UPDATE 4-Japan developers cut forecasts on apartment slump

* Mitsubishi Estate cuts annual profit outlook by 23 pct

* Mitsui Fudosan lowers annual forecast by 11 pct

* M’bishi Estate shares close down 1.4 pct after results

* Mitsui Fudosan stock up 1.7 pct before announcement (Adds analyst comment, details)

By Mariko Katsumura

TOKYO, Feb 5 (Reuters) - Japanese property developers Mitsui Fudosan Co 8801.T and Mitsubishi Estate Co 8802.T cut their annual profit outlooks on Thursday as the economic recession and falling land prices led to weak apartment sales.

The property market is mired in a slump as a deepening recession hits demand for houses and apartments. In 2008, nearly 600 real estate firms collapsed after hard-pressed banks reined in lending to the sector, one of the most highly leveraged in Japan.

Citing real estate firms' growing financing woes, Mitsubishi Estate said it would make subsidiary Towa Real Estate Development Co 8834.T wholly owned through a stock swap and by buying new shares in a deal worth about 29 billion yen ($324 million).

The gloomy residential property market has not left Mitsui Fudosan, Japan’s biggest developer, and second-ranked Mitsubishi Estate unscathed.

Although the two generate about half of their profits from office leases, which have so far been stable during the downturn, they have suffered from weak apartment sales and falling property prices that led to valuation losses.

“The apartment market is facing an extremely tough time,” said Nobuyuki Iizuka, Mitsubishi Estate deputy president, after the company cut its annual profit outlook by nearly a quarter.

At Mitsui Fudosan, property sales to investors have slumped as buyers become more selective, forcing it to review its sales strategy, said executive managing officer Seizo Kuramoto.

“This market is temporarily not functioning. Even when there are buyers, we can’t justify their offering prices” compared with their market values, Kuramoto told reporters at a briefing.

Mitsui Fudosan, the world’s No. 4 developer by market capital, cut its operating profit outlook for the year to March 31 by 11 percent to 170 billion yen, below the 187.6 billion yen consensus view of 17 analysts polled by Reuters Estimates.

Mitsubishi Estate, which owns the U.S. Rockefeller Group as well as more than two dozen buildings in Tokyo’s prime Marunouchi business district, cut its group operating profit forecast for the year to March by 23 percent to 141 billion yen, missing the market consensus of 180.4 billion yen.

The real estate sector was jolted again on Thursday as Japan General Estate Co 8878.T filed for bankruptcy protection with $2.2 billion debts, suggesting government efforts to support troubled property firms are not bearing fruit. [ID:nTFA004278]


Among Mitsubishi Estate’s businesses, the hardest hit was the residential segment, which posted an operating loss of 9 billion yen. The company had 573 unsold residential units, more than double the 248 as of last March.

Daiwa SB Investments senior portfolio manager Katsuhiko Mori said he was surprised that the apartment sales slump had eaten into profits at Mitsubishi Estate, which has a relatively small exposure to the residential market.

“I can see their business has rapidly deteriorated in the past six months. I’m concerned how much longer this deterioration, at this speed, will last,” Mori said.

Mitsui Fudosan had 742 unsold residential units as of December, up from 568 last March. Its office vacancy rate in metropolitan Tokyo rose to 2.5 percent from 1.3 percent in March.

For the October-December quarter, however, Mitsui Fudosan had an operating profit of 54.9 billion yen, up from 38.4 billion yen in the same period last year thanks to a solid leasing business.

Mitsubishi Estate had an operating profit of 30.0 billion yen in the three months to Dec. 31, down from 33.9 billion yen a year earlier.

Shares of Mitsubishi Estate closed down 1.4 percent at 1,241 yen after it announced the results during midafternoon trade.

The shares have fallen about 48 percent so far this business year, almost in line with a 45 percent slide in Tokyo's real estate industry subindex .IRLTY.T.

Mitsui Fudosan shares ended up 1.7 percent at 1,297 yen before its announcement. (Reporting by Mariko Katsumura; Editing by Chris Gallagher)