Results First Take: Delivering ahead of promises
- Earnings came in slightly above IPO projections
- Leverage improved to 37.7% as properties are revalued 14% upwards; further drop in gearing expected by end June 2022
- Debt headroom of c.$150m currently; DHLT has the firepower now to embark on debt-funded acquisitions
- Maintain BUY with a TP of S$0.95
| Key operational data (S$’m) | 26 Nov – 31 Dec 2021 | Pro-rated Forecast | Variance |
| Gross Revenue | 6.60 | 6.57 | 0.4% |
| NPI | 5.26 | 5.14 | 2.4% |
| DI | 3.32 | 3.30 | 0.4% |
| DPU (Scts) | 0.49 | 0.49 | – |
| Portfolio occupancy | 96.3% | 96.3% | – |
| WALE (years) | 7.00 | 7.2 | -0.2 |
| Aggregate leverage | 37.7% | 43.8% | -6.1% |
| All-in borrowing cost | 0.9% | 1.2% | -0.2% |
(+) Revenues and NPI was slightly above forecasts
- Revenue of S$6.6m was 0.4% above IPO forecast
- NPI of S$5.3% was 2.4% above IPO forecast
- Mainly due to savings in operating expenses; some ad-hoc maintenance expenses were not incurred
- DI of S$3.3m was 0.4% above IPO forecast
- DPU of 0.49 Scts was in line with IPO forecast
(+) Portfolio metrics remain healthy
- Portfolio occupancy remained healthy at 96.3%
- In advanced negotiations to lease out some of the vacancies in the portfolio
- Portfolio remains robust and there was no request for rental relief
- Only 7 leases at multi-tenanted properties will be due to expire in FY22
- All tenants have currently expressed intentions to renew leases
- Negotiations on lease extensions have begun and rental reversions are expected to remain relatively flat and hopefully slightly positive
(+) Valuations increased 14.1%
- Portfolio valuations increased by 14.1% in JPY terms to JPY81.07 bn
- In SGD term, portfolio is currently valued at S$949.7m
- Very slight cap rate compressions in valuations; mainly from the freehold assets
- Cap rates are expected to remain stable going forward and could possibly even tighten further
- Leverage has now improved by more than 6% to 37.3%
- Expected to improve further to 31.8% when consumption tax loan is refunded by end of June 2022
- Debt headroom of more than S$265m by end of June 2022 (assuming gearing of 45%)
- Several properties within the Sponsor pipeline has achieved 100% occupancy and are generating stable cash flows already
- There is 1 property in Malaysia and 1 property in Indonesia that has already achieved 100% occupancy
- DHLT has just opened negotiations with the Sponsor on potential acquisitions
- NAV of S$0.92
Our thoughts
As anticipated, DHLT reported an increase in portfolio valuations as at 31 December 2021. This led to its gearing improving to 37.3%, and will improve further to 31.8% once the consumption tax is refunded by end June 2022. Based on its current valuation, NAV stands at S$0.92, implying a current P/NAV multiple of only 0.88x.
With earnings firmly on track with our projections, DHLT is expected to generate a forward yield of c.6.4%. DHLT remains very attractive on a valuation basis given that it is currently trading below its revised NAV and is generating an attractive forward yield. Having completed the first phase in the lowering its leverage (second phase is when the consumption tax is refunded), DHLT now has the a debt headroom of c.S$150m before gearing hits 45%. This provides DHLT with the flexibility to immediately pursue debt-funded acquisitions and further improve earnings. As we have not assumed any acquisitions in our projections, any accretive acquisition will generate upside to our numbers.
We will be reiterating our BUY recommendation with a TP of S$0.95.