Citigroup sells Japan HQ to Morgan Stanley

Tue Feb 19, 2008 3:31am EST

By Edwina Gibbs

TOKYO (Reuters) - Citigroup (C.N: Quote, Profile, Research), which has been raising funds since taking a huge hit from the U.S. subprime mortgage meltdown, has sold its Japan headquarters to rival Morgan Stanley (MS.N: Quote, Profile, Research) in a deal reportedly worth US$445 million.

Citigroup reported last month a record quarterly loss and wrote off $18.1 billion for investments damaged by a downturn in the U.S. housing market and a subsequent credit crunch.

The bank said it planned to raise $14.5 billion, including from the Government of Singapore Investment Corp Pte (GIC) and the Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal, and has also floated the sale of peripheral businesses, such as a Brazilian credit card operation.

Citigroup said in a statement on Tuesday that it had completed the sale-and-lease back deal of the Citigroup Center in Tokyo's Shinagawa district as part of efforts to improve Citibank Japan's balance sheet and cut risk of holding property assets.

Neither Citigroup nor Morgan Stanley disclosed the financial terms of the deal, but the Nikkei business daily said the transaction was worth 48 billion yen ($445 million).

Morgan Stanley, which made the acquisition through a Germany-based real estate fund, has been one of the most active foreign players in Japanese property, where tight office supply and rock-bottom vacancy rates are pushing up rents.

Last year it paid $2.4 billion to buy 13 hotels from All Nippon Airways (9202.T: Quote, Profile, Research). It has also bought a stake in Japan's third-biggest beer maker, Sapporo Holdings Ltd (2501.T: Quote, Profile, Research), to work with it in the real estate business.

This month it sold the land and building of the Westin Tokyo hotel, located in central Tokyo, to Singapore's largest sovereign wealth fund, the Government of Singapore Investment Corp for around 77 billion yen, according to the Nikkei business daily.

($1=108.22 Yen)

(Additional reporting by Dominic Whiting in Hong Kong; Editing by Anne Marie Roantree)