Why Buy Real Estate Stocks in a 'World with Interest Rates'? The Ironclad 'Two-Sword Style' Combining Mitsui Fudosan and Hulic
“The Bank of Japan is considering a rate hike,” “Long-term interest rates are entering an upward phase.”
Whenever such news breaks, the same phenomenon invariably occurs in the stock market.
The entire real estate sector is sold off en masse, driven by the simple association game that “if interest rates rise, real estate companies with high debt will see their performance deteriorate.”
However, the investment guru Warren Buffett teaches us this:
“The moment the market is frightened by short-term noise and throws away fundamentally excellent companies at a low price is the greatest opportunity.”
And I actually bought Mitsui Fudosan and Hulic yesterday.
If you look only at the superficial numbers, both might appear to be the same “debt-ridden real estate stocks.”
However, if you thoroughly dig into primary information such as financial statements and medium-to-long-term plans, completely different winning patterns emerge.
Why should you combine the industry’s absolute king, “Mitsui Fudosan (8801),” with the “Hulic (3003),” which boasts phenomenal capital efficiency, right now?
I will explain the reasons using easy-to-understand analogies.
■ Conclusion: In a period of rising interest rates, hold a ‘solid castle wall’ and an ‘agile engine’ as a set
The strongest combination to overcome the waves of rising interest rates and inflation is the two-sword style of “Mitsui Fudosan = Defense (assets and pricing power)” and “Hulic = Offense (high yield and consecutive dividend increases).”
・Mitsui Fudosan (Castle Wall): Possesses trillions of yen in unrealized gains and overwhelming pricing power through “urban development,” turning inflation into an ally.
・Hulic (Engine): Specializes in “within a few minutes’ walk from stations in Tokyo’s 23 wards” and continues to increase dividends every year with industry-leading profit margins.
With only one or the other, your defensive strength might be insufficient, or your cash dividends might be underwhelming.
By combining these two companies, you can simultaneously obtain resistance to inflation and the maximization of cash flow.
■ Reason: The ‘moat’ of the business models is fundamentally different
Even within the same real estate sector, the way both companies earn money and use capital is completely different.
1. Mitsui Fudosan: Not just a landlord, but a ‘giant theme park operator’
If general office building management is like a “small shop standing alone along a road,” Mitsui Fudosan is like “Oriental Land, which operates the entire Tokyo Disney Resort.”
They have the power not only to lease individual buildings but to ‘develop entire districts’—like Nihonbashi, Yaesu, Hibiya, and Toyosu—thereby enhancing the value of the area itself.
・An inimitable barrier to entry: In addition to a network of over 16 million group members and thousands of tenants, they have enclosed advanced industry communities within their districts, such as healthcare (LINK-J) and space business (cross U).
No matter how much money is invested, other companies cannot replicate the brand or history of these districts overnight.
・Massive value not on the books: There is over 3 trillion yen in ‘unrealized gains’ sleeping in their held rental properties that is not recorded on the balance sheet.
The company’s actual net asset value (NAV) is far more robust than the apparent PBR (Price-to-Book Ratio) suggests.
・Pricing power to repel inflation: Because the value of the entire district is high, they can aggressively raise office rents and sales-linked rents for commercial facilities in line with price increases. Furthermore, they are pursuing a highly rational use of capital, such as proceeding with asset sales on a 2 trillion yen scale by fiscal year 2026, conducting share buybacks, and maintaining progressive dividends (maintaining or increasing dividends without cutting them).
It is truly an ‘impregnable fortress’ that repels any attack from the enemy.
2. Hulic: The ‘Latest Vending Machine’ Placed in Front of Yamanote Line Ticket Gates
On the other hand, Hulic’s business is like ‘having 250 of the latest vending machines lined up just 10 seconds outside the ticket gates of every station on the Yamanote Line.’
Originating from the management of former Mizuho Bank branch buildings, the company concentrates its assets exclusively in prime locations ‘within the 23 wards of Tokyo and near stations.’
・Phenomenal earning power (capital efficiency): The ROE (Return on Equity), which shows how efficiently shareholder money has been increased, is 13.0%, a high level that easily exceeds the real estate industry average.
They do not take gambles that are easily swayed by the economy, such as large-scale suburban condominium development, but specialize in stable rental income from properties near stations and the development of data centers in the Tokyo metropolitan area.
