Sumitomo Mitsui Seeks to Buy Senior Housing Prior to REIT IPO

Feb 06, 2014 9:40 am ET

Feb. 6 (Bloomberg) -- Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest bank by market value, is seeking to buy about 10 billion yen ($99 million) of senior housing properties before taking its health-care real estate investment trust public.

Sumitomo Mitsui is in talks with operators of homes for the elderly after it established in October a company that will purchase the properties, said Nobuaki Oishi, senior vice president of financial solutions at the Tokyo-based bank. The bank declined to name the parties involved saying the talks are private. Sumitomo Mitsui, along with other investors, plan to list the REIT by March 2015 with 20 billion yen of assets, Oishi said.

Demand for senior housing is rising in Japan, which has one of the world’s fastest-aging populations. The proportion of Japanese older than 65 is set to rise to 31 percent by 2025 from an estimated 26 percent this year and the country will need as many as 1.8 million housing units for the elderly by 2020, according to a report by the land ministry.

“We have considered ways to approach an aging population,” Oishi said in an interview in Tokyo. “And we came to the conclusion that a REIT is the answer.”

As part of Japanese Prime Minister Shinzo Abe’s plan to revive the world’s third-largest economy, the government has said it will introduce a guideline in the fiscal year ending March 2015 for REITs to acquire and manage homes for seniors.

In China, only 9.6 percent of the population is over 65 while in the U.S. the proportion is 14 percent, according to the U.S. Census Bureau.

Health-care REITs

Other investors in Sumitomo Mitsui’s REIT include NEC Capital Solutions Ltd., a unit of NEC Corp., and Ship Healthcare Holdings Inc., an Osaka-based medical equipment provider, the bank said in a release in October.

The market value of 12 listed health-care REITs in the U.S. totaled $81.2 billion as of March 2013, while similar REITs in Canada were valued at $2.6 billion, according to a report by Sumitomo Mitsui Trust Research Institute.

In Japan, a total of 36.6 billion yen worth of heath-care properties are owned by J-REITs and Singapore-based Parkway Life Real Estate Investment Trust, a government report showed.

Sumitomo Mitsui isn’t alone in trying to capture rising demand for elderly care. A unit of Daiwa Securities Group Inc., Japan’s second-largest brokerage, said in December it will set up a health-care REIT by the middle of 2014, while Shinsei Bank Ltd., the Japanese bank partly owned by J. Christopher Flowers, has also said it is preparing a listing this year.

Aging Society

The majority of operators that run senior homes have not been able to expand because of lack of funding, Oishi said. By listing a REIT, Sumitomo Mitsui will be able to help provide financing needed to acquire properties, Oishi said.

“Our main goal for establishing a REIT is to instigate a supply of nursing homes,” said Oishi. “Without a REIT, we won’t be able to gain credibility. We will focus on that first. Then, the next step would be to provide loans.”

--Editors: Tomoko Yamazaki, Iain McDonald