GLP

GLP: Goodman Group, the world’s second-biggest industrial property manager by market value, plans to increase rents in Japan by about 5% amid rising land and construction costs over the past 6 mths. Even as demand for modern warehouses and investor interest remain strong, the supply of such facilities will be limited. The logistics property market in Tokyo is rebounding from record-high vacancy rates three years ago amid increasing demand for modern storage. The city is Asia’s second-most active warehouse market after Hong Kong with US$1.6b of transactions in the past one year. The vacancy rate for warehouses in the Tokyo metropolitan area fell to 3.7% in 4Q12 from 5.2% a year earlier, according to CBRE. The rate has been in decline from a peak of 20% in Sep ‘09. GLP J-REIT, a REIT that consists of 30 logistics facilities acquired from its sponsor GLP, gained 3.1% in Tokyo, bringing its increase since the trading debut on Dec. 21 to 52%. Nippon Prologis REIT, a trust set up by Prologis, the world’s largest owner of industrial buildings, has gained 24% since it started trading Feb 14. The plan to increase rents comes as Japan accelerates efforts under PM Shinzo Abe to end deflation and boost the world’s third-largest economy, including measures to revive the property industry, which has been struggling since an asset bubble burst two decades ago. The govt has a target to increase assets owned by REITs by 40% by 2020. The capitalization rate, a measure of investment yield, for office buildings in Tokyo declined to 6.4% in Feb from 6.7% a month earlier. A drop in the cap rate, which is a property’s net income divided by the purchase price, usually signals an increase in real estate prices. Modern distribution facilities, like those owned and developed by GLP -- which have bigger floor space that allows trucks to reach every floor via ramps, reducing time needed to load and unload goods -- only account for 2% of the total warehouse space in Japan, according to LaSalle Invmt Mgt. Industrial spaces returned 4.4% in 2012, more than double the total return for office properties. The increase in demand has lured Mitsubishi Estate and Mitsui Fudosan, Japan’s two-biggest developers, to enter the business. Reading all these signals in combination suggests a positive backdrop for GLP’s warehouse business in Japan. The stock trades at 1.3x P/B.