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By Hiroshi Torii
Senior Analyst, Equity Research/REITs
SMBC Nikko Securities Inc.
10 Sep 2021 is the 20th anniversary of the creation of the J-REIT market, which was born on 10 Sep 2001 with the TSE listing of Nippon Building Fund (8951, NBF) and Japan Real Estate (8952, JRE). Amid changing externals, the J-REIT market has passed through periods of stability, frenetic activity, and sluggishness, and has steadily grown in size while working to improve unresolved market issues. Total J-REIT market cap was just Y250bn (acquisition value Y320bn) at end-September 2001, but expanded to Y17.6tn (Y20.9tn) by end-August 2021.
Though the market has good and bad years in terms of performance, income gains (dividends) have built up steadily and the total return (incl dividends) over the 20 years from 10 Sep 2001 to end-August 2021 was +416%, much higher than the +166% for TOPIX. We think the size of J-REIT income gains (incl compound interest) deserves another look.
J-REITs play a crucial role as buyers of domestic real estate. The growth of the J-REIT market has not only revitalized the Japanese real estate market, but has also helped significantly improve market transparency by enhancing disclosure around property transactions and earnings. This has expanded the opportunities for a wide range of investors to access the total returns generated by J-REITs. We look for continued improvement of unresolved issues to unlock further market growth and higher profile.
In this report, we review various aspects of the J-REIT market over the past 20 years. We also look at the 20 biggest events impacting the J-REIT market over the past two decades, and rank the J-REITs based on their performance on several key metrics over the past 20 years. We also highlight issues that the J-REIT market needs to address in the next 10 years.
Read MoreA collaboration between PwC and APREA, this report aims to provide an overview of the Indian REIT and InvIT market, and how various stakeholders can benefit by investing in these trusts. It also elaborates on regulations governing the structure of these instruments in India and compares REIT markets across major countries in the world.
Read MoreREITs in 2022 appear well positioned to benefit from a sustained demand recovery, the inflation-hedging characteristics of real estate and attractive relative valuations.
Key takeaways:
Strong fundamentals supporting REITs
The global economic rebound of 2021, fueled by fiscal and monetary stimulus, economic reopenings and strong consumer spending, should provide a solid foundation for global real estate securities in 2022.
That said, supply-chain constraints and wage increases could temper growth and keep upward pressure on inflation, leading to rising interest rates. But while sharp increases in interest rates may unsettle markets in the near term, the direction of the economy and job growth tend to have a greater impact on REIT returns than rising rates.
In fact, an expanding economy typically drives stronger demand, which often leads to higher occupancy levels, giving landlords greater negotiating leverage to raise rents. Rising rents, in turn, have the potential to generate higher property cash flows, distributions and property values.
This report was originally published in https://www.cohenandsteers.
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are conceptually like mutual funds in that funds are raised (backed by a sponsor) from institutional and retail investors which is then invested in infrastructure or real estate projects. The income earned from such projects is periodically distributed (at least 90% of net distributable cash flows (NDCF)) to unitholders. However, unlike mutual funds, they also have characteristics of a business enterprise considering they also raise debt and through a Trustee and an Investment Manager, are actively involved in projects to maximize returns to unitholders.
The rising emergence and popularity of REITs/InvITs in India is a welcome development for capital thirsty sectors, e.g., infrastructure (roads and highways, ports, railways, etc.), power, real estate, etc. With a view to increasing private participation supported by favorable government policies (e.g., enabling investment by foreign portfolio investors) and long- term investment outlook, many marquee investors including sovereign and pension funds are continuing to raise their stakes in such assets. Investors benefit from generating regular cash distributions, stable yield and an opportunity for sponsor(s) to expand their asset base.
Download the Report Read MoreFollowing two decades of success and growth in some of its markets, what can we expect for Asia-Pacific REITs in the 2020s?
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