Japan REIT market firm despite rush

Japan REIT market firm despite rush
Eriko Amaha
The Standard, July 7, 2005

Japan's real estate investment trusts market, already trading at high levels, will likely remain firm despite an expected slew of listings this year as investors seek higher returns, analysts say.
Four REITs are expected to list their shares on the Tokyo Stock Exchange in July, bringing total listed issues to 21.
By the end of the financial year to next March, analysts expect 10 to 15 more funds to go public.
``You'd normally hear oversupply concerns with four listings in a month, but I don't hear anything at all,'' Yasuo Ide, an independent analyst for Ide Financial Real Estate Research.
``It shows underwriters are confident and there is ample money to absorb these listings,'' he added.
The listings come at a time when the 4-year-old J-REITs market is at an all-time high.
Japan's REIT index hit its lifetime intraday high of 1,656.86 Wednesday. It is up 11 percent since the start of the year against a 1.3 percent rise in the benchmark Nikkei average
REITs are publicly traded funds that manage a portfolio of real estate to earn profits for shareholders. They pay their rental income as dividends. Analysts said some Japanese REITs stocks looked overvalued but downside risks are limited thanks to a growing number of yield-hungry investors.
``There are no other instruments that can provide such stable returns,'' said Takashi Ishizawa, an analyst at Mizuho Securities.
Analysts said the average dividend yield for J-REIT stocks is 3-4 percent, against a 1.2 percent yield on the 10-year Japanese government bond and a 1.1 percent average dividend on Nikkei 225 stocks.
Toshihiro Ishijima, an analyst at UFJ Tsubasa Securities, said the market capitalisation of J-REITs is 2.2 trillion yen (HK$152.68 million), compared with 30 trillion yen for the US REIT market, which boasts 170 to 180 listings.
``The Japanese market is still in its infancy and is not at a stage to worry about too much supply,'' he said. The Japanese market is expected to reach 3 trillion yen within a year or two. One analyst said many newcomers are small funds at the time of listing with assets of around 50 billion yen.
He estimated initial and secondary public offerings by listed funds would amount to 300 billion yen in 2005, a limited supply of equity despite strong demand for it.
Prospect Residential Investment Corp, to be listed next Tuesday with an IPO price of 480,000 yen and a deal size of 35.95 billion yen, focuses on rental condominiums in the Tokyo area. It aims for assets of 100 billion yen in three years from an initial 47 billion yen and a 3.44 percent return.
Another IPO stock listing on July 21, Kenedix Realty Investment Corp, has a portfolio of office buildings and rental housing in Tokyo. Its IPO price is expected to be 550,000-580,000 yen and it aims to offer a yield of 4.1-4.28 percent.
Ishizawa of Mizuho Securities said one of the major IPOs this year would be Osaka-based Hankyu Reality Co, which has invested in local commercial buildings including ``Hep Five,'' a landmark shopping complex with a red Ferris Wheel on top.
With the price of some real estate in the Tokyo area rising, analysts said more funds would likely tap regional markets where property prices are lower, or other kinds of property such as nursing homes which are likely to see strong demand due to Japan's graying population.
Japan Logistics Fund, which made a strong debut on the TSE in May, targets warehouses. It first traded at 650,000 yen, 18.2 percent above its IPO price of 550,000 yen. The stock has risen nearly 8 percent since the listing.
Analysts say the biggest risk for J-REIT stocks may be a rise in Japanese interest rates, which would push up the yield on bonds and also jack up REIT funds' borrowing costs to invest in new property.
Nobuaki Kawai, a senior consultant at STB Research Institute, said many REITs have already refinanced loans at a fixed rate. If rents cannot be raised as fast as interest rates climb, bonds may be temporarily more attractive, discouraging buying of REITs.
REUTERS

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