to pay returns to investors. The privately placed fund will have a maturity of 10 years. It is forecasting returns above the 3-4% usually generated by publicly traded real estate investment trusts (REITs). With an asset balance of about 5 billion yen, it will be marketed to institutional investors and others by Mitsubishi Securities Co. (8615).
After acquiring several of Lawson's existing outlets, the fund will eventually invest in 20-40 newly opening stores across the nation. With an eye toward listing a REIT, Lawson plans each year to launch similar funds managing 5-10 billion yen in assets.
Of the 8,100 Lawson outlets, more than 70% are stores on property supplied by the company and operated by franchise owners. Such arrangements are expected to increase among the 700 new stores slated to open in the year ending Feb. 28, 2006. In order to recruit franchise owners and open new stores, the company must be able to acquire promising properties.
In the past, Lawson has fielded about 10,000 potential sites for new stores each year. But with more landowners seeking to sell properties rather than lease them, the firm gave up on many of the inquiries. The fund gives Lawson the option of purchasing such land, enabling the company to take advantage of good deals.
The rental payments made by Lawson will be pegged to the store's sales. As a result, the fund's returns will improve in tandem with stores' performance.
Lawson has sought to avoid acquiring properties for its stores, preferring to enter rental contracts. Its land holdings are about 5.7 billion yen, the lowest among the major convenience store operators. Using a similar management strategy, FamilyMart Co. (8028) seeks to hold down store-related operating costs. And if Lawson's investment fund succeeds in acquiring properties, industry rivals are likely to follow suit.
(The Nihon Keizai Shimbun Tuesday morning edition)


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