Mitsui Fudosan REIT Merges With Itochu-Sponsored ADL to Form $3.8B Industrial Trust

Mitsui Fudosan Logistics Park has completed its merger with a fellow Japanese REIT, Itochu Group-sponsored Advance Logistics Investment Corporation, creating a combined trust with a portfolio of 49 industrial assets valued at JPY 576.5 billion ($3.8 billion).

MFLP is the surviving entity and will absorb 19 ADL properties, including three anticipated acquisitions of i Missions Park assets from Itochu’s pipeline. The merger forms Japan’s third-biggest industrial REIT by asset size, trailing Nippon Prologis REIT (JPY 917 billion) and GLP J-REIT (JPY 885 billion).

The takeover took effect Friday and gives MFLP a dual sponsorship structure consisting of Mitsui Fudosan, Japan’s largest developer, and trading giant Itochu, according to an exchange filing. The defunct ADL’s manager, Itochu REIT Management, becomes the principal unitholder of MFLP with 23 percent voting rights under the deal, which was first announced in August.

“MFLP-REIT maintains our focus on quality by incorporating the dual brands of Mitsui Fudosan Logistics Park and i Missions Park, which denote advanced logistics facilities, and aims to enhance unitholder’s value by external and internal growth through further strengthening of property pipeline supply capability and leasing capability by maximally leveraging both sponsors’ platforms and networks,” MFLP’s manager said.

Upsized Portfolio

The expanded MFLP portfolio comprises more than 2.5 million square metres (26.9 million square feet) of total floor area with an average occupancy rate of 98.1 percent, an average building age of 7.1 years and an average remaining lease period of 4.3 years. The 49 properties carry an average net operating income yield of 4.4 percent.

The TSE-listed trust’s top asset by acquisition price and floor area is MFLP Ibaraki in suburban Osaka. Spanning 230,435 square metres, the six-storey warehouse was built by Nippon Steel & Sumikin Engineering in 2017 and acquired by MFLP in 2020 for JPY 58.9 billion.

In Greater Tokyo, the REIT’s most spacious asset is the 205,200 square metre MFLP Hino in the western end of the capital’s metro area. The five-storey shed was built by Obayashi Corporation in 2015 and acquired by MFLP in 2019 for JPY 12.5 billion.

The combined trust’s loan-to-value ratios are set to decrease, therefore boosting capacity to acquire properties using borrowings, Daisuke Seki of Japan-REIT.com said in a post. The merger is seen as complementary given a lack of overlap between builder Mitsui Fudosan and general trader Itochu, whose top shareholders include Warren Buffett’s Berkshire Hathaway and the Chearavanont family behind Thailand’s CP Group.

“In particular, Itochu Group has companies such as food and apparel manufacturers under its umbrella, and these business types are likely to further strengthen their response to online shopping in the future,” the analyst said.

Consolidation Vibes

The latest combination in Japan’s REIT market follows last year’s merger of three trusts sponsored by fund manager Kenedix into a single vehicle with assets under management totalling JPY 1.15 trillion.

Kenedix Residential Next Investment Corporation and Kenedix Retail REIT Corporation were absorbed into the surviving trust, Kenedix Office Investment Corporation, with the merged entity boasting a total of 350 properties and ranking third in the overall J-REIT market in terms of asset size.

The two largest J-REITs by asset size are the Mitsui Fudosan-sponsored Nippon Building Fund at JPY 1.46 trillion and KKR’s Japan Metropolitan Fund at JPY 1.24 trillion. Japan’s total REIT market value was $109.4 billion at the end of 2023, according to Cushman & Wakefield.