Japan REIT sector - Lowering TSE REIT Index range estimate
Factoring in rising interest rates, potential rise in equity market risk premiumsWe have trimmed our TSE REIT Index range estimate to reflect recent developments and future prospects on the financial/capital markets and within the REIT sector. In February 2016, we estimated a range for the TSE REIT Index over the subsequent 3-6 months of 1,715-1,995, and we stuck with this range the last time we revisited it in July. The TSE REIT Index has traded between 1,729.56 and 1,970.72 over the intervening period, and closed at 1,813.11 on 16 September. We have revised our range estimate because: (1) we have changed the 10-year JGB yield assumption we use in calculating our fair-value yield spread assumption for REITs from 0.2% to 0.3%; and (2) we have factored in recent dividends paid out by REITs. As a result, we have trimmed our range for the TSE REIT Index over the next 3-6 months from 1,715-1,995 to 1,700-1,950 (Figures 1 & 2).