What are the 3 stocks with little impact from domestic interest rate rise? | Thoughts on J-REIT Investment | Manekuri Media providing investment information and financial assistance from Monex Securities

The upward trend in J-REIT prices continues

J-REIT prices continue to show a rising trend. The Tokyo Stock Exchange REIT Index was at 1,714 points on May 23, but recovered to the 1,750 point range on June 6, and also recovered to the 1,800 point range on a closing basis on July 7. The 25-day moving average of the Tokyo Stock Exchange REIT Index has also risen to 1,780 points, marking a recovery to levels not seen since May 2024.

Additionally, the price trend in July has been unaffected by the movements in U.S. long-term interest rates, similar to the situation since April. The yield on U.S. 10-year bonds had been on a downward trend since late June, falling below 4.2% on July 1, but has since risen to a level of 4.4% after the 8th.

On the other hand, during this period, the Tokyo Stock Exchange REIT Index has been fluctuating in a box range of 1,780 points to 1,800 points, so it has not declined due to the rise in U.S. long-term interest rates as it did until March.

What is the impact of the rise in domestic long-term interest rates?

Therefore, in the future, the factors that may cause the price of J-REITs to decline again will be the rise in domestic long-term interest rates. The first negative impact of the rise in domestic long-term interest rates is the narrowing of the divergence (yield spread) between J-REIT yields and government bond yields. However, as mentioned in the column on May 22, "Will the rise in domestic long-term interest rates be a factor in the decline of J-REIT prices?", the yield spread has already widened, so the impact is considered to be minimal.

The second negative impact is that the increase in interest rates may lead to a deterioration in earnings due to the rise in interest. However, as mentioned in the above series, when looking at all stocks, 88% of the borrowing is funded at fixed interest rates, and the borrowing period is long at 7.14 years, so the impact is minimal.

However, there are differences in fixed interest rate ratios and procurement periods depending on the asset. Therefore, when investing in individual assets, if you are concerned about the risk of deteriorating earnings due to rising interest rates, it is necessary to select assets with a high fixed interest rate ratio and a long borrowing procurement period. If procurement is at a fixed interest rate, the impact of domestic long-term interest rate increases will not be felt until the refinancing of the borrowed funds, and a longer procurement period will result in fewer annual refinancing amounts.

Which 3 stocks are less affected by the rise in domestic interest rates?

Specifically, the chart shows the top three securities with minimal impact from interest rate rises calculated based on the fixed interest rate ratio and the procurement period (Note 2).

[Chart] Borrowing Status of Top 3 Financial Securities (As of End of May 2025) Source: Created by Ivy Research Institute Co., Ltd. based on the public materials of each brand. *The numbers in parentheses are the securities codes. The top 3 financial stocks are based on the fundraising period and fixed interest rate ratio. For example, Japan Prologis REIT Investment Corporation (3283) has a high fixed interest rate ratio of 97% for its borrowings, with a procurement period of 8.5 years. Furthermore, Advance Residence Investment Corporation (3269) (hereinafter ADR) has the longest procurement period among all securities and also a high fixed interest rate ratio; however, since it is a residential-related security, it falls outside the top three when considering the borrowing ratio.

When considering the debt-to-equity ratio, Frontier Real Estate Investment Corporation (8964) would rank instead, but it is believed that ADR has a low impact due to being able to complement its high debt ratio by other factors.

Another factor is the high unrealized profit margin of the held properties. ADR has an unrealized profit of 59%, making it the second highest among all stocks in the most recent earnings period (※3). In addition to the low loan-to-value ratio based on unrealized profits, it is also a stock that can be expected to increase dividends through property sales, so it is considered that the impact of the loan-to-value ratio on earnings is minimal.

However, it should be noted that in the case of residential stocks in general, those with high borrowing ratios tend to have softer prices during a domestic interest rate rise.

*1 As of the end of May 2025. Based on the median of all tokens.

*2 Calculated by fixed interest rate ratio × funding period

*3 As of the second half of the fiscal year 2024