Daiwa House Logistics Trust (DHLT), with a debut portfolio of logistics assets in Japan, may be Singapore’s largest initial public offering (IPO) this year, but Clarence Chu, an analyst/Insight provider at Aequitas Research, said there’s not much reason to buy.
“While valuation relative to peers seems fair, we see no compelling reason to buy the REIT as other Singapore-listed industrial/logistics REITs offer similar yields while having a much larger and diversified portfolio,” said Chu, who publishes on SmartKarma.
“Future yields could dwindle, and there are other SGX-listed REITs with larger diversified portfolios that offer similar or slightly higher yields,” Chu said.
The trust, which is expected to begin trade on Friday, has an initial portfolio of 14 logistics and industrial real estate assets, and is aiming to raise gross proceeds of S$540 million, with an IPO price of S$0.80 a unit.
Distribution per unit (DPU) is estimated at 1.25 Singapore cents and 5.21 Singapore cents, respectively, for distribution yield of around 6.3 percent to 6.5 percent, the prospectus said.
Chu noted the 6.5 percent dividend yield was at the higher end for its Singapore-listed peers, but that assumed a 100 percent dividend payout for fiscal 2021 and 2022. After 2022, the dividend payout policy shifts to at least 90 percent of distributable income, which could drag the yield to around 5.88 percent, he noted.
That was in comparison with AIMS APAC REIT — DHLT’s closest peer based on valuation, assets under management (AUM) and net leasable area — which has a fiscal 2023 estimated yield around 50 basis points higher, Chu estimated.
Compared with selected Japanese listed peers, DHLT is the smallest, but with the longest weighted average lease expiry (WALE), likely as most leases were signed recently, Chu noted.
Japan-listed logistics REIT’s tend to trade at yields of around 2 percent to 3 percent, however, he said.
“It then begs the question of why the REIT decided to list on SGX, when it was willing to offer it at an attractive half the valuation in terms of dividend yield and P/NAV [price-to-net asset value], coupled with a liquid REIT market in Japan with over 60 REITs trading,” he said.
To be sure, DHLT’s prospectus noted its sponsor has a growing pipeline of assets in Southeast Asia, which is also seeing strong growth in the logistics and industrial sector. DHLT will have right of first refusal (ROFR) over a pipeline of assets in Japan and Southeast Asia, the prospectus said.
In a recent article from The Edge Singapore, Takeshi Fujita, CEO of DHLT’s manager, said targeting Japan’s regional markets gives the REIT’s yield a fillip, as the areas are both attractive and overlooked, with strong and growing demand.