UPDATE 2-Mitsubishi Estate cuts outlook on apartment slump

* Quarterly operating profit down 12 pct

* Cuts annual profit outlook 23 pct

* Makes Towa Real Estate wholly-owned unit via share purchase

* Shares down 1.4 percent after announcement (Updates with company, analyst comments)

TOKYO, Feb 5 - Mitsubishi Estate Co, Japan's second-biggest developer, reported a 12 percent fall in quarterly operating profit and cut its full-year outlook by nearly a quarter, as unexpectedly weak apartment sales eroded profits from office leasing.

Citing increasingly difficulty for real estate companies to tap financing, Mitsubishi Estate also said it would make its subsidiary Towa Real Estate Development Co wholly owned through a stock swap and by buying new shares in a deal worth about 29 billion yen ($324 million).

Japan's property market is mired in a slump due to the weak economy. In 2008 alone, nearly 600 real estate firms collapsed after hard-pressed banks reined in lending to the sector, one of the most highly leveraged in Japan.

The increasingly gloomy property market did not leave Mitsubishi Estate unscatched as the company. Although it generates about half of its profits from office leases, it suffered from weak apartment sales and falling property prices that led to valuation losses.

"The current apartment market is facing an extremely tough time," said Nobuyuki Iizuka, Mitsubishi Estate's deputy president.

For the three months to December, Mitsubishi Estate had a group operating profit of 30.0 billion yen ($335.6 million), down from 33.9 billion yen a year earlier.

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 profit forecast for the year to March by 23 percent to 141 billion yen.

The new forecast is below the market consensus of 180.4 billion yen in a poll of 17 analysts by Reuters Estimate.

After the results, Mitsubishi Estate's shares were down 1.4 percent.

The shares have fallen about 48 percent so far this business year, almost in line with a 45 percent plunge in Tokyo's real estate industry subindex.