Japanese real estate investment trust GLP J-Reit is proceeding with its third follow-on offering since its debut in December 2012, sustaining an aggressive strategy of acquiring logistics assets from both its sponsor, Global Logistics Properties, and third parties in Japan.
The second-largest logistics Reit in Japan by market capitalisation said Monday it plans to issue 189,652 new investment units at an offer price to be determined between August 19 and August 25. There is a greenshoe option to sell an additional 7,942 units.
Based on GLP J-Reit’s closing price of ¥118,400 on Monday, the deal could raise as much as ¥23 billion ($185 million) including the greenshoe.
The transaction, if completed, will see existing unit holders diluted by 8.2%.
BoJ gets it Reit
Prices of Japanese real estate investment trusts got a leg up in 2010 when Bank of Japan (BoJ) unveiled plans to buy a number of assets – including government bonds, exchange-traded funds and J-Reits - annually as part of its stimulus program to combat inflation.
The program has been embraced and expanded under Prime Minister Shinzo Abe, who assumed office in 2012. In October last year, the central bank accelerated the pace of J-Reit purchases when it enlarged the capital allocation to ¥90 billion every year as part of its wider ¥80 trillion quantitative easing (QE) programme.
The Tokyo Stock Exchange J-Reit Index has nearly doubled from 2010 levels. It has performed particularly, rising 7.6% since October last year when BoJ expanded the QE programme.
GLP J-Reit is the highest-yielding logistic trust in Japan with an annualised dividend yield of 3.71%. Competitors including Nippon Prologis Reit, Daiwa House Reit Investment, Japan Logistics Fund and Industrial & Infrastructure Fund Investment are currently showing yields of 3.2% to 3.3%.
Zeroing in on value
GLP J-Reit will purchase five logistics properties from its sponsor, Singapore-listed Global Logistics Properties for a total consideration of ¥38 billion, according to a company statement. The acquistion price is in line with the properties’ fair market value as of the end of June.
The acquisition will add to GLP J-Reit’s existing portfolio of 54 properties, two-thirds of which are located in Tokyo and Osaka. It could potentially increase the portfolio’s total appraisal value by 10% to ¥416 billion.
“The purchase of the assets planned for acquisition is aimed at acquiring modern logistics facilities that are able to produce steady income ... and steady growth of our asset value,” GLP J-Reit said in a statement.
Of the five target properties, four are located in Tokyo and one is in Tosu, a city in Saga prefecture. The properties comprise total gross floor area of 203,000 square meters and will add to GLP J-Reit’s existing total net leasable area of 1.73 million square meters.
Funding pattern
GLP J-Reit is a known quantity to Japanese investors due to the frequency of follow-on offerings it has launched since its IPO in December 2012.
GLP J-Reit appears to have settled into a pattern by conducting follow-on offerings in September of each year since its float. After raising ¥106 billion in Japan’s second largest listing in 2012, the trust tapped ¥23 billion from a follow-on offering in September 2013 and another ¥34.5 billion in a separate transaction in September 2014.
The trust is on track to nearly doubled its property portfolio within three years - from 30 at the time of the IPO to 59 expected by the end of this year. And the Reit still has the right of first look on another 20 properties owned by Global Logistics Properties.
JP Morgan analysts noted in a research report that GLP J-Reit management has been progressive and aggressive in terms of acquisitions and dividend payment.
Despite having a strong pipeline of assets from its sponsor, GLP J-Reit has sought external acquisitions from third parties to bolster its portfolio. It was also the first Japanese Reit to pay a dividend in excess of profits.
The JP Morgan analysts estimate GLP J-Reit has a potential pipeline of around ¥500 billion, more than double the value of its current portfolio. By comparison, Japan’s largest logistics trust Nippon Prologis Reit currently owns assets of about ¥440 billion.
Follow-on offerings from J-Reits have raised a combined $4.3 billion in 24 deals in the first eight months of the year and they appear to be on track to beat last year’s record $5.5 billion, according to data provider Dealogic.
Nomura, Goldman Sachs, Citigroup and JP Morgan are joint lead managers on the GLP J-REIT follow-on.
