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The New City Residence REIT has concluded sale of 3 prime, well-performing residential assets (Yokohama, Azabu, and Togoshi Ginza) for JPY 8.79 billion resulting in a JPY 1.25 billion loss to the JREIT in order to cover JPY 12 billion in short-term debt due the end of September.  See English announcement here.

This is the first instance of a JREIT selling at a significant loss.  The external environment made it impossible to refinance these short-term loans so New City was forced to sell some prime assets at a very unfavorable timing to do so.  We would assert that, although the external environment has hit the listed equity value and the debt spread pricing has gone haywire, ultimately the banks in these REIT lending syndicates will find that they are shooting themselves in the foot for not allowing refinancing of stable assets held by what was built to be a fairly stable, well-regulated, long-term financial vehicle for indirect exposure to the underlying fundamentals of Japanese real estate – which, and poignantly in the case of these sold assets, is very strong.

We hope this will not begin a trend in the JREIT sector with a vicious circle of selling assets at a loss leading to lower investor confidence, lower stock prices, and more pressure on the debt side to sell at losses.


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