JAPAN - J-REITs are better positioned than other Japanese property firms to weather lender caution, according to a report published by Moody's which maintains a stable outlook for 20 of 22 rated J-REITs.

Report author Takuji Masuko said the REITs market was suffering with the rest of the sector from "a severe correction phase" in equity markets and the difficulty of securing new loans across the real estate sector.

"As a whole, lending capital is being squeezed across markets," said the report.

Moody's claimed in this report J-REITs were in a better position than some vehicles to weather market volatility because they focused on long-term borrowing and tight liquidity management.

Then in a separate note, the agency upgraded its rating of Japan Real Estate Investment Corporation, which it said would "maintain a leading position in the J-REIT market". Moody's cited the office REIT's "solid relationships" with lenders despite banks' growing reluctance to extend new loans.

The extent to which lending caution would impact J-REITs would depend on "how conservatively they have managed their financial strategies", said Masuko.

However, the report claimed the credit crunch "will likely make it difficult for some REITs to maintain their conservative financial policies".

Another reason for the ratings agency's stable outlook for J-REITs is their concentration in office and residential in Tokyo, which is still showing rental growth. Competition for large assets is lowering yields within the capital, with rising yields and lower prices outside it.  

Until now, J-REITs have been cautious about investing outside their domestic market. "Our analysis is based on their investment in domestic real estate. We have to review the risk if they start investing abroad," said Masuko.

Moreover, the report suggested the inclusion of J-REITs in the Nomura Bond Performance Index would make them accessible to pension funds. "I do not know exactly what's stopping pension funds accessing them and whether only Japanese pension funds [are not]," he said.
After delivering year-on-year growth from 2001—2006, the J-REITs market slowed in 2007.