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DBS starts Daiwa House Logistics Trust at 'buy' with TP of 95 cents

·3-min read

DHLT's 14 properties have a total NLA of 420,920 sqm, with a total appraised value of $979.0 million as at June 30, 2021.

DBS Group Research has initiated “buy” on Daiwa House Logistics Trust (DHLT) with a target price of 95 cents, representing a 17% upside to the REIT’s last-traded price of 81.5 cents as at Jan 21.

The target price assumes a weighted average cost of capital (WACC) of 5.2% and a risk-free rate of 1.5%. This implies a target yield of 5.5% to 5.6%. The target price also does not assume any acquisitions in the analysts’ projections.

DHLT is a REIT that has a pure-play on logistics with a portfolio of 14 modern facilities in Japan with “solid fundamentals”, say analysts Dale Lai and Derek Tan in their Jan 24 report.

The logistics facilities under the REIT are newly-built with an average age of just 3.7 years.

“Being in cities where the supply of modern logistics facilities are limited, DHLT’s portfolio enjoys high occupancy rates of 96.3% and a long weighted average lease expiry (WALE) of 7.2 years,” write Lai and Tan.

The REIT holds a mandate to invest directly or indirectly in income-producing logistics and industrial real estate assets located across Asia, add the analysts.

Its 14 properties have a total net lettable area (NLA) of 420,920 sqm, with a total appraised value of $979.0 million or 80.57 billion yen as at June 30, 2021.

The assets are spread across the Greater Tokyo area and other core regional markets in Japan.

“While DHLT’s initial portfolio is anchored by stabilised Japanese properties, the REIT’s investment focus will be to invest in assets across Asia that have stable incomes, high occupancies, and are distribution per unit (DPU) accretive to unitholders,” they continue.

Backed by sponsor Daiwa House Industry Co, the REIT lodged its initial public offering (IPO) prospectus on Nov 10, 2021. Its IPO made it the first REIT IPO in 20 months within the Singapore Exchange (SGX).

One of the upsides to the REIT is its gearing, which is expected to improve to 33.1% by the end of the 1HFY2022.

Then, DHLT will potentially have a debt headroom of more than $200 million, providing it with the “firepower” to tap into its sponsor’s pipeline of newly built modern logistics facilities that are valued at more than $1.5 billion, say the analysts.

“The sponsor has provided DHLT with a right of first refusal (ROFR) to a portfolio of 28 assets in Japan as well as in Southeast Asia,” they add.

To this end, Lai and Tan have identified emerging catalysts to the REIT such as a 12% upside to its portfolio valuations, an enlarged debt headroom that could support over $200 million in debt-funded acquisitions, as well as a ROFR pipeline from its sponsor.

Meanwhile, key risks to the REIT would be a “smaller than anticipated revaluation gain and a delay in the refund of the consumption tax”.

As at 12.14pm, units in Daiwa are trading 0.5 cent lower or 0.61% down at 81 cents, or an FY2021 P/NAV of 0.9 times and DPU yield of 6.9%.

Photo: Daiwa

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