FY24 Key Operating and Financial Metrics

Source: Daiwa House Logistics Trust, DBS

FY24 DPU of 4.79Scts; in line with our forecasts.

Daiwa House Logistics Trust (DHLT) reported a DPU of 4.79Scts for FY24. Although it was an 8.2% decline y/y, primarily impacted by foreign exchange movements and higher financing costs, it is in line with our projections. DHLT’s proactive hedging of its FX exposure over the course of the year has prevented a further decline in earnings given that the JPY has weakened by almost 12% against the SGD.

In JPY terms, both revenues and net property income (NPI) would have been 1.8% and 2.1% higher y/y, respectively. However, the weaker FX rate eroded the improvements. The higher revenues were mainly due to the additional contribution from DPL Ibaraki Yuki, which was acquired in March 2024, but was partially offset by a dip in portfolio occupancy.

Portfolio occupancy rate of 97.6% was a slight improvement q/q.

Portfolio occupancy stood at 97.6% (Japan: 97.5%, Vietnam: 100.0%) with WALE at 6.6 years. 17 out of 18 properties remained fully occupied, with continued leasing interest.

Of the 12 leases that expired in FY24, c.90% of the space was renewed or backfilled. This led to a weighted average rental uplift of c.5% for new and renewed leases signed in FY24. Most notable was the extension of the master lease at D Project Kuki S for 10 years at higher rents, with annual rental escalations for the first five years.

Six leases are due to expire in 1H25, which accounts for c.14% of portfolio net lettable area (NLA). We understand that approximately half of these expiries are likely to be renewed or are in advanced negotiations with new tenants, where rents could potentially be 5%-10% higher. The remaining half of these expiries, or c.7% of NLA, is mainly a result of a major tenant’s non-renewal in the Sendai Port property. Given the size of this space, finding a suitable tenant to backfill it could take a while.

Property valuations increased marginally y/y.

In JPY terms, DHLT’s Japan portfolio reported a 4.5% uplift in valuations, which were mainly attributable to the addition of DPL Ibaraki Yuki (in March 2024). On a same-store basis, the valuation uplift would have been a more modest 0.7% uptick y/y. The higher valuations of DHLT’s Japan portfolio were, however, offset by the weaker JPY against the SGD, where the exchange rate applied was more than 7.5% lower y/y. Cap rates across Japan and Vietnam have remained stable y/y.

Including D Project Tan Duc 2 in Vietnam that was acquired in July 2024, DHLT’s overall portfolio valuations increased marginally by 0.5% y/y to SGD835.9mn. Excluding the two acquisitions in FY24, DHLT’s portfolio valuation would have declined more than 6% y/y, entirely due to the weaker FX rates.

Improvement in gearing, but borrowing costs expected to continue inching up.

Gearing stands at 38.5% as at 4Q24, a 70bps improvement q/q, due mainly to the uplift in portfolio valuations. The healthy leverage ratio is also at an optimal level, but with only c.SGD22mn in debt headroom before gearing rises to 40%. However, debt headroom would increase to more than SGD50mn if DHLT is willing to push gearing to 41%-42% (an option management is not averse to).

In November 2024, DHLT refinanced their first loan since IPO, extending it for a further five years. A SGD108.5mn five-year loan was taken at an estimated all-in rate of c.2.2% (vs. c.1% for the expiring loan). As interest rates in Japan have risen, the refinancing, which accounts for c.32% of DHLT’s entire loan book, led to an increase in the REIT’s all-in borrowing cost to 1.66%. The spike in overall financing costs was also a result of the restructuring of onshore Japan loans, with all of DHLT’s properties now unencumbered. We estimate that this unencumbering of its portfolio led to a c.30bps increase in overall financing costs.

Currently, 99.2% of DHLT’s loans are hedged to fixed rates, ensuring that financing costs will remain stable at the current 1.66% until at least November 2025, where the next tranche of loans (c.SGD86.8mn, or c.25% of entire loan book) is due for refinancing. DHLT’s weighted average debt tenure has also increased to 2.7 years (vs. 1.7 years in 3Q24) following the refinancing.

Although the c.50bps spike in DHLT’s all-in financing costs will put downward pressure on earnings, we accounted for this previously and have priced it into our current projections.

Our views.

We remain positive on DHLT, supported by its resilient earnings profile and healthy operating metrics. DHLT has demonstrated steady growth in both earnings and portfolio valuations, though FX fluctuations have introduced some earnings volatility. However, the weakness in the JPY appears to have bottomed, with the exchange rate now at SGD1:JPY111, improving from its July 2024 high of SGD1:JPY120. However, to remain prudent, we have adjusted our FX assumptions marginally to account for a slightly weaker JPY. Additionally, the backing of DHLT’s sponsor enabled the REIT to execute two accretive acquisitions in FY24, providing greater earnings stability.

Despite this, we are monitoring the 19.3% of leases that are expiring in FY25, with approximately 7% of portfolio NLA at risk of non-renewal. Furthermore, the Greater Tokyo logistics market may face near-term challenges due to increased supply. That said, new supply is expected to taper off over the next one to two years, easing pressure on the market.

We have revised our projections to account for an extended vacancy at the Sendai Port property, and marked our FX assumptions to current rates. Despite this, we will be maintaining our BUY recommendation with a slightly lower TP of SGD0.65. While our current estimates do not factor in additional acquisitions, DHLT’s willingness to increase gearing for accretive acquisitions presents potential upside to our earnings forecasts. A strengthening of the JPY will also be another factor that will drive upside to our projections.



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