Japanese REITs record high yields while global peers remain sluggish

Banknotes of the Japanese yen. [Photo by Reuters-Yonhap]

Japanese real estate investment trusts (REITs) are gaining traction among investors in and outside South Korea as the country’s yen depreciates against the dollar and the number of foreign tourists rise, leading brokerage analysts to recommend the products.

According to Daishin Securities Co. on Thursday, the Tokyo Stock Exchange REIT Index has outperformed its major peers in 2023. Until September 1, the Japanese REIT Index had a return of 3.3 percent, higher than that of the United States at 1.9 percent, Australia at 1.8 percent, the United Kingdom at minus 5.4 percent, Singapore at 1.3 percent, and Hong Kong at minus 26.7 percent.

While its dividend yields and price-to-earnings ratio are not noticeably high, analysts are leaning toward positive for Japanese REITs. The upbeat outlook largely comes from the historically low value of the yen, which has depreciated about 12 percent against the greenback to 147 yen recently from 131 yen at the start of the year according to Bloomberg.

Unlike a weaker won or yuan, which generally leads to negative perceptions of the Korean and Chinese economies, global investors believe that a lower yen will have a positive impact on the Japanese stock market.

While concerns over risks in the global REIT market remain, particularly in commercial properties, the situation is different in Japan.

“Japan’s office vacancy rate is lower than that of other countries, helping to maintain solid demand, and hotel demand is surging amid expectations of a recovery in Japanese tourism as the travel ban on Chinese group tours is now lifted,” IBK Securities Co. analyst Woo Ji-yeon said.

Brokerage houses believe that Japanese REITs will capitalize on this prospective rise in tourism demand, with Ichigo Hotel REIT Investment Corp., which has Japanese hotels as its underlying assets, an example. The company generated 2.8 billion yen ($19.03 million) in sales in fiscal year 2023, up 27 percent from a year earlier, and 1.3 billion yen in operating profits, up 44 percent. It owns 25 hotels across Japan, 24 percent of which are in Jigoku and Shikoku, and 16 percent in Kyoto and Osaka.

“As the company has the best dividend yield of 4.4 percent among the leading REITs in Japan’s hospitality sector, we believe it is worth being noted as a stable dividend investment in Japan,” Yuanta Securities Co. analyst Ko Seon-young said.

“With the Mid-Autumn Festival and National Day holidays approaching starting in September, the number of foreign tourists in Japan is expected to increase after China lifted its ban on group tours to foreign countries.”

Korean investors in Japanese stocks are also showing growing interest in Japanese REITs. According to the Korea Securities Depository, the “Japan Real Estate Investment” REIT was in 32nd place by net purchase, with retail investors buying $419,319 worth of the product between August 7 and last Wednesday. It did not make the list until July this year.

The product mostly holds commercial properties, which has recently become a growing concern, but its assets are concentrated in major cities such as core areas in Tokyo including Kitanomaru Square, Tokyo Shiodome Building, Akasaka Park Building, and Mitsubishi UFJ Trust and Banking Building.