Daiwa House Logistics Trust
Price target: DBS Group Research ‘buy’ 80 cents
Maiden acquisition outside Japan
DBS Group Research is positive on Daiwa House Logistics Trust’s (DHLT) planned acquisition of a cold storage facility in Vietnam, which, when completed, will mark its debut presence outside Japan.
On Dec 29, DHLT announced it is acquiring the property from its sponsor Daiwa House Industry for VND483 billion, or some $26.5 million. The selling price is around 3% lower than the average independent valuation of VND498 billion.
The property, D Project Tan Duc 2, is a builtto-suit cold storage facility located in Long An Province. It was completed in September 2023 and is leased to a for 20 years from October 2023.
According to DHLT, the tenant is a group company of a Tokyo Stock Exchange-listed en
tity which specialises in cold chain logistics for food products. The tenant runs two other facilities and it distributes food and beverage products to local supermarkets.
DHLT plans to finance the acquisition, which includes the assumption of a shareholders’ loan, via debt. On a pro forma basis, this will nudge its aggregate gearing from 36.2% as at Sept 30 to 38.2% on a pro forma basis. It will also be accretive to its FY2022 DPU by 1.9% on a pro forma basis.
At the agreed property value, the implied NPI yield of D Project Tan Duc 2 is 8.3%, which is higher than the blended NPI of the existing properties in the portfolio of DHLT of 5.3%.
“The acquisition reinforces the importance of a strong developer sponsor which can support DHLT by providing a pipeline of high-quality properties such as D Project Tan Duc 2,” says DHLT.
Jun Yamamura, CEO of the manager, describes this acquisition as a “landmark acquisition” as it is the first property outside Japan to be under its portfolio. “The entry into Vietnam, a growing economy in Southeast Asia, will see a high-quality property added to the existing portfolio of DHLT to further enhance its quality.
“The property is strategically located in a gateway province that connects Ho Chi Minh City, a key economic centre, to the Mekong Delta region, an important aquaculture hub,” he adds. “We are confident that the property will contribute positively to the portfolio of DHLT,” says Yamamura.
From the perspective of DBS Group Research, this acquisition is positive for DHLT. Besides the yield of 8.3%, the 20year lease will provide income stability in the coming years and long leases of this nature will include some form of rental escalations that will drive earnings further.
While DHLT has to take on additional loans to fund the acquisition which will push up gearing from 36.2% to 38.2%, DBS believes this is still at a “healthy” level.
“Although the size of the acquisition is relatively small, we see this as a positive for DHLT as it continues to tap on its sponsor’s pipeline to drive incremental earnings growth while allowing the REIT to maintain a relatively healthy leverage ratio,” says DBS, which is keeping its “buy” call and 80 cents target price.
“Moreover, the foray into Vietnam helps to diversify DHLT’s earnings outside of Japan, and creates an opportunity for future growth as they scale up their portfolio into fast-growing economies in Southeast Asia,” adds DBS. —