Here is a brief overview of Daiwa House Logistics Trust (DHLT) that had just officially IPO-ed:
- The IPO Price was S$0.80 (Ticker SGX:DHLU)
- Forecasted distribution yield for 2022 is 6.5%
- There will be 244.4m units on offer in total. Public tranche of 25.0m units and placement tranche of 219.4m units
- The total number of Units in issue immediately after close of the offering will be 675m units. This implies a market capitalisation of S$540m
- Underpinned by Sponsor’s stake of 14.0% as well as subscription of the perpetual securities of S$35.5m
- Well subscribed IPO indicates positive investor sentiments
- Opening price of S$0.805 further affirms investor interest and support amidst the new virus variant in Africa causing concern and triggering risk-off moves in equity markets
DHLT’s Property Portfolio
The DHLT IPO Portfolio is comprised of 14 modern high quality logistics warehouses across Japan. The DPL brand facilities are multi-tenanted properties while D Project facilities are single-tenanted build to suit properties with customisations such as temperature control facilities, electric power capacities and other specialised features tailored to meet the exact needs of tenants.
Their current occupancy is 96.3% and it is leased to a diversified blue-chip tenant base with 70.6% of the tenant base occupied by Japan listed companies.
DHLT’s Lease Expiry profile and characteristics
The IPO Portfolio is anchored by single-tenanted BTS assets with a long Weighted Average Lease Expiry (WALE) of 11.2 years.
The multi-tenanted assets within the IPO Portfolio have an aggregate WALE of 5.9 years. Overall, the IPO Portfolio’s aggregate WALE is 7.2 years.
DHLT’s Top Tenants
The Top 5 customers add up to 49.1% and are mostly listed companies or large conglomerates.
As a logistics REIT, it is expected that 79% of the portfolio is made up of Third Party Logistics (3PL) & e-commerce tenants.
DHLT’s Sponsor
Daiwa House Industry Co., Ltd (TYO:1925) aka Daiwa House Group is the Sponsor. It is a construction and real estate development company and is presently undertaking ongoing logistics development projects with an aggregate value in excess of JPY 600 billion (approximately S$7.1 billion).
In addition, it has a logistics facilities business where it offers customers a start-to-finish service tailored to each client’s business model, encompassing everything from the proposal of facility site to post completion maintenance and management. It also
DHLT’s Right of First Refusal(ROFR) Assets
The Sponsor is providing a ROFR to DHLT for its pipeline of assets in Southeast Asia(SEA) and Japan. It adds up to 28 assets with a total GFA of 1.1million sqm. The ROFR assets in SEA are in Indonesia, Vietnam and Malaysia.
We noted that with regards to the Japanese assets under the ROFR, DHLT ranks fourth in priority as the Sponsor is subject to existing commitments from the sponsor to its existing fund vehicles and hence there is a risk that DHLT may be unable to acquire any of the Sponsor’s Japanese assets.
While we are excited about the Vietnam ROFR as Vietnam is a major manufacturing hub and one of the fastest growing logistics hubs in Asia, we are a lot less excited over the Indonesian and Malaysian assets due to the macroeconomic situation of these countries.
We also note that of the 524k sqm SEA ROFR, only 120k sqm is attributable to Vietnam.
DHLT’s Financial and capital management
DHLT has provided a forecast distribution yield of 6.50% for Year 2022 and has not made a representation for Year 2023.
The properties have an aggregate appraised valuation of S$953 million and have been acquired by DHLT at S$841 million which represents a discount of 11.8%. The capitalisation rate used in the appraised value were between 3.7% to 5.0%. The Net Property Income forecast for 2022 is S$52.6m which represents a portfolio property yield of 6.25% at DHLT’s acquisition cost.
DHLT expects to have an aggregate leverage ratio of approximately 43.8% after its listing. DHLT has also represented that they expect the gearing ratio to be lowered to 33.1% by 2Q’2022 after the consumption tax loan is repaid by the end of the second quarter of 2022 and after the revaluation gain due to the discounted purchase price if the appraised value remains unchanged.
Singapore Logistics REIT’s comparison
* Does not include acquisitions announced and completed after 30 September 2021. We separately reviewed the MLT’s recent acquisition of 17 properties here.
Comparing to the other logistics REITs, we can see that DHLT has a comparable valuation to AIMS APAC REIT while MLT commands a premium due to its size and quality of sponsor.
Is the IPO well subscribed for?
The public offer of 25.0m units was relatively well received at 9.5x oversubscription with 1/3 or 3,773 applicants being successful. The interest in DHLT pales in comparison to stocks that performed well post-ipo such as Nanofilm which was 30.6x subscribed in Oct’20 but outperformed other REITs such as United Hampshire US REIT which was 1.4x subscribed in Feb’20, ARA US Hospitality Trust, which was 1.1x subscribed in May’19 and Elite Commercial Trust which was 3.4x subscribed in Feb’20.
Separately, the placement tranche was 4.9x subscribed with 287 applicants receiving units.
It seems like investors are seeking out DHLT due to its strong sponsor, Japan focused portfolio and the tailwinds underpinning logistics assets.
Closing statements
Daiwa House Logistics Trust comes with a Japan focused portfolio with the potential for expansion in Asia. It has high quality modern properties and is well located with strong tenants. There is a strong sponsor with a large ROFR pipeline, however there are some concerns over the ROFR pipeline as discussed in the section above and the IPO pricing indicates that the valuation is comparable to other currently listed REITs.
It may also take some time for acquisitions to occur as the gearing ratio will only be substantially lower towards the end of 2Q 2022.
There is a moderate alignment of interests between the sponsor and minority unitholders due to the 14.0% stake in the REIT and the subscription to the perpetual securities. While the valuation of the offering is in line with its peers, the balloting results showed the warm reception by investors. DHLT commenced trading at S$0.805 and we will be looking to see if the share price’s continued performance lives up to investors expectations.