Japan Post sets eyes on real estate development

by Kathleen Chu and Katsuyo Kuwako

Bloomberg

Japan Post Holdings Co., with $30 billion’ worth of properties across the nation, will redevelop sites in central Tokyo, Osaka and Nagoya as it turns to real estate as a new source of profit, a company official said.

The former state-run mail service that was privatized by the government last year will spend about ¥300 billion redeveloping the central post office sites in the country’s three biggest cities into office buildings, said Takashi Saito, deputy senior general manager of Japan Post Holdings Co.

“Since we own the land already, we don’t face risks related to potential losses by holding on to assets, unlike others,” Saito said in an Oct. 21 interview.

Under legislation championed by former Prime Minister Junichiro Koizumi, Japan Post was split last October into four companies specializing in banking, insurance operations, mail delivery and management of post offices.

Japan Post doesn’t face the financing difficulties linked to the global credit crunch that others confront as it has access to deposits managed by its group unit Japan Post Bank Co., the world’s largest lender by assets, Saito said. The lender had ¥188.9 trillion in assets on its balance sheet as of Oct. 1, 2007.

Owning about ¥3 trillion worth of properties and having a credit quality similar to the government’s give Japan Post an advantage over many other developers, said Junko Miyakawa, a credit analyst at Shinsei Securities Co.

The government plans to sell stakes in Japan Post and the insurance business and list them on the stock exchange as early as 2010. The Finance Ministry now holds all shares in Japan Post Holdings.

“Whatever they develop in the next few years, the return on investment could be relatively high compared to other developers,” said Miyakawa. “Borrowing costs will be low due to the high credit quality as it is still owned by the government. They can also generate high rental income due to good locations.”

Central post offices in Japan tend to be located in prime areas with proximity to railroad stations, as mail used to be transported by trains.

The projects may exacerbate office supply gluts in some places, according to James Fink, senior managing director of property consulting firm Colliers Halifax in Tokyo.

“The difficulty for Osaka and Nagoya is that those economies are not as vibrant, and they are both headed into a multiyear oversupply in the office market,” said Fink.