Daiwa Capital Markets started Daiwa House Logistics Trust (DHLT), with a portfolio of 14 Japanese logistics assets, at Buy with a target price of S$0.98, citing solid logistics growth and an attractive yield.
“We recognise DHLT is not the size of other large-cap logistics and industrial S-REITs. However, our 12-month forward dividend yield forecast for DHLT of 6.7 percent is the most attractive among its S-REITs peers (average of 5.3 percent) on a risk-reward basis,” the investment bank said in a note Thursday.
“We believe DHLT is trading near book post-IPO due to its size and some caution surrounding its ability to make accretive acquisitions in the near term. However, we believe DHLT deserves to trade near the valuation of the big-4 (AREIT, MINT, FLT, and MLT),” the note said.
The big-four are trading at 2022 price-to-book ratios of around 1.2 to 1.5 times, the note said, adding the investment bank’s target price represents a ratio of 1.2 times.
The investment bank said its argument for valuing DHLT near the Big-four levels was due in part to having all of its portfolio in the modern logistics segment, which it believed has a strong demand outlook. In addition, the portfolio is relatively new and quality, its sponsor is among the most established property developers and real estate fund managers in Japan and DHLT can make accretive acquisitions of three Japan right-of-first-refusal (ROFR) assets using debt financing, the note said.
The ROFR pipeline from DHLT’s sponsor includes 28 modern logistics properties developed or under development in Southeast Asia and Japan, with an estimated valuation of around S$1.6 billion, the note said.
“We believe the phased acquisition of the pipeline could pave a discernible growth path for DHLT in terms of gaining further regional exposure in the logistics segment. Moreover, the pipeline consists of properties constructed in accordance to the sponsor’s specification and standards, which leads to consistency in the portfolio,” the investment bank said.
Units of Daiwa House Logistics Trust ended Friday down 1.23 percent at S$0.805.
Daiwa Capital Markets is Daiwa Securities Group’s wholly owned investment banking subsidiary. It is not part of Daiwa House Group. Tokyo-listed Daiwa House Industry, part of the Daiwa House Group, is the REIT’s sponsor.