Rising Asian logistics specialist

  • Initiate with a BUY, TP of S$0.95, offering a c.17% upside
  • Pure play logistics REIT with a portfolio of modern facilities in Japan with solid fundamentals
  • Visible timeline for lowering of leverage that will provide ample debt headroom to embark on acquisitions
  • Backed by leading real estate developer in Japan that has provided a ROFR pipeline valued at more than S$1.5bn

Investment Thesis:

Initiate with BUY, TP: S$0.95. We initiate coverage of Daiwa House Logistics Trust (“DHLT”) with a target price of S$0.95. Catalysts we see emerging for DHLT include (i) c.12% upside to portfolio valuations, (ii) enlarged debt headroom that could support more than S$200m of debt-funded acquisitions, and (iii) ROFR pipeline from a sponsor that is valued at more than S$1.5bn

Pure play modern logistics portfolio located in cities with limited supply. The portfolio of 14 modern logistics facilities is newly built with an average age of only 3.7 years. Being in cities where supply of modern logistics facilities are limited, DHLT’s portfolio enjoys high occupancy rates of 96.3% and a long WALE of 7.2 years.

Gearing expected to improve in the near term, making it conducive to tap into sponsor’s pipeline. With gearing expected to improve to c.33.1% by the end of 1H22, DHLT will potentially have a debt headroom of more than S$200m, providing it with the firepower to tap into its sponsor’s pipeline of newly built modern logistics facilities that are valued at more than S$1.5bn. The sponsor has provided DHLT with a ROFR to a portfolio of 28 assets in Japan as well as in Southeast Asia.

Valuation:
Our target price of S$0.95 is based on DCF valuation method with a WACC of 5.2% (risk-free rate of 1.5%). This implies a target yield of 5.5%-5.6%. We have not assumed any acquisitions in our projections.

Key Risks to Our View:
Key risks to our view would be a smaller than anticipated revaluation gain and a delay in the refund of the consumption tax.