Nippon Residential (8962) and Nippon Commercial (3229), both sponsored by Pacific Holdings (8902), both had their credit rating cut by Moodys earlier this week to Baa3 (S&P BBB- level) see Nippon Residential announcement here, see Nippon Commercial announcement here. Moodys underwrites this stating that although JREITS are independent entities, management trouble at the sponsor has proven to have an influence on their business in the recent case of New City. Moody`s sees a risk in the delay of Pacific Holdings` capital investment by Daiwa Securities and says that Nippon Residential is under pressure with 30 billion yen of acquisitions scheduled through the end of the year, regardless of its 13 billion yen commitment line of debt.
In response, both Nippon Residential and Nippon Commercial have come out strongly against the decline in rating, stating that they are in good shape, have good relationships with their banks, and in the case of Nippon Residential, they will be able to deal with the new purchases through sale of assets.
We understand that they are working on this and believe that the risk of Nippon Residential not being able to come up with the liquidity is fairly low. We also understand that very recently regulators, as following new government policy to halt the damage and in response to the New City JREIT situation, are now making efforts to bring liquidity back in the market through changes in lending direction to banks and support of the JREITs, especially large JREITs, and their sponsors which have a significant impact on the industry, and this is a very welcome policy change if belated.
That being said, there are still many developers and real estate asset managers including some listed ones, that have highly levered portfolios out there and these will continue under pressure to decrease the leverage. It seems that pressure on some key players, including Pacific, may have been abated.
Moodys JREIT Ratings, please log into Moodys Japan Site to see details:
|Issue (click for stockprice)||Bond||Issuer||CP||Other|
|Global One JREIT (8958)||A3||–||–||–||–||◎|
|Kenedix JREIT (8972)||A3||–||A3||–||–||◎|
|Japan Excellent JREIT (8987)||–||–||A2||–||–||–|
|Japan Hotel and Resort JREIT (8981)||–||–||A3||–||–||–|
|Japan Real Estate JREIT (8952)||Aa3||–||Aa3||–||–||–|
|Tokyu Real Estate JREIT (8957)||A2||–||A2||–||–||–|
|Topreit JREIT (8982)||–||–||A2||–||–||–|
|Nihon Accommodation Fund JREIT (3226)||A1||–||A1||–||–||◎|
|Nihon Commercial JREIT (3229)||↓Baa3||–||↓Baa3||–||–||–|
|Nihon Building Fund JREIT||A1||–||A1||–||–||◎|
|Nihon Prime Realty JREIT (8955)||A2||–||A2||–||–||◎|
|Nihon Retail Fund JREIT (8953)||A1||–||A1||–||P-1||◎|
|Nihon Residential Fund JREIT (8962)||↓Baa3||–||↓Baa3||–||–||◎|
|Nihon Logistics Fund JREIT (8967)||–||–||A1||–||–||–|
|New City Residence JREIT (8965)||↓B1||–||↓B1||–||–||◎|
|Nomura Real Estate Office Fund JREIT (8959)||A2||–||A2||–||P-1||–|
|Nomura Real Estate Residential Fund (3240)||–||–||A1||–||–||–|
|Hankyu JREIT (8977)||–||–||A2||–||–||–|
|Premier JREIT (8956)||A3||–||A3||–||–||–|
|Frontier JREIT (8964)||–||–||？A1||–||–||–|
|Mori Hills JREIT (3234)||A3||–||A3||–||–||◎|
|United Urban JREIT (8960)||–||A3||–||–||–|
We would assume that those REITs with a scale large enough to be issuing corporate debt and have a credit rating issued will now have support and there are probably a lot of good buys in this bunch or as a portfolio for diversification. Fundamentals continue to be strong, especially rents and occupancy of assets owned by the JREITS for the most part, although marketwise there is downward pressure coming onto the top class office rents and retail sales are slowing considerable. Urban residential is a very strong play.
30 of 42 JREITs now have projected yields over 9% and the top ten yields are 26-55%!!!