News Analysis: 7.4 magnitude earthquake in north-east Japan expected to have minimal impact
- 7.4 magnitude earthquake in north-east Japan
- Earthquake caused some physical damage to 2 of DHLT’s properties and 1 of MLT’s properties
- Preliminary inspections show minimal damage to the properties and unlikely to impact revenue for both REITs other than repair costs
- Maintain BUY with unchanged TP for both REITs
A magnitude 7.4 earthquake struck the north-east coast of Japan several hours ago. Based on preliminary inspections, we understand that 2 of DHLT’s properties and 1 of MLT’s properties located near the earthquake zone sustained minor physical damage.
Based on preliminary inspections by the property managers, the 2 properties (DPL Sendai Port and DPL Koriyama) sustained minimal damage and there will unlikely be impacted to the tenants’ operations. As DHLT properties all have a PML (probable maximum loss) of less than 15%, there are no earthquake insurance in place. This is in line with market practice in Japan where properties with PML of less than 15% do not typically have insurance against earthquakes.
Although both properties make up c.24% of DHLT’s portfolio (by appraised value), preliminary inspections show minimal physical damage to the properties. We take comfort that this is unlikely to cause disruptions to tenants’ operations and DHLT will unlikely have to provide rebates to the affected tenants. We do note however that DHLT will have to incur repair costs at the 2 properties. We will only know the full extent of damages in the coming days when a detailed inspection is carried out for the properties. As such, we understand that any impact to DHLT’s revenues and capex will be minimal. Until proven otherwise, we will maintain our BUY recommendation with a TP of S$0.95.
Separately, we understand that only 1 of MLT’s properties in the north-east coast of Japan (Sendai Centre) has been affected by the earthquake. Again, damage to the property appears minimal and we expect minimal or no impact to the property other than any potential repair costs. Similarly, we will be maintaining our BUY recommendation with a TP of S$2.35.