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When an asset class has been downtrodden for a long period of time, I tend to look at it and assess whether conditions have changed that now favor an awakening from long periods of hibernation. Japanese REITs, or J-REITs as they are better known, m

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

ay just be one of those opportunities, specifically apartment/residential REITs in Tokyo. On the flip side are REITs that are emerging and poised for rapid growth. Hotel and resort REITs in Shanghai and Beijing fit this bill.

Even though most J-RE

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

Ts seem fairly valued right now, there are other cautionary factors that must be considered. Because the Bank of Japan had kept their interest rate at zero for so long to stimulate the Japanese economy and just raised interest rates several months

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

ago for the first time, as the Japanese economy strengthens, interest rates are likely to rise further. Although the average dividend yield for J-REITs is currently 4.6%, to offset an interest rate increase of 1%, in order for yields to also rise

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

nother 1%, it is estimated that concurrent rents would have to rise 13.5%.

However, many properties owned by JREITs have extremely high occupancy rates, so tenant income flow is consistent and reliable, offsetting some of the other risks of JREITs

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

such as bureaucratic REIT laws that currently make independent management and M&A of the J-REIT industry difficult. For this reason, JREITs have some of the largest yield gaps (as compared to 10-year bonds) of any developed country.

However,

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

here are still many positive things to like about J-REITs and many reasons to consider scouring residential/ apartment J-REITs in Tokyo now rather than later. Number one, although the average J-REIT NAV (net asset value) premium is 12%, there are a

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

ctually some J-REITs now with grade A properties that trade at a discount to their NAV. That is not a misprint. The combined book (appraisal) value of properties held in some J-REITs is actually more than the NAV of the offered JREIT shares. These

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

undervalued J-REITs are the ones that I believe merit the most attention due to the compelling risk-reward setups they offer. What better value can you get than buying properties at costs less than their appraised values?

Furthermore, as some of t

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

he regulatory issues governing J-REITs become sorted out, and the entire legal system becomes less bureaucratic and cumbersome, some of these J-REITs that sell at less than book value now will become promising acquisition targets for larger J-REITs

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

and thus could experience a rapid appreciation in share price upon acquisition. However, a word of warning. These issues could very well become more bureaucratic before they become less so as growing pains will undoubtedly happen in the attempt to

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

become more streamlined.

Therefore, I foresee the reward in J-REITs as a long-term outlook. Thirdly, the valuation of some J-REITs became depressed as foreign money left the Japanese stock market, and not due to fundamental flaws in the J-REITs th

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

mselves. As foreign money re-enters the Japanese markets as I expect in 2007, which also would make the Japan i-shares a possibly compelling buy in 2007, this influx of foreign money should also provide a boost to the J-REIT industry.

I know many

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

people will disagree with me about Japan’s economy but anytime a long recession has plagued a country, investors, both domestic and foreign, remain understandably gun-shy and momentum will take some time to build. For example, a stronger empl

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

yment environment and stronger wages have yet to show up in the Japanese economy through increased spending patterns. But it will. And for this reason, the Japanese finance sector is another area to take a peek at, for the financial industry always

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

leads the way in stronger growth economies.

For a shorter-term return on REIT investments in Asia, China may be the place to look. Starwood Asia-Pacific president, Mr. Miguel Ko, stated in the Shanghai Daily that his hope is that China will contr

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

bute 50 per cent of their total profits from the Asia-Pacific region in the next three to five years as opposed to their current 20% contribution. Part of these lofty estimated increases is undoubtedly due to the hotel and resort construction boom

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

that is occurring in preparation for the 2008 Beijing Olympics.

The director of Beijing Tourism Bureau, Du Jiang, recently stated that there are over 110 hotels being constructed in Beijing alone in preparation for the 2008 Olympics, “with a

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

majority of them targeting high-end guests.” Beijing hotels are expected to accommodate about 550,000 guests per day during the Olympics. Therefore, Beijing and Shanghai REITs that hold high-end hotels and resort properties may offer some nic

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

e investment opportunities now.

In June 2005, Hong Kong regulations were amended to allow HK REITs to invest overseas, including in properties in mainland China. So for now, HK REITs invested in Beijing and Shanghai properties may be the way to go

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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