DBS Group Research analysts Dale Lai and Derek Tan have cut their target price on Daiwa House Logistics Trust (DHLT) from 99 cents to 75 cents, but still maintained their “buy” call on the stock.
The analysts say that while revenue and net property income (NPI) for FY2022 ytd outperformed forecasts in Japanese yen (JPY) terms, the weaker JPY against the Singapore dollars (SGD) led to NPI coming in lower than forecasts when converted to SGD.
They add: “We have assumed that the weaker JPY will have the largest impact to earnings in FY2023, before gradually rebounding from FY2024 onwards.”
Nonetheless, distributable income in SGD was in line with IPO forecasts, mainly due to lower finance expenses.
This came from lower interest rates, as well as lower asset management expenses, perpetual coupon payments, and other trust expenses, mainly due to the weaker JPY.
DHLT continues to enjoy strong operating fundamentals with a high portfolio occupancy rate, standing at 98.6% in its 3QFY2022 ended Sept 30, as well as a long weighted average lease expiry (WALE) of about seven years.
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Lai and Tan also note that its logistics portfolio is located in cities with limited supply, and Its portfolio of 14 modern logistics facilities is newly built with an average age of only about 4 years.
“Being in cities where the supply of modern logistics facilities is limited, DHLT’s portfolio continues to enjoy high occupancy rates and its tenants are expected to continue renewing their leases due to a lack of alternatives,” Lai and Tan point out.
The analysts also note DHLT’s gearing of about 35%, saying it provides it about $100 million of debt headroom to tap into its sponsor’s pipeline of modern logistics facilities, 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.
On the interest rate front, DHLT enjoys low borrowing costs of 1%, and 100% of DHLT’s loans are hedged to fixed rates until at least FY2024.
As of 3.09 pm, shares of DLHT were trading at 62 cents, with a FY2022 P/B of 0.6 and dividend yield of 8.2%.
