Through its asset management arm,
The Goldman Sachs Group Inc.
) is strategizing to extend its private real estate investment
trust (REIT) in Japan to approximately 60 billion yen ($583
million) by the end of March,
reports. The expansion stems from increasing demand for
investments in Japan's real estate market.
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The REIT, which was initiated in Aug 2012 with 30 billion yen
($0.4 billion), is expected to invest about 4 billion yen in
Japanese properties by the end of June. Previously, the U.S.
investment bank announced its plan to acquire 300 billion yen
($3.7 billion) of properties over the five years since the REIT's
Goldman's trust is planning to acquire two office buildings in
Tokyo and Fukuoka with the anticipation of an upward movement in
the Japanese property market. Notably, real estate in Tokyo
accounts for 90% of the REIT, while the remaining is in Fukuoka.
Based on market conditions, the investment yield in Tokyo has
declined. The bank expects to invest in other metropolitan cities
if the yield goes too low in Tokyo.
Further, Goldman's investment is expected to be extended to
residential and retail properties. Moreover, the main second-tier
Japanese cities might come under the purview of investments in
the later years.
Private REITs, which possess buildings, pay dividends to
investors from the rental income. These trusts do not trade on
exchanges, and therefore are similar to pension funds that yield
stable income for investors.
Due to low yielding bonds and falling stocks, pensions in Japan
are focused on diversifying investments to increase returns in
the country instead of investing in assets such as bonds and
equities. Therefore, Goldman intends to target pension funds and
domestic institutional investors for the REIT with an aim to earn
5% return on an annual basis. Notably, according to the
source, property transactions in Japan are anticipated to rise
about 30% to 5 trillion yen in 2014 from 4 trillion yen in 2013.
Goldman expects a turnaround in the Japanese real estate market;
hence, it has decided to make such a huge investment in it.
At the current level, investing in Japanese properties would
yield higher returns over the long period once the Japanese
economy stabilizes and government policies come into effect
Goldman currently carries a Zacks Rank #2 (Buy). Other banking
stocks worth considering include
Fifth Third Bancorp
The PNC Financial Services Group, Inc.
Raymond James Financial, Inc.
). All 3 carry a Zacks Rank #2.