I found this article on Japanese REITS of interest. I hope...

I found this article on Japanese REITS of interest. I hope others do also.

Some interesting points it highlights:

1 - Tokyo city property is the most resilient to have
2- The Nature of relationship with bankers is an important factor.
3 - As part of a stimulus program that took effect in December 2008, real estate companies and J-REITs can now apply for emergency financing through the Japan Housing Finance Agency and the Development Bank of Japan.

Point 3 may be one of the options GJT have in mind when they referred to alternate funding sources in the last paragraph of today's ASX release.

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http://www.upiasia.com/Economics/2009/01/29/japans_reits_facing_bankruptcy/5384/

29th January 2009

UPI Asia.com

Tokyo, Japan — As a result of the global financial crisis financing for real estate has become extremely limited, forcing real estate investment funds that were unable to refinance their maturing loans into bankruptcy.

The key to the survival of Japanese real estate investment trusts, or J-REITs, in 2009 lies in factors related to their ability to obtain financing. This includes their credit rating, the type of properties in their portfolio, and their relationship with major banks that are still actively lending.

Real estate investment trusts are publicly traded funds that own and manage real estate portfolios and distribute profits to their shareholders. J-REITs, which were introduced to the Japanese investment market in September 2001, have steadily gained popularity over the years.Compared to stocks, J-REITs generally provide high dividend payouts, and for those who are keen on investing in real estate J-REITs save them the trouble of directly managing the properties while providing high liquidity.

As is the case with all publicly traded stocks, however, the downside risk of investing in J-REITs is that their share prices are prone to tumbling steeply whenever the market crashes, in some cases falling below the market value of the underlying properties. The market capitalization of J-REITs plunged by half in 2008 as the global economic turmoil spread into the world’s second largest economy.

Most analysts and investment managers expect 2009 to be an extremely challenging year for J-REITs and all real estate investment funds in general. In the current lending environment, the fate of a J-REIT lies in its ability to successfully refinance properties in its portfolio that have loans scheduled to mature this year. Since property prices have declined significantly over the past year, if a fund were to sell its property it would most likely need to sell it at a loss; in some cases, the value of the property may be lower than its loan amount.

The type and location of the property are important factors for lenders when they decide whether to finance the property or not. Currently, the most favored type is a class A office building located in central Tokyo, as the value of such buildings tend to decline the least in a bear market and they are the first ones to appreciate in value when the market recovers.

The size of the deal, which is obviously large for a class A office building in central Tokyo, is also an important factor, as the amount of effort required in underwriting an expensive property is virtually the same as underwriting a cheap one. So lenders prefer to do a big deal and earn more fees.

Since the few active lenders in the market are currently cherry-picking their deals, having close ties to one of them is certainly helpful. J-REITs that have close ties to a lender, perhaps due to an affiliation or for other reasons, have an edge over others that do not.

As part of a stimulus program that took effect in December 2008, real estate companies and J-REITs can now apply for emergency financing through the Japan Housing Finance Agency and the Development Bank of Japan.

Further, the Ministry of Economy, Trade and Industry announced on Tuesday that the government would infuse funds in firms that are facing temporary financing difficulties. Either the Development Bank of Japan or a designated commercial lender will initially screen the company that applies for the funding, and if the screening is successful, the bank will then provide funding in exchange for nonvoting preferred shares in the company. The government will also cover 50 to 80 percent of any losses from this funding program through the Japan Finance Corporation.

However, with regard to the government aid, an issue that has recently become a concern is that the Development Bank of Japan or the designated bank may require high credit ratings from companies requesting the loan or funding. The credit rating of a J-REIT is therefore another important factor that determines its ability to obtain financing.

In an investment seminar held recently in Tokyo, Nomura Securities highlighted Top REIT, Japan Excellent, and Nippon Accommodation Fund as J-REITs most likely to perform relatively well this year. The three are similar in that they all have a credit rating of AA- or higher provided by rating company Rating and Investment Information, Inc., and a portfolio that mainly consists of properties in central Tokyo.

Top REIT and Japan Excellent both have close ties to a Japanese megabank, while Nippon Accommodation Fund has the high profile Mitsui Fudosan as its sponsor.

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(Tokumasa Yamashita is an investment analyst at a U.S.-based real estate private equity firm in Tokyo. He is a member of the Urban Land Institute and serves as vice chair of communications for the institute’s Young Leaders Group Steering Committee. Mr. Yamashita received his undergraduate degree in electrical engineering from the Massachusetts Institute of Technology. ©Copyright Tokumasa Yamashita.)