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Mitsubishi Estate to Expand Private REIT for Pension Demand

Mitsubishi Estate Co. (8802), Japan’s largest developer by market value, plans to increase the size of a private real estate investment trust it manages to capture investments from pension funds seeking to diversify assets.

The company plans to raise assets in its open-ended fund to 51 billion yen ($608 million) by the end of March, from about 40 billion yen, said Tetsuji Arimori, president of Mitsubishi Jisho Investment Advisors Inc., the Tokyo-based asset management unit of Mitsubishi Estate. It added about 10 billion yen to the trust in September, he said.

Mitsubishi Estate joins Mitsui Fudosan Co. and Nomura Real Estate Holdings Inc. that are also increasing assets in their private REITs to tap the world’s second-largest pension fund pool. Japanese pensions, with total assets at $3.47 trillion, had a compound annual growth rate of 0.2 percent over the past 10 years, according to Towers Watson & Co.

“There may be competition in the near term,” said Arimori in an interview. “But that will help investors recognize private REITs as one of the common financial products.”

Mitsubishi Estate shares, which gained 35 percent so far this year, rose 2.9 percent to 1,553 yen in Tokyo yesterday.

Japanese pensions have been trying to diversify their investments beyond traditional assets such as bonds and equities to boost returns in a country with the world’s lowest bond yield and two decades of slumping stocks. AIJ Investment Advisors Co., a Tokyo-based asset manager, was suspended by the nation’s financial regulator on Feb. 24, because it couldn’t account for all of the 185.3 billion yen it managed for clients who were mostly retirement funds.

REIT Expansion

The fund, which has office, retail and residential properties, will increase the share of apartments in its portfolio, he said, declining to disclose details as the information is not public.

The fund was set up in March last year as part of Mitsubishi Estate’s long-term goal to more than double the total assets under management to 5 trillion yen by 2020.

Mitsui Fudosan Co., Japan’s biggest developer by sales, said last week it plans to triple the size of its private REIT in three years. Nomura Real Estate Holdings Inc., which set up Japan’s first private REIT, is set to complete acquisitions that will double the size of the trust, it said last week.

Private REITs own buildings and pay investors dividends from rental income. Private REITs are not traded on exchanges so don’t have daily price fluctuations that listed REITs have. That matches the need of pension funds seeking stable income.

“Private REIT that is backed by stable rental income is important for institutional investors and has gained their recognition,” said Arimori.

To contact the reporters on this story: Kathleen Chu in Tokyo at Kchu2@bloomberg.net; Katsuyo Kuwako in Tokyo at kkuwako@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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