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Business deals

Norway fund buys $740m chunk of Mitsubishi Estate's Tokyo office

Japanese developer transfers low-yield assets to pension giant

The Otemachi Park Building is across the street from the Imperial Palace in Tokyo. (Image courtesy of Mitsubishi Estate)

TOKYO -- Norway's massive sovereign wealth fund will acquire part of Mitsubishi Estate's Tokyo headquarters tower in a 79.7 billion yen ($742 million) deal with the property developer.

The Norwegian Government Pension Fund Global will own a section of the Otemachi Park Building office complex. The agreement announced Thursday will not apply to the third through sixth floors, which house Mitsubishi Estate's home office.

Norway's pension fund -- often called the oil fund for its petroleum wealth -- has been busy allocating more assets toward real estate, while the deal provides the Japanese developer an opportunity to offload low-yielding property.

The fund specifically will purchase a 39.9% interest in the ninth through 20th floors as well as stores in underground levels, a stratum worth nearly 200 billion yen in total. Two Mitsubishi Estate affiliates -- Nippon Open Ended Real Estate Investment and Japan Real Estate Investment -- will each pick up 5%. Mitsubishi Estate will hold the remaining 50.1%.

Mitsubishi Estate ultimately will transfer roughly 99.8 billion yen in property value. The developer said the transaction will not change its forecast for consolidated net profit of 137 billion yen covering the year ending March 31, a 2% increase.

The oil fund is valued at over 10 trillion kroner ($1.08 trillion), making it one of the world's largest sovereign wealth funds. The scale competes with Japan's $1.5 trillion Government Pension Investment Fund.

The Norwegian fund allocated over 70.8% of its assets in equities as of the end of 2019, while 26.5% went to the fixed income market. Though up to 7% of the portfolio can be invested in real estate, only 2.7% was allocated.

Otemachi Park Building will be the pension fund's second real estate acquisition in Japan. In 2017, the fund purchased five commercial properties jointly with Tokyo-based developer Tokyu Land.

Mitsubishi Estate's portfolio includes several prime pieces of real estate. While older properties have smaller book values and high returns, newer properties tend to have larger book values and meager returns. Mitsubishi Estate is selling off properties in choice locations to improve portfolio performance.

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