Fukuoka developer joins the `sudden death` club

One of the major Fukuoka developers went down last week, adding to continued negative industry news.

Dix Kuroki announced filing for rehabilitation proceedings last Friday the 14th, with JPY 18.1 Billion (abt USD 172M) in liabilities and 105 employees.   This is another case being similar to Urban Corp and this type of incidence is locally being referred to as totsuzenshi or `sudden death`, in that the company`s financial situation looks fine on paper -  last 5 yrs of fiscal reports showed strong growth in both sales and profits:

Dix Kuroki Unconsolidated Accounts                                                            JPY Millions
FY2004        FY2005       FY2006      FY2007        FY2008    (fiscal yearend is March 31)
Sales                   15,646        20,226        22,474        26,098        26,801
Operating Profit  460             865             1,444          1,734          1,962
Recurring Profit   303             590             1,136          1,486          1,525
Net Profit             138            311              599             826             854

Dix Kuroki has seen strong growth after listing by taking on larger projects with fund takeout promises, an extension of their local knowledge and long track record of building small 50-100 unit residential blocks for sale as income-producing investment properties to local individual owners.

The problem Dix ran into is that they stocked up on land, particularly in secondary Kyushu cities and Sapporo last year, which now is undevelopable and unsellable due to cuts in development financing allocation by banks and lost exits, also similar to Urban but on a smaller scale and regional assets instead of mainly Tokyo.

Call for New City sponsors from Nikko Citi

New City Residential announced the engagement of Nikko Citi as financial advisor for the rehabilitation proceedings this week.  Nikko will manage proposals received and make judgment as to which proposal will best benefit unitholders and other stakeholders in the now de-listed J-REIT.

Any potential option, including merger, buyout, sale of assets, etc. is open for discussion and they will take the solution which appears best benefiting to stakeholders.

In the meantime, CBRE Residential Management (the REIT manager) will continue to operate the portfolio through the proceedings to ensure the value of the assets is not diminished.

Proposals must be made by January 7, 2009, so hurry and call Takakura-san if you want to get in on the game.