UOB Kay Hian (UOBKH) analyst Jonathan Koh highlights Daiwa House Logistics Trust DHLU ’s (DHLT) growth and stability in an unrated report.
In his June 19 report, Koh notes that DHLT has expanded its portfolio to 17 high-quality logistics properties with net lettable area (NLA) of 4.9 million sqft. Its portfolio of logistics properties has an average age of only 6.3 years.
Of this, DHLT has seven logistics properties located in Greater Tokyo, which accounted for 42% of its portfolio valuation, with a long weighted average lease expiry (WALE) of 7.4 years weighted by gross rental income (GRI). Freehold properties accounted for 60% of its portfolio valuation, while the average leasehold land tenure is 39.3 years.
All of DHLT's multi-tenanted logistics properties, which accounted for 77% of its portfolio valuation, are built to modern specifications. This is in stark contrast to the broader market in Japan, where the proportion of modern logistics facilities is still small at 15%, Koh points out.
Growth is supported by third-party logistics and e-commerce, which accounted for 75.7% and 8.1% of DHLT's GRI respectively. There is huge room for growth as e-commerce penetration remains low at 9% in Japan, he further highlights.
The trust is also backed by a strong and supportive sponsor — Daiwa House Industry (DHI) is one of the largest construction and real estate development companies in Japan. It has developed 231 single-tenanted and 81 multi-tenanted logistics properties in the country, managing real estate funds with an aggregate assets under management (AUM) of $19.6 billion.
By tapping its sponsor pipeline, DHLT is expanding in Japan and Southeast Asia, making its maiden foray overseas by acquiring cold storage facility D Project Tan Duc 2 in Vietnam for VND483 billion.
Koh highlights that DLHT’s NPI grew 4.6% y-o-y in Japanese yen terms in 1QFY2024 due to portfolio occupancy improving 1.4 percentage points y-o-y to 100.0%, contribution from newly acquired DPL Ibaraki Yuki, as well as the absence of repair expenses due to damages caused by an earthquake in 1Q2023.
DHLT also had a long WALE of 5.9 years weighted by GRI as at March, while built-to-suit property D Project Kuki S was renewed for 10 years in April.
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The trust’s portfolio was fully occupied as of March. That said, occupancy has slipped 3.4 percentage points to 96.6% in April due to the expiry of two leases at DPL Kawasaki Yako and DPL Koriyama, which take up a total NLA of 167,670 sqft. DLHT is in advanced negotiations with a potential replacement tenant, a 3PL provider, to backfill the vacant space at DPL Kawasaki Yako, Koh notes.
He adds that DHLT is currently trading at an attractive 2024 distribution yield of 9% and P/NAV of 0.82x.
As at 11.35am, units in DHLT are trading 0.5 cents higher or 0.88% up at 57 cents.
