DBS Group Research analysts Dale Lai and Derek Tan have trimmed their target price on Daiwa House Logistics Trust (DHLT) to 88 cents from 95 cents previously to account for weaker JPY.
This is as DHLT's entire portfolio is in Japan and entirely earned in JPY. “We have revised our estimates to consider the impact of the weaker JPY to earnings. Based on our assumptions, there will be about 9% downside in FY2022 DPU, entirely due to the depreciating JPY against SGD,” the analysts explain.
They project that the impact to earnings will worsen to about 15% by FY2023, before gradually reversing from FY2024 onwards.
Although DHLT could potentially bolster its earnings through acquisitions, the analysts have not priced in any acquisition assumptions into their estimates as there is still no clear guidance on growth plans in the near term.
Despite cutting the target price, Lai and Tan are maintaining their “buy” call on DHLT as the trust continues to enjoy strong operating fundamentals with a high portfolio occupancy rate and a long WALE of about 7 years.
“We expect DHLT to continue reporting strong portfolio operating metrics with high occupancy rates and positive rental reversions. Although a large supply of logistics space is expected to come online in Japan in FY2022 and FY2023, we believe DHLT’s portfolio will continue to remain resilient given its long WALE of about 6.8 years and the quality of its portfolio,” the analysts highlight.
Additionally, a large portion of the new supply is believed to have already been pre-committed and businesses in Japan are expected to continue expanding, especially for businesses in the logistics sector, Lai and Tan further point out.
Unlike its S-REIT peers, DHLT is largely insulated from cost inflation and rising interest rates. Its operating and utility costs are mostly passed on to tenants, and its loans are entirely hedged to fixed rates until at least FY2024. However, the depreciating JPY against the SGD will be the major overhang for DHLT.
DHLT also has a healthy gearing which provides ample debt headroom, the analysts add. With gearing at only 34% currently, DHLT has a debt headroom of about $100 million, providing it with the firepower to tap into its sponsor’s pipeline of newly built modern logistics facilities that are valued at more than $1.5 billion.
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“The sponsor has provided DHLT with a right of first refusal (ROFR) to a portfolio of 28 assets in Japan as well as in Southeast Asia,” they add.
As at 11.24am, units in DHLT are trading at an unchanged 75 cents.
