Daiwa to buy DaVinci REIT manager: sources

TOKYO (Reuters) - Japan's Daiwa Securities Group Inc (8601.T) will invest in real estate investment trust DA Office Investment Corp (8976.T) and buy a firm that manages its portfolio of office buildings, three sources familiar with the matter said.

Daiwa, Japan's second-largest brokerage, aims to use the acquisition to expand its property business, which it has positioned as a key driver of growth.

The deal could also breathe life into Japan's REIT market, which has been hit hard by the global credit crunch.

Daiwa plans to buy all shares of REIT asset manager DaVinci Select from DaVinci Holdings while also investing in DA Office Investment, a REIT which has about 30 office buildings mainly in Tokyo, the sources said.

They spoke on condition of anonymity as the deal has not been made public.

DaVinci Select's loss-making parent, DaVinci Holdings (4314.OJ), has faced pressure to sell assets after the credit crunch made it harder for real estate firms to roll over loans -- prompting a string of bankruptcies in the sector.

"Daiwa has been wanting to enter the REIT market, and they finally got it," said Daisuke Seki, chief executive officer of Tokyo-based REIT consultancy IB Research and Consulting Inc.

"The (REIT) market will benefit if major companies with solid finances become sponsors because such companies would have little trouble running the business."

The Nikkei reported that DaVinci Select would be sold for several billion yen, and that Daiwa would invest 10 billion yen ($104 million) in DA Office giving it a 13 percent stake in a private placement of new shares.

Daiwa and DaVinci Holdings said the information in the reports did not come from them. An official announcement could come as early as Wednesday, sources told Reuters.

Shares of Daiwa rose 1.2 percent. Shares of DaVinci Holdings surged 12 percent before easing back to a gain of 4.2 percent.

DA Office Investment was untraded due to a glut of buy orders at 226,900 yen, up 15 percent.

Tokyo's REIT index .TREIT gained 1.4 percent as investors bet Daiwa's entry would help raise the credibility of the market and could trigger a further realignment.

Japan's property market has been hit hard as the country's worst recession since World War Two saps demand for houses and office space. In 2008 alone, nearly 600 real estate firms collapsed, including several listed firms.

Daiwa Securities hopes the deal will allow it to generate steady fee income while also allowing it to gain market know-how, the sources said.

For DA Office Investment, the deal is aimed at bolstering its creditworthiness, allowing it to smoothly refinance debt, the sources said.

It would at the same time give DaVinci Holdings, which fell into the red in 2008 and watched its share price lose three-quarters of its value over the past year, an injection of cash.

Sources told Reuters earlier this year that DaVinci Holdings, facing a June deadline for massive loan repayment, was trying to sell three Tokyo office buildings it bought for $4.5 billion.

($1=96.47 Yen)

(Additional reporting by Mariko Katsumura and Mayumi Negishi; Editing by Hugh Lawson)