The strongest bond sales in three years by real estate investment trusts are showing confidence in the property revival sparked by Prime Minister Shinzo Abe.
REIT sales jumped 33 percent this year to 95.8 billion yen ($944 million), outpacing the 5.9 percent increase in Japanese corporate issuance and the 2.2 percent climb for that in the U.S., according to data compiled by Bloomberg. Japan Excellent Inc. (8987), whose properties house units of Toshiba Corp. and Fujitsu Ltd., raised 5 billion yen of 0.46 percent debt last week due 2018 at a 5 basis point yield premium over the yen swap rate, down from the 48 it paid in 2011.
Tokyo beat Paris to become the world’s third most-active real estate market this year, as office vacancy rates fell to a 2009 low and housing starts extended the longest growth streak in more than 19 years ahead of a planned consumption tax increase. The Japanese capital’s properties also stand to receive a windfall of about 152 billion yen from the 2020 Olympic Games, according to International Olympic Committee.
“Investor perception of Japan Excellent’s profitability is improving in tandem with the office space market,” said Mikio Namiki, an analyst at Mizuho Securities Co. in Tokyo. “The bonds are also offering a spread that is quite attractive to investors which have seen yield premiums decline across the board.”
The spread on the Tokyo-based REIT’s 1.01 percent notes due 2016 dropped 28 basis points since the offering in October 2011 to 20 basis points. Japan Credit Rating Agency Ltd. ranks the company AA-, its fourth-highest investment grade. The spread for Japan’s similarly-rated issuers plunged 36 to 7 in the period, Bank of America Merrill Lynch indexes show.
Japan Excellent has 29 billion yen of bonds outstanding, including 12 billion yen maturing in March, according to data compiled by Bloomberg. The fund’s weighted average fixed coupon declined to 1.2 percent from 1.45 percent in the last quarter of 2010, the data show.
“The overall office market is improving which is positive for the REIT market,” said Kenta Anami, general manager at the finance and accounting department of Japan Excellent. “We refinanced the debt earlier because we see now as a good timing.”
Abe’s economic stimulus campaign includes monetary stimulus to encourage finance activity. Stepped-up borrowing by Japanese companies has to translate into increased capital spending for the measures to succeed in ending deflation and reviving the world’s third-largest economy.