Bloomberg News

Mitsubishi Expands Into Asian Condos as Commodity Profits Slow

November 03, 2013

Mitsubishi Headquarters

A pedestrian walks past the Mitsubishi Corp. headquarters in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

Mitsubishi Corp. (8058), Asia’s largest trading company by market value, is expanding into property development in Southeast Asia as the slowdown in China shrinks profits from its commodity businesses.

The first project, starting next year, entails building an apartment complex with more than 1,000 units in the Philippines at a cost of 40 billion yen ($405 million), Masahiro Nagaoka, head of township development and construction at Mitsubishi, said in an interview in Tokyo.

The trader has allied with local Ayala Land Corp. (ALI) for the project and is looking for similar opportunities in Vietnam, Indonesia and Myanmar.

“We see in those countries large populations, a pent-up demand for housing, and a chance to enter markets that aren’t yet crowded,” Nagaoka said. “We will look for local partners in each country.”

The Tokyo-based trader is expanding outside of raw materials businesses as Chinese demand for resources declines. Mitsubishi in alliance with BHP Billiton Ltd. (BHP) is the world’s top exporter of coking coal used to make steel. It said in May it aims to double earnings from non-commodities by 2020 from 180 billion yen ($1.82 billion) last year.

Real estate falls under Mitsubishi’s industrial finance and logistics division, which almost doubled net income to 25 billion yen in the fiscal year ended March 31. That came as total profit dropped 20 percent on strikes at its Australian coal mines and lower oil and metals prices.

Southeast Asia

Since broadening real estate and property development to the U.S. and then China two years ago, the company sees Southeast Asia as its next growth market, Nagaoka said.

“We feel we can take advantage of this situation,” Nagaoka said.

Mitsubishi will take a 40 percent stake, the maximum for a foreign entity in the Philippines property market, in Albeo Land Corp., a unit of Ayala Land. Construction and sale of apartments will be done in several stages over eight years, Nagaoka said.

The target audience will be the local upper-middle income population, defined as those with a household income between 3 million yen and 5 million yen a year, he said.

“Profits in the upper luxury segment are higher, but so is the volatility,” he said. “We’re looking for more stable, large-scale projects.”

Ayala Land

Construction will begin in the Ortigas area, the second largest business district in the Philippine capital of Manila. Mitsubishi and Ayala have rights to develop a 3.6-hectare (8.9-acre) site, Nagaoka said.

Mitsubishi has worked with Ayala Land’s parent company, the Ayala Corp. conglomerate, since 1974, according to the Tokyo-based trader’s website. Mitsubishi now ranks as their second-largest shareholder with 10.5 percent of the conglomerate, data compiled by Bloomberg show.

Mitsubishi is studying projects in Vietnam, Indonesia and Myanmar and doesn’t exclude working with other partners in the Philippines on new projects, Nagaoka said. It will look at projects of 20,000 square meters and larger, he said.

“These countries don’t present us with direct synergies with other Mitsubishi businesses, but they are good real estate investments in their own right,” Nagaoka said.

To contact the reporters on this story: Yuriy Humber in Tokyo at yhumber@bloomberg.net; Ichiro Suzuki in Tokyo at isuzuki@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net


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