As the economic recovery becomes a reality in Japan, the country's five biggest real estate companies are mulling over securitization, and how it can help them seize new business growth opportunities. Japan's economy has spent more than a decade in stagnation.
Mitsubishi Estate Co., Mitsui Fudosan, Tokyo Tatemono, Tokyo Land Corp. and Sumitomo Realty and Development have all previously used securitization in the acquisition of commercial properties. The companies say attracting institutional investors to CMBS has enabled them to increase their return on assets without increasing their own holdings.
It is estimated the value of real estate held by the big five in SPCs will rise by 26% to 310 billion (US$2.9 billion) for the fiscal year ending March 2005.
Mitsubishi expects its securitization program to increase by 40% to 35 billion. The company also intends to set up a fund to manage commercial property assets, which it hopes will be worth 50 billion by March 2007.
Mitsui Fudosan is the real estate sector's biggest securitizer, having raised 100 billion by the end of the 2004 fiscal year. The company plans to increase the balance of SPC-acquired properties to reach 3 trillion over the next five years.
Tokyo Tatemono wants to raise 50 million through securitization in the 2004/2005 fiscal year, a 140% increase on 2003/2004. The company, which has acquired several properties in past 12 months - such as the Otemachi Financial Center in central Tokyo - expects securitization to increase its return on assets by 5% in the next three years.
Tokyo Land plans to grow its securitization initiative by 33% to 70 billion this fiscal year. The firm reported that dividend income from SPCs rose by 27% to 11.4 billion last year.
Sumitomo Realty & Development says its own SPC-related purchases grew 59% to 44.4 billion last year. The company will launch a real estate investment trust during this fiscal year, which it says should boost property acquisitions.
Meanwhile, Sumitomo Realty's parent company, Sumitomo Mitsui Banking Corporation, last week launched the fourth deal out of the SMBC CLO trust vehicle. The 37 billion self-led transaction is backed by a pool of loans worth 38.9 billion extended to small and medium sized companies (SMEs).
Moody's Investors Service rated the 333.5 billion senior trust certificates Aaa' and the 3.5 billion mezzanine certificates A2'. Credit enhancement for the 3.5-year transaction comes through subordination and any accrued excess spread.
Another offering launched last week was the latest unsecured consumer loan-backed deal from Shinki Co., a Tokyo-based consumer finance and small business loan company.
The 10 billion transaction - arranged by Shinsei Bank with Shinsei Securities handling the private placement - was split into three tranches with an expected maturity of 4.5 years and legal final of seven years.
Moody's assigned Aaa' ratings to the 5 billion Class A floating rate notes and 2.5 billion Class B fixed-rate notes. The 2.2 billion mezzanine notes were rated Baa2'.
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