By Kathleen Chu and Katsuyo Kuwako Oct. 23 (Bloomberg) -- Japan Post Holdings Co., with $30 billion worth of properties across the nation, will redevelop sites in central Tokyo, Osaka and Nagoya as it turns to real estate as a new source of profit, a company official said. The former state-run mail service that was privatized by the government last year will spend about 300 billion yen ($2.9 billion) redeveloping the central post office sites in the country's three biggest cities into office buildings, said Takashi Saito, deputy senior general manager of Japan Post Holdings Co. ``Since we own the land already, we don't face risks related to potential losses by holding on to assets unlike others,'' Saito said in an Oct. 21 interview. Under legislation championed by former Prime Minister Junichiro Koizumi, Japan Post was split last October into four companies specializing in banking, insurance operations, mail delivery and management of post offices. Japan Post doesn't face financing difficulties related to the global credit crunch that others confront because it has access to deposits managed by its group unit Japan Post Bank Co., the world's largest lender by assets, Saito said. The lender had 188.9 trillion yen in assets on its balance sheet as of Oct 1, 2007. Owning about 3 trillion yen worth of properties and having a credit quality similar to the government's give Japan Post an advantage over many other developers, said Junko Miyakawa, a credit analyst at Shinsei Securities Co. The government plans to sell stakes in Japan Post and the insurance business and list them on the stock exchange as early as 2010. Japan's Ministry of Finance now holds all shares in Japan Post Holdings. `Profitable' Business ``Whatever they develop in the next few years, the return on investment could be relatively high compared to other developers,'' said Miyakawa. ``Borrowing costs will be low due to the high credit quality as it is still owned by the government. They can also generate high rental income due to good locations.'' Central post offices in Japan tend to be located in prime areas with proximity to railroad stations, as mail used to be transported by trains. Japan Post is constructing a 38-story office building at the former site of the central post office next to Tokyo Station in Marunouchi, Japan's most expensive business district. The building, scheduled for completion by fiscal 2011, will break even in the near term, Saito said without giving a specific timeframe. ``This project is a very profitable one,'' said Saito. ``We expect to break even in a short period of time.'' Condominium Development The company also plans to turn real estate into an income generating business with 20 billion yen in annual revenue in three years. The company plans to achieve its revenue target by receiving rental income from commercial buildings under development, and by selling and leasing apartments. Japan Post has tied up with Mitsui Fudosan Residential Co., a unit of Japan's largest real estate company, to develop a 2,350-square meter parcel of land located in central Tokyo into apartments. The building is scheduled to be completed in 2011. Japan Post, formed in 1871, has 360 apartment buildings in the Tokyo area to house its employees, with 30 of them located in Tokyo's three central districts. The company plans to gradually retire some of the older buildings and may build rental apartments with local partners, Saito said. The challenge for Japan Post in the real estate market will be finding the right partner, said Miyakawa. ``Japan Post doesn't have skills needed to develop commercial properties and condominiums,'' she said. Japan Post plans to reduce its assets as the government looks to sell stakes in the two financial units. Japan Post hasn't ruled out the possibility of selling some of its property holdings through REITs. ``We are one of the biggest property owners in Japan in terms of monetary value and the number of buildings,'' said Saito. ``As we look to list our shares, we will have to eventually sell some of heavy assets in the balance sheet. REITs would be one of the options for our exit strategy.'' To contact the reporter on this story: Kathleen Chu in Tokyo at kchu2@bloomberg.net.

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