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Mitsubishi Estate Raises $143 Million to Buy REIT Assets

Mitsubishi Estate Co. (8802), Japan’s largest developer by market value, raised 11.2 billion yen ($143 million) to buy four properties in Tokyo for its private real estate investment trust.

Mitsubishi Jisho Investment Advisors Inc., an asset management arm of Mitsubishi Estate, bought one office building and three apartments in Tokyo for the open-ended fund, President Tetsuji Arimori said. About 75 percent of the new money raised for the acquisitions was from pensions, while the rest came from institutional investors, he said.

Mitsubishi, Mitsui Fudosan Co. and Nomura Real Estate Holdings Inc. have started private REITs in the last two years to meet increasing demand from the world’s second-largest pension pool for investments other than traditional assets such as stocks and bonds. The fund was set up in March 2011 as part of Mitsubishi Estate’s long-term goal to more than double the total assets under management to 5 trillion yen by 2020.

“It has become easier to raise funds as more investors, compared with last fiscal year, recognize the characteristics and advantages of investing in private REITs,” said Arimori in an interview in Tokyo. “In the short term, there could be a certain degree of competition among asset managers, but that is positive for the market in the mid to long term as private REITs become more common.”

Mitsubishi Estate rose to the highest since March 19, gaining 1.8 percent to 1,511 yen at the close of trading on the Tokyo Stock Exchange.

The purchases brought the total size of the fund to 62.2 billion yen from 51 billion yen, Arimori said.

Pension Demand

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

The fund, which purchased a majority of the properties from parent Mitsubishi Estate, is looking to buy retail real estate in metropolitan areas to add to its portfolio, Arimori said.

Two decades of slumping stocks, one of the world’s lowest bond yields and an aging population are prompting the nation’s pensions to expand investments into alternative assets, such as real estate. The 10-year Japanese government bond yield is 0.8 percent, the third lowest after Switzerland and Hong Kong. The Nikkei 225 Stock Average is less than a quarter of its 1989 peak.

Property companies are targeting Japan’s $3.36 trillion in pension money, which is the world’s second-largest retirement pool, after the U.S., according to Towers Watson & Co. Japan was the only market among 12 that had a drop in pension assets because of the poor returns on local stocks and bonds, according to the report published in January.

Goldman, Mitsubishi

Japanese retirement funds have 31 percent of investments in stocks, 59 percent in bonds, and only 6 percent in alternative assets, according to Towers Watson. That compares with 25 percent in such assets in the U.S. and 24 percent in Australia.

Goldman Sachs Group Inc. (GS) and Mitsubishi Corp. are also joining the competition amid signs of recovery in the nation’s property prices.

The capitalization rate, a measure of investment yield, for Japanese office buildings was 5.3 percent in July after declining from 5.4 percent in April, according to Real Capital Analytics Inc. A drop in the cap rate, which is a property’s net income divided by the purchase price, usually signals an increase in real estate prices.

“Our fund offers stability and risk diversification that matches the investors’ needs as the number of properties in our portfolio and tenants increase,” Arimori said.

Mitsubishi Estate shares, which have gained 30 percent so far this year, rose 0.9 percent to 1,498 yen as of 9:16 a.m. in Tokyo. The 44-member Topix Real Estate Index has gained 36 percent in 2012.

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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