・Track record of 17 consecutive dividend increases: Since listing, they have continued to increase both profits and dividends for 17 consecutive terms. The current expected dividend yield is approximately 3.9%, but they have announced a policy to further increase the dividend payout ratio to 45%, meaning the yield on cost (YOC) automatically rises the longer you hold the stock.
・Financial discipline inherited from a megabank: Although they have borrowings, they maintain an ‘AA-‘ rating due to the high creditworthiness derived from their megabank origins, utilizing funds efficiently within a sound range.
This is a ‘high-output engine’ that reliably brings in cash every year and accelerates speed.
■ Problem: The market’s mental block that ‘rising interest rates = the end of real estate stocks’
So, why are these two companies with such excellent business models left undervalued?
It is because many investors stop thinking after only considering the one-sided formula: ‘rising interest rates = increased interest on debt = deteriorating performance.’
However, one must not overlook the essence.
The fundamental reason interest rates rise is that ‘the economy is good, and the prices of goods and services are rising (inflation).’
The strongest companies in an inflationary world are those that ‘can pass on rising raw material and cost increases to the prices of their products.’
For companies that own irreplaceable real estate in the heart of Tokyo, increases in interest payments can be sufficiently covered by rent hikes and increased facility sales.
The moment the market is frightened by superficial interest rate news and dumps high-quality stocks is the greatest bargain sale for calm, long-term investors.
■ Solution: The ‘Golden Ratio of a Portfolio’ that becomes visible by comparing the two companies
Why shouldn’t you narrow it down to just one or the other?
・If you only hold Mitsui Fudosan: While its inflation resistance and asset robustness are perfect, the current dividend yield is around 2.5%.
For investors who want to increase their monthly dividend cash flow quickly, it leaves something to be desired.
・If you only hold Hulic: While its high yield of approximately 3.9% and annual dividend increases are very attractive, it cannot completely negate market concerns about future increases in borrowing costs or the risk of slowing growth due to competition in acquiring prime properties.
That is precisely why we combine these two companies.
[Comparison of the Two Companies’ Characteristics]
・Mitsui Fudosan (8801)
・Main business areas: Large-scale urban mixed-use development (urban planning), commercial facilities like LaLaport, housing, and overseas expansion
・Capital efficiency (ROE): 8.5% or higher (targeting 10% by 2030)
・Financial policy: Maintain A rating, proceed with 2 trillion yen in asset sales over three years to compress equity
・Shareholder return policy: Total payout ratio of 50% or more, introduced progressive dividends with no dividend cuts
・Expected dividend yield: Approx. 2.5%
・Investment role: ‘Castle Wall’ = Trillions of yen in unrealized assets and pricing power that can withstand inflation
・Hulic (3003)
・Main business areas: Office and commercial buildings near stations in Tokyo’s 23 wards, urban data centers, tourism
・Capital efficiency (ROE): Consistently maintains 12-13% or higher (industry-leading class)
・Financial policy: Maintain AA- rating, control debt within a strict framework
・Shareholder return policy: 17 consecutive years of dividend increases, gradually raising the dividend payout ratio to 45%
・Expected dividend yield: Approx. 3.9%
・Investment role: ‘Engine’ = High capital efficiency and snowballing dividend cash flow
Solidify the foundation of your portfolio with ‘Mitsui Fudosan, which uses its trillions of yen in unrealized gains as a shield,’ and accelerate returns with ‘Hulic, which reliably increases dividends every year.’
This combination creates a real estate portfolio that combines defensive and offensive capabilities, unaffected by the waves of interest rates.
■ Summary: Stand firm as an ‘owner’ of the business, rather than focusing on daily price movements.
When looking at news headlines, sensational phrases like ‘interest rate hikes’ and ‘headwinds for real estate stocks’ appear every single day.
However, if you look at the objective facts in financial statements, the ‘irreplaceable prime land in Tokyo,’ the ‘unassailable moat of urban development,’ and the ‘pricing power that turns inflation into an ally’ that they possess have not wavered in the slightest.
Now, while the market is swayed by short-term interest rates and driving stock prices down, is the perfect opportunity to become an owner of excellent businesses.
Dismiss daily stock price fluctuations as mere noise, and continue to hold firmly for the long term, believing in the growth of dividends generated from their solid moats.
※Disclaimer: This article is a compilation of personal analysis and observations based on facts such as corporate disclosure information, and does not recommend or solicit the buying or selling of specific stocks or the execution of investment strategies. Please make final investment decisions based on your own judgment and responsibility.
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