ORIX Corp (NYSE:IX) was downgraded by Goldman Sachs (NYSE:GS) to "in-line" from "outperform." Unfortunately there were no details released in conjunction with the downgrade. Nonetheless, real estate-related stocks are falling out of favor these days as it is inevitable that the Bank of Japan will begin raising interest rates, thus causing real estate investors' and develpers' cost of capital to increase. Further analysis follows.
Rents are on the rise in Tokyo and other metropolises but after years of extremely low interest rates there seems to be a bit of a scare going around as rates will have to eventually come up.
ORIX is in a somewhat unique position because real estate is not its only business as compared to a REIT, and ORIX is well-diversified with its involvement in a number of financial services.
I would like to add that the BoJ will be cautiously and incrementally raising rates and for the near-term, rates will still be quite low by historical and global standards. That being said however, I do expect to continue to see a lot of day-to-day volatility in ORIX's share price (note its ADRs also have a very low trading volume).
Merrill Lynch (MER) recently increased its price target on ORIX's ordinary shares to 38,000 yen. ORIX closed Monday in Japan down 2.64% at 35,100 yen. At a conversion rate of 118 yen/US$1, that equals $297.45 and when accounting for its ADRs' 2:1 listing ratio, that results in $148.73. In morning trading today ORIX's ADRs were down 1.35% at $149.25.
IX 1-yr chart: