Nippon Prologis Reit targets $378m in follow-on

Books open for a 167,000 unit sale in Nippon Prologis Reit, the latest J-Reit looking to tap capital markets.

Nippon Prologis Reit (NPR), a real estate investment trust set up by the world’s largest owner of industrial buildings, aims to raise up to ¥39.3 billion ($378 million) in a follow-on offering.  

The Reit, managed by San Francisco-based Prologis, will sell up to 167,000 primary units with a discount of 2% to 4.5% to the August 25 close of ¥240,000, according to a term sheet. Bankers began taking orders on Tuesday. Prologis will retain its 15% stake in NPR.

NPR will use the proceeds from the follow-on to repay bridge loans used to acquire five Class-A properties for ¥45.5 billion. The assets, which total about 2.4 million square feet, were offered to NPR through an agreement with Prologis. The acquisition is expected to be complete by September 1, Prologis said in a statement.   

Of the shares on offer, some 108,550 units, or 65%, will be made available to Japanese investors, while 58,450 units, or 35%, will be offered in an international tranche, assuming the greenshoe option is exercised, according a source close to the deal.

The Reit is seeking to raise at least ¥37.4 billion in the base deal, with an overallotment option tacking on an additional ¥1.9 billion.

Goldman Sachs Japan, Morgan Stanley and SMBC Nikko are leading the deal, with Bank of America Merrill Lynch and JP Morgan focusing on the international tranche. The deal is scheduled to price on September 8.

Shares in NPR are up 19% so far this year up to August 26, with the issuer attempting to take advantage of the solid performance to launch the follow-on and raise capital.

NPR raised $1 billion in an initial public offering in February 2013. At the time, Japan’s distribution centres were in the midst of a rebound after record high vacancies in 2009, as demand for modern storage facilities depleted.

Despite increasing competition for properties, analysts maintain a positive view on NPR, and forecast leasing rates to increase by 2% this year, following a 2.7% rise in 2013.

NPR’s current dividend yield of 2.7% is below other J-Reits that focus on the logistics facility businesses, including Industrial & Infrastructure Fund Investment and Japan Logistics Fund.

Industrial & Infrastructure Fund Investment has a dividend yield of 3.72% and is up 2% year-to-date, while Japan Logistics Fund has a dividend yield of 3.11% and is up 9% so far this year up to August 26.

Meanwhile GLP J-Reit, which has a portfolio of 30 logistics facilities in Japan, mostly in Tokyo and Osaka, currently has a dividend yield of 3%, and shares are up 22% this year up to August 26.

GLP J-Reit, the Japanese real estate investment trust of Singapore-listed Global Logistic Properties (GLP), raised Y34.5 billion from a follow-on offering earlier this month.

Similar to NPR, GLP J-Reit had an initial discount range of 2% to 4.5% to the August 11 closing price. Demand in both the international and Japanese tranches justified the issuer to price units at a 2% discount to the August 18 closing price of Y118,300 per unit.

All four J-Reits experienced spikes in performance mid-August as global investors return to Japanese equities. A Bank of America Merrill Lynch survey released earlier in the month indicates that 30% of global investors are overweight Japanese equities, the highest allocation in seven months, and an increase from 26% in July. Investors are leaning towards technology, automotive and industrial sectors.

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