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Yen Strength Spurs Asset Gains at U.K.-Listed Property Trust

Japan Residential (JRIC) Investment Co., a U.K.-traded property trust that owns buildings in Tokyo, said it has seen increased demand from investors who are benefiting from the rising value of real-estate holdings as the yen strengthens.

Japan Residential, which owns 51 apartment buildings in Tokyo, Osaka and Nagoya, has gained 26 percent in the past 12 months on the London Stock Exchange’s Alternative Investment Market. That compares with the 18 percent drop by the Tokyo Stock Exchange REIT Index, which consists of 34 Japanese real estate investment trusts, in the same period.

Japan Residential was set up to take advantage of a weaker yen in October 2006 when the Japanese currency was at about 220 yen per British pound, making it cheaper for the trust to acquire Japanese assets. The trust is now benefiting from increased demand for the yen from investors seeking to protect their wealth by buying assets denominated in stronger currencies.

“They look at the underlying properties that are reasonably valued and are getting a good yield,” said Alec Menikoff, managing director of K.K. Halifax Asset Management in Tokyo, which oversees the fund’s assets. “People want exposure to yen assets because it’s a safe-haven currency.”

The Tokyo Stock Exchange REIT Index rose 2.4 percent to the highest since Nov. 29 at the close in Tokyo.

Safe-Haven Bets

The yen has risen against 14 of 16 major counterparts over the past 12 months as investors perceive the currency as a safe haven from the turmoil in Europe. The yen recently traded at 125.10 per pound.

Japan Residential rose 3.2 percent to 61.38 pence in London trading. The trust is traded at about 19 percent discount to the net asset value, even as the Japanese currency strengthened about 43 percent versus the sterling since October 2006, helping inflate the value of the property holdings, said Menikoff.

The close-ended trust became fully invested while the yen was weaker against the sterling, Menikoff said. Studios and one- bedroom apartments account for 66 percent of Japan Residential’s portfolio, which offers an annual return of about 6 percent, according to the company’s website.

“People are getting married much later in life or not getting married at all; that is creating demand for one-bedroom apartments and studios in metropolitan areas,” said Menikoff.

Japan Residential, whose largest unit holders include Aviva Plc, Britain’s second-biggest insurer by market value, was ranked as the third-best performer in 2011 in terms of total share price returns among about 300 London-listed funds by Numis Securities Ltd.

Alternative Listings

The trust has a seven-year fund life and is subjected to a 60 percent majority shareholder vote to continue, according to the fund’s annual report.

“If there is sufficient demand, then we would be seeking to raise new capital and grow the business that way,” said Menikoff. “We may consider alternative listing or a dual listing in the future.”

Housing rents in Tokyo’s 23 wards rose or fell as much as five-percentage points in the past decade, less than the 10 percentage-point fluctuation in office rents in Tokyo’s five central wards in the period, according to data compiled by Tokio Marine Property Investment Management Inc.

“Investors want to know that there is a steady cash flow coming out from their investment,” said Menikoff. “Residential assets offer such stable cash flow.”

To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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