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THE RESEARCH EXPRESSES SOLELY OUR OPINIONS.

Since August, SREITs have gained much more prominence for their attractive yields due to the lowering interest rates and disinflation.

For the following reasons, we are long DHLU.
Our DHLU (Daiwa House Logistics Trust) target price: 72 ¢.

1) Recession-proof business model.
Based in a stable democracy (Japan), DHLU’s assets/buildings are new or modern (less than 7 years old), with an average lease duration of approximately 6.3 years
(Portfolio WALE) and an average occupancy rate of approximately 97%.

2) A strong and healthy real estate/construction parent company.
Tokyo-listed Daiwa House Industry Co., Ltd., is AA-rated.
While the Bank of Japan (BoJ) has slightly increased short-term rates, the long-term
10-year Japanese yields remain range-bound at approximately 0.9% (with a 52-week
range of 0.55% to 1.11%). Due to low commodities/crude oil prices, the imported inflation is also trending down.
We do not expect a significant impact on DHLU’s earnings and distributions from the
slight increase in short-term interest rates.

3) Strengthening JPY.
When DHLU IPO’d on SGX at S$0.80 on November 25, 2021, the SGD/JPY
exchange rate was ≈84.
As of the latest earnings release for the end of June 2024, the SGD has
strengthened to 118.64 JPY (approximately 41% stronger compared to the IPO
date).
This forex move has significantly and negatively affected SGD distributions by DHLU
since the IPO in 2021, despite DHLU’s resilient and growing JPY revenues and
income figures.

Now, as US and Singapore interest rates drop, the JPY strengthens, and SREIT
yields become more attractive, DHLU is likely to outperform.

Currently, the JPY has strengthened to ~108 per SGD. We expect this to provide
an ~8% tailwind to the next revenue and profit news release. Additionally, the
strengthening JPY will enhance the SGD valuation of DHLU’s book value per unit.

4) A high Interest coverage ratio of 11.7 times at DHLU. 
Additionally, DHLU Trustee (Daiwa House Asset Management Asia Pte. Ltd., “DHAMA”) continues to increase its stake in DHLU and currently owns 9.33% of DHLU.

5) Singapore GIC’s recent investment seems to support our logic.
The August-2024 Singapore GIC logistics acquisition (image below), valued at approximately US$400 million, seems to support our perspective on Japan logistics/e-commerce.

By viewing material on this website you agree to the Terms.
View and/or Use of Sakura Research materials is at your own risk.
THE RESEARCH EXPRESSES SOLELY OUR OPINIONS.