Why Global Logistics Properties' Japan asset monetisation is good move

GLP JREIT has been c.30% above IPO price.

According to CIMB, GLP’s 3Q13 saw a substantial ramp up in development starts and land acquisitions in China, a sign that excess capital will progressively be deployed into growth.

Its recent monetisation of a third of its Japan assets appears timely, mitigating the negative impact of a Yen decline. The 3Q13 result was in line with estimates at 22% of our full year forecast and 24% of consensus.

Here's more from CIMB:

9M13 core EPS formed 75% of our full year. We lower our FY13-15 core EPS on asset sales into the JREIT, but lift our RNAV-based target price on accretion from an enlarged China portfolio.

China continues to drive GLP’s results, with 3Q13 core EBIT up 14% yoy. More assets were completed with same store NOI up 8.7% yoy on a 89% occupancy.

GLP is guiding for a stronger demand outlook with e-commerce expanding once again in China. New and expansion leases signed in 3Q13 was 321.5k sq m, ahead of completions in the quarter.

Japan remains stable, with 98% occupancy and flats rents qoq. GLP was aggressive in 3Q13, acquiring 1.86m sq m of land in China, (YTD 3.86m sq m).

Its China portfolio has now grown by 32% yoy to 10.3m sq m, a sign of where excess capital from its JREIT will be deployed. Capex spend in China is expected to rise by 20-25% in the next 12 months.

China is now GLP’s largest segment at an estimated 52% of GAV. Development starts rose to 850k sq m in 3Q13 (YTD 1.6m sq m), and is on track to meet its target of 2m sq m.

While GLP is in no rush to monetise assets in China, we believe a recycling platform via private funds could eventually be established and provide a driver for further growth.

The sale of a third of its Japan assets appears timely, ahead of the ¥ decline. The JREIT proceeds are hedged at 88.5/1 US$ which is more favourable vs. current rates.

At 50% leverage, the impact on NAV is also cushioned via a natural hedge policy. Interestingly, the GLP JREIT has done well at c.30% above IPO price.