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Japanese REITs Are Set to Benefit From Less Competition

Japanese real estate investment trusts may benefit from lower prices after the March earthquake drove away some buyers, helping ease competition, according to Standard & Poor’s.

Expectations for a prolonged recovery following the magnitude-9 temblor on March 11 may force some property owners to sell, said Christopher Lee, S&P’s corporate ratings director for the Asia-Pacific region. As global investors hold off purchases following the disaster, trusts with access to capital will seek to buy buildings to improve revenue amid record low rents, he said.

“From the purchasers’ perspective, the current market may offer quite a bit of value and opportunities,” Lee said in an interview in Tokyo on June 28. “Those J-REITs with room to grow because their leverages are relatively low can use this opportunity to expand and improve their business profile.”

J-REITs that invest in Japanese properties have raised 176.4 billion yen ($2.8 billion) so far this year after more than quadrupling fundraising in 2010, according to Mizuho Securities Co. In 2010, they raised 311 billion yen through debt sales and public offerings, compared with 76.6 billion in 2009, Mizuho said.

The 35-member Tokyo Stock Exchange REIT Index rose 0.4 percent, the highest in more than a week, at the 3 p.m. close on the Tokyo Stock Exchange.

Bearish Investors

The number of global investors who were bearish or fairly bearish on central Tokyo’s office sector almost doubled to 11 following the disaster, from six, according to a poll of 58 companies by CB Richard Ellis Group Inc. By contrast, those who were bullish fell to 20 from 27, it showed.

The average office rent in Tokyo’s five main business districts -- Chiyoda, Chuo, Minato, Shinjuku and Shibuya --fell to a record-low 17,400 yen per tsubo in May from April, Miki Shoji Co. said on June 9. One tsubo, a standard measure of property area in Japan, is 3.3 square meters, or 35.5 square feet.

More J-REITs may start trading next year as the market recovers after seven mergers took place in 2010, said Roko Izawa, a real estate analyst at S&P, in the same interview. Starts Proceed Investment Co. and Advance Residence Investment began trading last year after no REITs debuted in 2008 and 2009, according to the Tokyo Stock Exchange.

“Mergers were the key theme for Japanese REITs last year,” said Izawa. “This year and next will be the stage of recovery.”

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