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Nippon Life plans Japan's largest REIT as investors crave yield

A man walks past a logo of Japanese life insurer Nippon Life at the company's headquarters in Tokyo on Apr 21, 2011.

[TOKYO] Nippon Life Insurance Co, which is seeking to gather about 300 billion yen (S$3.4 billion) for what would be Japan's largest private real estate investment trust, is targeting returns of 4 per cent as yields on government bonds languish near zero.

Nippon Life Realty Management Inc will seek investments from large Japanese investors such as pension funds and banks, said Takashi Tanizawa, president of the company that will manage the fund.

The fund, which will open next year, is targeting assets of about 100 billion yen within the first year and about 300 billion yen over the mid-to-long term, larger than any existing offering of its kind, according to Nippon Life.

Japan's largest insurance company is looking to appeal to pension plans and big institutions by offering the prospect of higher returns as the country's 10-year government bond is paying a yield of about 0.3 per cent. While it is harder for investors to exit private REITs than publicly traded ones, they are attractive to investors seeking stable returns because they are less vulnerable to market swings.

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"The commercial real estate market is robust," said Genzo Kimura, an economist at Sumitomo Mitsui Trust Bank Ltd, one of Japan's largest banks. Overseas investors including sovereign wealth funds are buying properties in Japan and that is helping support prices gains after many years of stagnation, he said.


Nippon Life, which has about 1.08 trillion yen in real estate investments, including some 330 leased buildings, will sell part of that portfolio to the trust.

About 60 per cent of the trust's investments will be in office properties, with the remainder in retail, housing, distribution centres and some other assets, Mr Tanizawa said. Prices of high-end office buildings in Tokyo gained 21 per cent in the second quarter from a year earlier, according to property-services company Jones Lang LaSalle Inc.

Nippon Life will continue to undertake property developments and will focus primarily on large-scale office projects in Tokyo, said Hiroshi Ooshita, a deputy general manager at the company's real estate department.

Regulation of life insurers is making it more difficult for Nippon Life to boost investments in real estate itself, and the REIT will allow the insurer to reduce risks on its balance sheet, while continuing to be involved in property development, Mr Ooshita said.

There were about 13 private REITs operating in Japan in March, including trusts sponsored by Tokio Marine Holdings Inc and Nomura Real Estate Holdings Inc., according to a Sumitomo Mitsui Trust Research Inc report in June.

The size of the nation's private real estate trust market will probably triple to about 3 trillion yen from about 1 trillion yen at the end of last year, Nikkei Real Estate Market Information reported in April.