Japanese REITs Are on a Roll
As Prices in the Sector Climb
Prices of Japanese real-estate investment trusts climbed to record highs on relief that the latest regulatory probe of the industry didn't produce any big surprises.
Analysts expect the upward trend to continue, with the popularity of REITs buoyed by their enticing returns and the upswing in Japan's real-estate market.
The TSE REIT Index, which tracks the 38 REITs listed on the Tokyo Stock Exchange, finished yesterday up 0.8% at a record 1772.20, topping the previous high of 1768.87 set in early May.
With negative REIT news apparently over for now, there is a chance that the REIT index may top 1800 as early as next month, said Takashi Ishizawa, a real-estate analyst with Mizuho Securities.
Buying has continued even though the Financial Services Agency on Friday slapped four REITs -- Global One Real Estate Investment Corp., LCP Investment Corp., Japan Hotel & Resort Inc. and Top REIT Inc. -- with business improvement orders.
The four REITs were ordered to beef up internal controls and implement preventative measures after the FSA uncovered falsified information in the minutes of their board meetings about such matters as the dates of the meetings and who had attended them.
"Prior cases of similar incidents mean that the FSA is not uncovering any new problems that investors aren't aware of," Mr. Ishizawa said.
Earlier this year, similar problems had been found at three other REITs, Japan Retail Fund Investment Corp., Nippon Residential Investment Corp. and Orix JREIT Inc.
With robust growth in the domestic economy resulting in growing demand for office space, REITs holding prime office buildings have been the best picks lately. Perennial market favorite Nippon Building Fund Inc. hit a record high of 1.3 million yen ($10,894) yesterday, while Nomura Real Estate Office Fund Inc. rose to a record of 1.04 million yen Friday. Yesterday it closed up 10,000 yen at 1.03 million yen.
Analysts expect the favorable market conditions for REITs to remain in place. The pickup in the real-estate market is predicted to continue, following data released by the government last month showing that land prices in Japan's three largest cities rose this year for the first time in 16 years.
With the central bank expected to keep interest rates steady for the short term, low borrowing costs will help REITs as well as make their dividend yields look more attractive in comparison.
REITs use the rental income from their portfolio of properties to pay out returns of about 3.5% on average, while the yield on the benchmark 10-year government bond has hovered around 1.7% to 1.8%.
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