REIT ASIAPAC
F E AT U R E
Fe a t u r e
THE US - CHINA
TRADE WAR’S IMPACT ON
CHINA’S REAL ESTATE
“J-REITs are generally in a
good position to conduct
buybacks since they have
significant dry powder in their
accumulated depreciation
account. It is especially
sensible for J-REITs to buy
back shares when they divest
assets.”
GPR APREA Japan REIT Index
450
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250
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150
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Chinese and U.S. firms operating in sectors subject to tariffs
occupy about 20% of Grade A office space in mainland China.
However, leasing remains unscathed.
BETS ON U.S.
MIDTERM ELECTIONS
Junnosuke Shinkawa
Analyst at UOB-SM Asset Management
WHO’S NEXT IN LINE
J - R E I T S T R A D I N G AT A D I S C O U N T TO N AV
Institution Name
However, Junnosuke Shinkawa, an analyst at UOB-SM Asset
Management, says that investors view REIT investment
through a lens of both dividend yield and capital appreciation.
“While total return is important, capital appreciation helps
active managers deliver outperformance relative to a
benchmark. Hence, J-REITs that conduct buybacks are very
attractive to fund managers,” he says.
PRICE / NAV
MCUBS MdCity Investment Corporation 0.99
Hoshino Resorts REIT, Inc. 0.98
Premier Investment Corporation 0.98
Tokyu REIT, Inc. 0.97
LaSalle LOGIPORT REIT 0.96
Even so, buybacks are not for every J-REIT. Buybacks are
sensible when the REIT trades at a discount to NAV. As Yoji
Tatsumi, President, GLP Japan Advisors Inc. says, “buybacks
are getting trendy for J-REITs,” adding that about a third of
J-REITs are trading below NAV per unit. Heiwa Real Estate REIT, Inc. 0.95
Global One Real Estate Investment Corp. 0.95
AEON REIT Investment Corporation 0.94
One REIT, Inc 0.94
Shinkawa adds that, “J-REITs are generally in a good position
to conduct buybacks since they have significant dry powder
in their accumulated depreciation account. It is especially
sensible for J-REITs to buy back shares when they divest
assets.” Star Asia Investment Corporation 0.92
Japan Logistics Fund, Inc. 0.90
Invincible Investment Corporation 0.90
Hankyu REIT Inc. 0.89
Sekisui House Reit, Inc. 0.47
Source: S&P Global Market Intelligence (22 September 2018)
20
The U.S.-China trade conflict has prompted some tenants in mainland China’s
industrial sector to consider shifting production to Southeast Asia. However, the
impact on the local office market has stayed relatively benign so far.
According to Henry Chin, CBRE’s Head of Research in Asia Pacific, “any flow
through is still to be seen.” While the trade conflict has undoubtedly introduced a
layer of uncertainty, China’s commercial property market is still in good health, he
adds. “Occupier markets are reporting healthy leasing momentum in the first half
of 2018, and the domestic investment market remains liquid with local investors
displaying a healthy appetite for new acquisitions, particularly in Tier II and Tier
III cities,” says Chin.
The trade conflict between the world’s two largest economies started as early
as January this year and has shown no signs of ending. As of September, the
total value of U.S. imports from China affected by the announced tariffs totalled
about US$250 billion, while China’s retaliatory tariffs on U.S. goods amounted to
US$110 billion.
21
“The big question is post-midterm elections.
A lot will depend on whether the Democrats
become part of the equation,” says Kay
Van-Petersen, Global Macro Strategist at
Saxo Capital Markets. The U.S. midterm
elections will be held on November 6. Trump’s
Republicans currently hold control of both
chambers of Congress, and the world is
waiting to see whether Democrats can win
enough seats to take back legislative power.
“There is also a view that there has to be a
solution, when there’s a possibility that we
may not need one. China can afford to wait
for Trump’s reign to end,” Van-Petersen adds.
Based on CBRE’s data, mainland China’s
commercial real estate transaction volume
totalled RMB 84 billion (US$12 billion) in the
first six months of this year, a year-on-year
decline of 19% but still above the past three
years average for the same period.
“This trade conflict could also accelerate the
integration of The Association of Southeast
Asian Nations (ASEAN). Vietnam stands
to benefit if manufacturers were to shift
production operations out of China,” adds
Chin.
The Chinese government has introduced
measures to help offset the impact. It has
increased domestic liquidity via cuts in the
reserve requirements ratio (RRR). In July, it