KKR Japan Logistics Operator Selling $700M in Warehouses to J-REIT

A Japanese REIT managed by KKR is ramping up its industrial portfolio with a proposed purchase of JPY 108.3 billion ($700 million) in logistics assets across Asia’s second-largest economy, the TSE-listed trust said on Thursday.

Industrial & Infrastructure Fund Investment Corporation announced in a stock filing that it has agreed to acquire a portfolio of warehouses across Japan’s major economic hubs, totalling over 389,603 square metres (4.1 million square feet) from Logisteed, in a carve-out of assets from the KKR-owned logistics firm.

“IIF decided to acquire the anticipated acquisitions judging that the characteristics of the properties are aligned with IIF’s investment strategies, specifically, the acquisition of quality assets contributing to increasing IIF’s distributions per unit,” the trust’s manager said regarding its portfolio purchase. “In deciding whether to acquire the 28 properties above, IIF evaluated the properties mainly in terms of profitability, long-term usability and versatility.”

To fund the acquisition, the trust is selling a pair of Greater Tokyo logistics assets to an undisclosed domestic company for JPY 13.5 billion, the manager said in a separate Thursday filing.

Despite concerns over growing supply pushing down yields for Japanese industrial property, leasing rates for warehouse space in Greater Tokyo and Greater Osaka rose 1.4 percent and 0.3 percent respectively in the fourth quarter of 2023, compared to the same period a year earlier, according to JLL.

Betting on Shed Demand

IIF has agreed to spend JPY 108 billion to acquire the 28 assets from Logisteed, with the most expensive of those sheds being the IIF Musashimurayama Logistics Center II in western Tokyo, with that 51,688 square metre (556,365 square feet) building trading hands for JPY 16.8 billion.

Designed to serve the Tama area west of the capital, the 4-storey property is located 5.2 kilometres (3.2 miles) from National Route 16, which runs around Tokyo from Yokohama to Chiba prefecture.

Once the trust completes its acquisition of the portfolio, which is expected to occur at the beginning of next month, IIF will lease the warehouse back to Logisteed for 16 years.

In a separate transaction set to complete by the end of February, the trust has also agreed to invest JPY 16.6 billion to purchase a 49.9 percent stake in a Logisteed trust holding four Japanese warehouses.

The largest asset in that fund is the Shutoken East Logistics Center in Chiba prefecture, east of the capital. The 115,378-square-metre property spans a six-storey and five-storey pair of facilities situated 3.7 kilometres from the nearest interchange on the Joban Expressway, which connects the Greater Tokyo area with Ibaraki prefecture.

The four-asset vehicle had an appraised value of JPY 117 billion as of the beginning of this month.

In March last year, Manhattan-based KKR acquired 100 percent of the voting shares in logistics firm Hitachi Transport System, before renaming the company as Logisteed the following month..

Reshuffling Assets

The most profitable of IIF’s double disposals is the site underlying the IIF Totsuka Technology Center in Kanagawa prefecture, which is slated to trade for JPY 7.5 billion, or 64.7 percent above its book value as of July last year. The asset is leased to international construction firm Taisei Corporation.

IIF expects to complete its sale of the 31,442 square metre site and of a Kanagawa warehouse in March 2025.

Once the asset reshuffling is complete, IIF’s portfolio will comprise 109 logistics assets, amounting to a total commitment of JPY 529 billion in the sector.

KKR acquired IIF’s manager from Mitsubishi and UBS Asset Management in April 2022 and renamed the manager KJR Management upon completion of the deal.

Tetsuya Kaneko, head of research at Savills Japan, said that industrial assets may see declining leasing performance due to a large influx of logistics supply in the coming years.

“Given the looming large incoming supply, observers may have some concerns regarding lukewarm leasing performance,” Kaneko said. “Nevertheless, many investors retain a strong conviction regarding the sector’s robust mid-term fundamentals, and appear to have the mindset of ‘short-term pain, long-term gain’,” he added.

Investors picked up JPY 1.1 trillion worth of Japan industrial assets in 2023, representing a 40 percent increase from 2022, according to data from MSCI Real Assets.