News Analysis: Accretive maiden acquisition that reiterates Sponsor’s commitment
- Acquisition of portfolio for c.S$47.7m; c.11.8% discount to valuations
- Fully funded by debt and consideration units to Sponsor; c.1.3% accretion to DPU
- Sponsor will subscribe to new units at a minimum price that is in line with NAV (translates to more than 15% to current trading price)
- Acquisition demonstrates DHLT’s ability to tap on accretive pipeline acquisitions and its Sponsor’s commitment to the REIT
Source: DHLT
Acquisition of two freehold properties
- Acquisition of two freehold properties for c.S$32.0m
- Properties are 100% occupied with an average WALE of 4.0 years
- DPL Iwakuni 1 & 2 is a multi-tenanted property with a WALE of 2.9 years
- D Project Matsuyama S is a single-tenanted property with a WALE of 7.1 years
- DPL Iwakuni 1 & 2 is a modern logistics facility that comprises 2 relatively new buildings
- D Project Matsuyama S is a built-to-suit property with two buildings, one of which is a temperature-controlled facility
- Attractive NPI yield that is estimated to be 6.5%
Acquisition of land to give DHLT a freehold ownership of asset
- Acquisition of land that D Project Iruma S sits on
- This will give DHL the freehold ownership of the property and land
- Enhance the overall valuation of the asset as freehold properties are generally valued at a tighter cap rate compared to leasehold properties
- Additional value creation of c.S$1.7m for the asset
Funded through debt and consideration units to Sponsor; 1.3% DPU accretion
- Acquisition will be mainly funded by debt
- Gearing will increase from 34.0% to 36.4%, leaving DHLT with ample debt headroom for future acquisitions (if the REIT decides to gear up further)
- JPY loan will be fully hedged to fixed rates to maintain all-in cost of financing
- Sponsor will subscribe to c.S$12.8m in units that will bring their ownership in the REIT to 12.5%
- Issue price will be the higher of S$0.77 (NAV) or the 10-day VWAP
- At S$0.77, this is a more than 15% premium to DHLT’s current share price
- Strong sign of support from the Sponsor and reiterates its commitment to DHLT
Our thoughts
While the acquisition seems small, we believe that it is a strong sign of support from DHLT’s Sponsor, which alleviates investors concerns of the sponsor’s commitment to grow its only offshore REIT (parent group is listed in Japan). First being the c.11.8% discount to valuation, and the second being the Sponsor’s subscription of new units at a price that is at least 15% premium to DHLT’s current trading price. As gearing is expected to only go up to 36.4%, DHLT has ample debt headroom (c.S$140m before gearing goes up to 45%).
In addition to the c.1.3% accretion to DPU, the acquisition of the freehold rights to the land will also enhance DHLT’s portfolio valuation. Moreover, as the acquisition of the portfolio was done at a discount to valuations, it will likely lead to further portfolio valuation uplift at its next revaluation exercise.
We understand that this acquisition will have to undergo an EGM, and completion will likely be in December 2022. We believe that this acquisition has set the tone for its Sponsor’s support and commitment towards DHLT and demonstrates its ability to tap on accretive pipeline acquisitions. Our previous TP of S$0.88 is currently under review.