J-Reits bulk up for Olympics
J-Reits bulk up for Olympics, Follow-ons flow as sponsors ramp up property purchases
Author:Camilo WoodReviewer:Emmanuella SheaDec 27, 202044K Shares1.2M Views
In the expectation that property prices will shoot up ahead of the 2020 Tokyo Olympics, Japanese real estate investment trusts are rushing to collect equity funding to buy properties.
In just the first two months of this year, Japan's REITs earned a combined ¥172bn (US$1.55bn) by marketable follow-ups, compared to ¥147bn in the same time last year, according to Refinitiv results.
The majority of REITs worked in a fiscal year ending in February, making it a common period of the year to collect funds for the acquisition of properties.
But this year, many expect real estate sector growth to be unparalleled as investors brace for next summer's Olympics in Tokyo. "Many businesses have recently seen this as the last chance to purchase assets at or below the yield level of their current portfolio. "And to do so, they need to raise capital from either debt finance or equity finance," said the ECM banker.
The banker noted that "Shareholders would not want to see transactions occurring later when companies may have to buy assets that yield below their current levels or when share prices are trading below their asset value."
According to data from the Land Institute of Japan, a private research institute, property prices already skyrocketed last year to an average of ¥860,000 per square meter for new condos in the greater Tokyo region.
Before the collapse of Japan's asset bubble, the price peaked at ¥930,000 in 1990. "With property prices so high, many J-REITs have struggled this year to find quality assets to buy," another ECM banker said. "The ones that are still active in buying are fairly sizeable REITs that enjoy the support of strong sponsors in searching for assets."
However, the busy financing schedule does not generate much competition because investors in real estate funds are very particular buyers, the individuals said.
For instance, Japan Hotel REIT and Mitsui Fudosan Logistics Park, which last month both sealed follow-on offers, operate in different types of properties. The former focuses on Japan-wide hotels and the latter on logistics facilities.
Reit Financing
Two other REITs, Nomura Real Estate Master Fund and Daiwa House REIT Investment priced their worldwide offerings last week, collecting a combined ¥66.2 billion. By selling 214,760 units at ¥150,223, the Nomura REIT earned ¥32.3bn.
After deducting an estimated dividend of ¥ 3,111, the price reflects a 2 percent discount to the February 18 close of ¥ 156,400, compared to a discount range of 2 percent-4.5 percent.
With over 70 percent of the deal allocated to long-only and real estate funds, the books were about 10 times covered, an individual would obtain government approval in theory just five weeks later.
REC recommends that holders of its dollar bonds be charged to forfeit the right to redeem them after a change of control has taken place and to amend the terms.
It intends to pay the principal amount of US$15 per US$1,000 to holders of its US$400m 3.068 percent notes due 2020; US$5 per US$1,000 of its US$700m 5.25 percent notes due 2023; US$50 per US$1,000 of its US$450m 3.875 percent notes due 2027; and US$30 per US$1,000 of its US$300m 4.625 percent notes due 2028. By IFR's estimates,
if every bondholder consented to the changes, REC would need to pay them US$41m in cash. What REC offers to pay for it is not steep. It is in line with the price of the market,' a banker named by REC said.
Bonds are selling at cash rates as low as 96-98, which means that REC has to convince investors not to pay a high premium because, in the case of a change of ownership, REC's MTN program states that bonds can be repurchased at 100% of face value plus accrued interest.
The Deal Could Also Risk Both Firms Being Downgraded To Junk Status, As Well As Being Costly.
Moody's placed the Baa3 issuer ratings of PFC and REC on review for a downgrade when the acquisition was announced in December, while S&P placed the BBB- long-term issuer rating of PFC on credit watch with negative consequences.
PFC and REC BBB-both Fitch prices. Moody's said that it was waiting to see if PFC would have to make an offer to REC minority investors and how much it would end up costing.
The solicitation agents are Barclays, Citigroup, HSBC, and Standard Chartered. The deadline for the consent fee is March 1 and the voting deadline is March 8.
It is assumed that the government intends to complete the acquisition before the Indian financial year ends on 31 March. By May, the government of Prime Minister Narendra Modi faces a general election.
Camilo Wood
Author
Camilo Wood has over two decades of experience as a writer and journalist, specializing in finance and economics. With a degree in Economics and a background in financial research and analysis, Camilo brings a wealth of knowledge and expertise to his writing.
Throughout his career, Camilo has contributed to numerous publications, covering a wide range of topics such as global economic trends, investment strategies, and market analysis. His articles are recognized for their insightful analysis and clear explanations, making complex financial concepts accessible to readers.
Camilo's experience includes working in roles related to financial reporting, analysis, and commentary, allowing him to provide readers with accurate and trustworthy information. His dedication to journalistic integrity and commitment to delivering high-quality content make him a trusted voice in the fields of finance and journalism.
Emmanuella Shea
Reviewer
Emmanuella Shea is a distinguished finance and economics expert with over a decade of experience. She holds a Master's degree in Finance and Economics from Harvard University, specializing in financial analysis, investment management, and economic forecasting.
Her authoritative insights and trustworthy advice have made her a highly sought-after advisor in the business world.
Outside of her professional life, she enjoys exploring diverse cuisines, reading non-fiction literature, and embarking on invigorating hikes.
Her passion for insightful analysis and reliable guidance is matched by her dedication to continuous learning and personal growth.
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