Prospect's 35 Billion Yen Real Estate Investment Trust to Debut

Prospect's 35 Billion Yen Real Estate Investment Trust to Debut

July 12, 2005 (Bloomberg)
Prospect Residential Investment Corp.'s 35 billion yen ($313 million) real estate investment trust begins trading in Tokyo today, seeking to tap a revival of investor confidence in the nation's property market.
Shares in Prospect Residential Investment will be offered on the Tokyo Stock Exchange at 480,000 yen each, Curtis Freeze, president of Prospect Asset Management Co., said in an interview yesterday. Prospect Residential is a wholly owned subsidiary of KK Prospect, which invests in 30 Japanese condominiums.
Freeze began buying into Tokyo properties three years ago, at a time when Japan was mired in its third recession in a decade following the collapse of the country's ``bubble economy'' in 1989. An index tracking the nation's 16 property trusts, or REITs, reached a record high yesterday.
``What people have seen is that some REITs have doubled since they started,'' said Freeze, 43. ``What people don't realize is that they can actually double again.''
Nikko Citigroup Ltd. and Morgan Stanley Japan Ltd. are managing the offering.
The Tokyo Stock Exchange REIT Index has gained 68 percent since it was started in April 2003. The rise exceeds the 50 percent advance in the Topix index during the same period.
Japan opened up the REITs market in September 2001, with Nippon Building Fund Inc. and Japan Real Estate Investment Corp. Japan is playing catch-up in developing the market for REITs, pioneered by the U.S. in the 1960s.
The market value of Japanese REITs has surged to 2.34 trillion yen from 260 billion yen when they first began.

Yield
REITs derive most of their profit from rental income, paying out the majority of it as dividends. While investors receive a yield that is competitive with bonds, they can also benefit as the value of the underlying properties rises. Prospect's REIT plans to offer an annualized yield of about 2 percent in the first six months, to take account of the costs of setting up and listing the fund on the exchange, Freeze said. The yield will rise to about 3.4 percent in the second half, he said. Benchmark 10-year Japanese government bonds yield about 1.2 percent.
Real estate funds and property developers have snapped up properties in Japan, betting that a recovery in the world's second- largest economy will stem a 13-year slide in land prices.
Tokyo office vacancies fell in May to their lowest level since March 2002, according to Miki Shoji Co., a privately held office brokerage company. Commercial land prices in the six biggest cities rose during the six months ended in March, the first increase in more than 14 years, according to the Japan Real Estate Institute's report released in May.
``No one believed me back then'' that Japan's property prices will pick up, said Freeze, a New Yorker who arrived in Japan more than 20 years ago as a Mormon missionary. ``It is only the beginning.''

To contact the reporter on this story: Tomoko Yamazaki in Tokyo at tyamazaki@bloomberg.net.
Last Updated: July 11, 2005 17:58 EDT