Japan's Reits prefer share sales to bonds as property market turns bullish

Tokyo

JAPAN'S real estate investment trusts are raising more funds from shares, and avoiding a volatile bond market, as investors bet Abenomics will boost property prices.

Reits offered 222 billion yen (S$2.5 billion) of equity this year, already the busiest quarter since the final three months of 2013, Bloomberg-compiled data show. Note sales have dropped 39 per cent to 23 billion yen from a year ago, after 149.6 billion yen of issuance last year that was the most since 2010.

Tokyo office prices have risen to the highest since the third quarter of 2008 and Mizuho Securities Co expects a further increase as Prime Minister Shinzo Abe deepens economic stimulus. While 10-year Japanese government bonds (JGB) yielded 0.34 per cent on Monday, near the record low 0.195 per cent reached in January, price swings have jumped to the highest since May 2013.

"There are still lots of expectations that investment-grade real estate prices will continue to rise and that Reits will have difficulty acquiring properties," said Takashi Ishizawa, a senior researcher at Mizuho in Tokyo. "Instability in the JGB market is affecting Reit corporate bonds."

Land values in Japan rose in 125 out of 150 sites monitored by the government in the three months ended Jan 1, the most on record going back to 2007, a survey by the Ministry of Land, Infrastructure, Transport and Tourism showed on Feb 27. The floor price of Tokyo offices rose about 12 per cent from a year earlier in the October-December period last year, to the highest since 2008, data from Daiwa Real Estate Appraisal Co show.

Nippon Reit Investment Corp, which has offered the second-most shares in Japan so far this year, said in January that it will pay 76.9 billion yen to acquire 31 properties, mainly office buildings in the nation's capital. Its assets have more than doubled since it was listed in April 2014 to about 150 billion yen, according to a statement from the company.

Real estate purchases by Reits increased 72 per cent from a year earlier in the first two months of 2015, according to data from IBRC Inc, a Tokyo-based research firm.

The boom in buying is driven by "strong Reit shares and the fact that companies can sell properties more easily at the end of business years in December and March", said Yoko Fujinami, a researcher at IBRC.

The Tokyo Stock Exchange Reit Index has risen 28 per cent in the past year.

"Strong buying demand from J-Reits is a factor for pushing up real estate and land prices," said Masahiro Mochizuki, an analyst at Credit Suisse Group in Tokyo. "This is going to continue for a while." BLOOMBERG