Mitsui Fudosan Shares Decline on Share Sale Plan

Mitsui Fudosan Co., Japan’s biggest real estate developer, fell the most in a year in Tokyo trading after the company said it would raise as much as 324.6 billion yen ($3.2 billion) in a share sale.

The stock dropped as much as 7 percent and was heading for the biggest drop since May 23, 2013. It traded 6 percent lower at 3,139 yen as of 11:12 a.m. local time.

As part of the biggest share sale by a property company in the country in at least four decades, Mitsui Fudosan plans to sell as many as 110 million shares as it expects a boost from the 2020 Tokyo Olympics and the government’s efforts to stimulate economic growth. The proceeds will be used for real estate development as the company sees opportunities ahead of the Olympics, Mitsui Fudosan said yesterday in a filing with the finance ministry.

“Even though Mitsui Fudosan’s shares declined today because of dilution, the company’s investment plan provides a positive signal,” said Hideyuki Shinkai, who helps oversee about 58 trillion yen in assets at Norinchukin Trust & Banking Co. in Tokyo. “Following Mitsui Fudosan, there is a possibility that others may raise funds to invest.”

The 45-member Topix Real Estate Index declined 2.4 percent, the worst performer among the 33 industry groups that make up the benchmark. Shares of Mitsubishi Estate Co., Japan’s second-largest developer by sales, dropped 1.2 percent, while Sumitomo Realty & Development Co. fell 1.8 percent.

‘Exciting Time’

Real estate investment in the world’s third-largest economy has picked up since Prime Minister Shinzo Abe pledged to end 15 years of deflation and the Bank of Japan embarked on an unprecedented monetary easing. Mitsui Fudosan’s business environment has changed “dramatically” since it issued its mid-term plan in 2012 as the economy recovers, the Tokyo-based company said in the statement.

“This is an exciting time for Japanese real estate,” said Tim Gibson, head of Asia property equities at Henderson Global Investors Ltd., who helps manage about $130 billion. “They clearly believe in the recovery of Japan, that it’s not just temporary, but sustainable.”

Mitsui Fudosan shares have more than doubled in the past two years. The stock has declined 17 percent this year, compared with a 18 percent drop in the measure that tracks property companies.

“The shares went up sharply over the last two years and now are fairly valued,” said Yoji Otani, an analyst at Deutsche Bank AG in Tokyo. “It’s a sensible time to sell shares.”

Largest Sale

The fundraising will be the largest among Japanese real estate companies in at least 43 years, according to data compiled by Bloomberg. The last time Mitsui Fudosan sold shares to the public was in 1982 when the company issued 12 billion yen worth of securities, said Mitsutoshi Tenda, a company spokesman in Tokyo.

“The announcement is negative for the share price,” said Masahiro Mochizuki, an analyst at Credit Suisse Group AG, in a report. “The capital increase departs from the company’s previous plan.”

Mochizuki lowered his price target for the stock to 3,700 yen from 4,300 yen, while maintaining an outperform rating.

Capital Concerns

In 2012, the company forecast net income would reach at least 110 billion yen for the fiscal year ending March 2018 as it strengthened its housing business at home and expanded overseas as part of its six-year plan. In May, Mitsui Fudosan forecast a third straight year of net income growth to 90 billion yen for the year ending March 2015 as its residential business recovers.

As much as $3.2 billion of new shares issued would account for about 10 percent of Mitsui Fudosan’s current market value, according to data compiled by Bloomberg.

“Other companies also are interested in development for the Olympic Games and many want to realize this opportunity.” said Mochizuki. “The move by Mitsui Fudosan has provoked capital concerns of other companies and that’s why we’re seeing their stocks decline.”

The sale in Japan will be managed by Daiwa Securities Group Inc., Nomura Securities Co. and SMBC Nikko Securities Inc., while the overseas sale will be managed by Daiwa Capital Markets Europe Ltd., Nomura International Plc, Merrill Lynch International and SMBC Nikko Capital Markets Ltd.

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