Sumitomo Mitsui Trust property arm to double assets

Bloomberg

Sumitomo Mitsui Trust Holdings Inc.’s property unit plans to double assets under its management to ¥500 billion within two years on a projected recovery in the domestic real estate market.

Sumitomo Mitsui Trust Real Estate Investment Management Co., the real estate arm of Japan’s fourth-biggest bank, plans to significantly increase its assets from around ¥225.8 billion as of March 31, said Mitsuo Kimura, president and CEO of the Tokyo-based unit.

The company is also considering setting up a private real estate investment trust depending on investor demand and will reach a decision by next March, Kimura said.

The property company and an investment unit of AXA SA, Europe’s second-largest insurer, said last month they each started a fund with ¥5 billion to purchase office space in central Tokyo. The two funds, which may jointly invest in buildings, plan to raise as much as ¥50 billion to enable them to acquire ¥100 billion in assets, according to Kimura.

“I expect the market to recover next year,” Kimura said in an interview. “Japan’s stability has become attractive for European and U.S. investors who are seeking a place to invest.”

Sumitomo Mitsui’s property fund will look to acquire office buildings in central Tokyo in the ¥3 billion to ¥10 billion price range, according to the company.

The fund is targeting an internal rate of return of more than 10 percent, it said.

Office buildings in Tokyo provided a total return of 3.4 percent in 2011, including rental income and capital value, after a 0.5 percent gain a year earlier, according to RREEF, a property investment arm of Deutsche Bank AG. Prior to that, the market had fallen for three straight years, the data showed.

By comparison, the total return for properties in the U.K. fell by half last year after climbing as much as 15 percent in 2010, while the return from U.S. real estate climbed for a second consecutive year after posting two annual losses, based on data compiled by RREEF.

Tokyo’s office vacancy rate in July fell from a record high to 9.3 percent, according to office brokerage Miki Shoji Co.