Daiwa Real Estate Asset Management Co., a unit of Japan’s second-biggest brokerage, plans to boost assets in its real estate investment trust by a quarter to about 350 billion yen ($4.2 billion) as it bets the nation’s property market has bottomed.
Daiwa Real Estate took over Daiwa Office Investment Corp. from indebted K.K. DaVinci Holdings in August and has cut borrowing costs by more than half, Akira Yamanouchi, the president of the Tokyo-based firm said. The REIT plans to achieve its target in two to three years by increasing borrowings to buy office buildings, he said. It had about 280 billion yen worth of buildings in its fund as of Sept 2.
The property unit of Daiwa Securities Group Inc. is seeking to lure investors by arguing that the yield on the Tokyo Stock Exchange REIT Index offers attractive return after the gauge dropped about 60 percent from a 2007 peak. The difference between 10-year Japanese government bonds and REITs stood at 5 percent as of Oct. 31, almost five times the 1.1 percent in the U.S., and about three times the 1.7 percent in Europe, according to an estimate by Credit Suisse Securities (Japan) Ltd.
“When you compare the yield spreads in Japan and those in other international markets, Japan offers the best return ever,” Yamanouchi said in an interview on Nov. 16. “We expect that trend to continue and we are keen to capture growth in this market.”
Daiwa’s REIT has added 5.2 percent since the announcement of Daiwa Securities’ takeover on Aug. 16, and closed up 4.9 percent at the 3 p.m. in Tokyo. That compares with a 14 percent gain by the REIT index since the acquisition.
Need to Prove
“Investors are not sure where and how the asset manager can buy properties,” said Mikio Namiki, an analyst at Mizuho Securities Co. in Tokyo. “Once they prove that they have channels to acquire real estate, I expect this REIT to do well.”
Daiwa Real Estate plans to boost total assets by borrowing as much as 50 percent of the value of buildings, from 29.8 percent currently, Yamanouchi said. The trust in July set a target to increase its assets to 310 billion yen within a year, according to the company.
More Japanese companies may sell buildings they own as they adopt the International Financial Reporting Standards, which require real estate assets to be adjusted to reflect their market value each reporting period, Yamanouchi said. The Financial Services Agency allowed companies to start adopting the standard this fiscal year and may make it compulsory for listed companies as early as 2015.
“We expect companies to sell non-income producing buildings because of IFRS,” he said. “We also plan to buy office buildings from real estate companies.”