and the winner is…Itochu!! or not?

Front page of the Nikkei today boldly announced the FIRST JREIT MERGER (online version highly abridged) to be Itochu sponsored Advance Residential (8978) merging with Pacific Holdings sponsored Nippon Residential (8962) by 3rd party allocation of new shares to Itochu Corp to create the 4th largest JREIT and by far largest residential with about JPY 390B in assets, and Itochu Corp also buying out the REIT management company Pacific Management .  Bloomberg here Reuters here

Both REITs issued notices that the media had jumped the gun, nothing has been formalized and there would be official release made when information on any decision is to be made public (Nippon Resi notice here), (Advance Resi notice here).  Itochu Corp made no announcement nor notice regarding the matter.

Clearly the market is excited about concrete progression into JREIT M&A territory as it has been a LONG time coming.   Nippon Residential has stated earlier it is on schedule for making a decision by the end of this month so we should have a decision next week, albeit it will likely take a few more months for the transaction to be executed.

The other bidders mentioned in the Nikkei article and good to watch in the coming REIT industry M&A drama are: Mitsubishi Estate (8802), Nomura Real Estate (subsidiary of Nomura RE Holdings 3213) and Mitsui & Co (8031)

J-REIT restructuring to begin soon

The J-REIT related debt refinancing issue, a big portion scheduled for September term-end debt issues, is now being addressed openly by the government and major players of the real estate arena in the form of a J-REIT support fund.

Original Yomiuri report here (Japanese, includes restructuring support note).

We will see in the coming weeks a detailed plan for for this fund to underwrite not only rolling over of J-REIT debt, but perhaps more importantly also the recovery of the J-REITs in general by supporting much needed restructuring of the industry.  If this is successful it will be a leading indicator for the Japan real estate industry in general to move back into more viable, liquid territory.

There are now a plethora of discussions going on behind closed doors at these highly regulated J-REITs, and it seems  this will likely produce the first of a series of mergers and other restructuring deals, much sooner than expected – EVEN DURING THIS QUARTER -  in this space that will create new efficiencies and further support for the market.  Indeed, restructuring may be a condition to receive the financing to be offered by the government-led consortium.

If J-REITs start coming back into the market as buyers toward the 3rd and 4th quarters this year, we will see a much desired and needed quicker recovery on the investable hard asset market side.