In Tokyo, property trusts look vital again

Around Asia's markets: In Tokyo, property trusts look vital again

- Kathleen Chu Bloomberg News

TUESDAY, AUGUST 2, 2005


This year's rally in shares of Japanese real estate investment trusts, which stalled in July as a record number of REITs went public, may resume this month as investors favor the shares for their dividends.
"REITs will perform quite well if bond yields are to remain low," says Chris Reilly, who helps manage Asian real-estate stocks at Henderson Global Investors in Singapore. "The key driver behind REIT performance is really the need for yield from institutional investors."
The Tokyo Stock Exchange's REIT index dropped 0.3 percent last month, its first fall in five months, cutting its gain for the year to 10 percent.
Shares of Prospect Residential Investment, Japan Single-Residence REIT, Kenedix Realty Investment and Joint Reit Investment began trading in July. Their debuts brought the number of Japanese REITs to 17.
The trusts own properties like office buildings and malls that pay dividends from rental income. REITS listed on the Tokyo Stock Exchange are valued at \2.31 trillion, or about $21 billion. That is equivalent to 6 percent of the U.S.'s $326 billion market, the world's largest.
This year's gain in the Tokyo Stock Exchange REIT index, whose largest members include Nippon Building Fund and Japan Real Estate Investment, outpaces the Topix's 4.5 percent rise and the 9.4 percent increase for the 100-member Standard & Poor's REIT Composite index.

Shareholders of J-REITs, as the investment trusts are known in Japan, typically get most of their returns from dividends. J-REITs on average yield about 3.47 percent, almost three times the Topix's 1.13 percent dividend yield, according to data compiled by Bloomberg. The government's benchmark 10-year bond has yielded below 2 percent for almost five years.
The value of the trusts has risen almost ninefold since the nation's first REIT, Nippon Building Fund, began trading in September 2001.
Domestic financial institutions are the biggest holders of J-REITs, representing 58 percent of investors as of March, according to an estimate by Toshihiko Okino, a senior analyst at UBS Securities. Individual investors account for 20 percent.
"I believe that money inflow into J-REITs will continue, particularly from regional banks," said Hirokazu Nihei, a senior analyst at J.P. Morgan Securities Asia. "The current market size will likely expand further."

The recovery in land prices may be bolstering investor confidence. The commercial land price index for Tokyo, Yokohama, Nagoya, Kyoto, Osaka and Kobe rose for the six months to March 31 for the first time since September 1990, according to a Japan Real Estate Institute survey.
Tokyo office vacancies remained at 5.03 percent in June, their lowest level since March 2002, Miki Shoji, a privately held office brokerage company, said on July 7.
"Japanese property as a whole is reasonably good," says Simon Rivett-Carnac, a portfolio manager at Sarasin Investment Management in London.
The Topix REIT index, which reached a record on July 11, fell 3.7 percent in the week to July 15, its biggest weekly drop. Some investors say the listing of two new REITs that week may have been to blame.
"Oversupply in the short term won't be good, but REITs have proven to be a good investment globally," said Rivett-Carnac, whose fund has risen 16 percent this year.
Then there's regional competition. The Singapore-based CapitaMall Trust, the largest real estate investment trust in Southeast Asia by market value, has risen 51 percent this year, outpacing the 13 percent gain in the benchmark Straits Times index.
Mori Trust Sogo REIT, the best performer on the Topix REIT index, has risen 20 percent since Jan. 1.