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Mitsubishi Estate Profit Falls 12% on Lower Rental Income

Mitsubishi Estate Co. (8802), Japan’s second- biggest developer, said full-year profit fell 12 percent because of declining rental income and a drop in apartment sales. Shares retreated to a three-month low.

Net income decreased to 56.5 billion yen ($708 million) in the year ended March 31 from 64.2 billion yen a year earlier, the company said today. Sales gained 2.5 percent to 1.01 trillion yen from 988.4 billion yen.

The company said it expects profit to drop 12 percent this business year to 50 billion yen. Sales will decline to 927 billion yen in the current fiscal year, according to the statement. The operating profit for its office leasing and sales business is expected to slip 13 percent next year.

Mitsubishi Estate and its competitors are facing record high vacancy rates in Tokyo at a time when the supply of office space is expected to reach a nine-year high. Tokyo’s office vacancy rate rose to a record high of 9.23 percent in January, according to Miki Shoji Co. New supply will gain 42 percent this year, the highest since 2003, according to a survey by Mori Trust Co., a Tokyo-based developer.

Mitsubishi Estate shares fell 3 percent to 1,306 yen at the close in Tokyo, the lowest since Feb. 13.

Operating profit, or sales minus operating costs, rose 3 percent to 146 billion yen in the company’s sales and office leasing businesses, reflecting the sale of Asakasa Park Building in central Tokyo, the company said.

Mitsubishi Estate sold the building in November for 60.8 billion yen to Japan Real Estate Investment Corp. The sale helped the owner of about 30 buildings in Tokyo’s most expensive business district offset declines in leasing revenue because of falling occupancy rates.

Rental income declined 2.7 percent to 378.8 billion yen for the year ended March 31 from a year earlier, the company said. Mitsubishi Estate’s office vacancy rate dropped to 3.6 percent in March, after rising to 5.1 percent in October, when it reached the highest in more than seven years.

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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