GLP J-REIT (3281 JP) (Buy) 16/8: acquisitions and rent hikes made as planned

Full Report

Planning annual investment of ¥40-50bn and aiming for 2-3% or more average rent increase

In September the REIT used the proceeds from an equity offering to fund the acquisition of GLP Atsugi II and four other logistics facilities for ¥58.2bn, equivalent to a weighted average NOI yield of 4.9%. GLP REIT still has a deep pipeline for acquisitions, including 17 Global Logistics Properties (GLP) assets valued at roughly ¥200bn (with NOI yield around 4.8%) on which it holds preemptive rights and 26 properties valued at just over ¥500bn either developed or operated by GLP through a fund. Based on the existence of these properties, GLPREIT plans to continue acquiring properties at an annual pace of ¥40-50bn. GLP developed ¥120bn in logistics facilities in Japan in 2015 and plans to continue such development at a pace of ¥70-100bn annually. And property management operations are robust at GLP REIT, with portfolio occupancy at 99.2% at end-16/8 and projected to be over 99% in 17/2 and 17/8 as well. Rent increases averaged 11.3% in 16/2 and 10.3% in 16/8. We use a fair-value dividend yield of 3.25% and fair-value cap rate of 3.75% to calculate our target price. We continue to value the REIT using discount rates that are around 50bp lower than the respective weighted averages for 36 REITs under our coverage.