Daiwa House Logistics Trust - Lower distributable income with higher interest expense

Lower Distributable Income

Daiwa House Logistics Trust Distributable Income fell by 9.9% YoY to S$8.2 million in 1Q 2025, mainly due to lower realised exchange gains and increased interest expenses from loan refinancing and restructuring.

Net Property Income slightly higher. 

Daiwa House Logistics Trust (DHLT) reported a 2.7% year-on-year (YoY) increase in Net Property Income (NPI) to S$11.1 million for 1QFY25. This growth was primarily driven by contributions from D Project Tan Duc 2 in Vietnam, which was acquired in July 2024. 

The positive impact from the new acquisition was partially offset by a weaker Japanese Yen (JPY) and reduced NPI from its Japan portfolio. 

The Japan segment saw a 1.0% YoY decline in NPI, as contributions from DPL Ibaraki Yuki were outweighed by vacancies and higher property-related expenses in the portfolio.

Portfolio occupancy declines

Portfolio occupancy dipped to 92.1%, down from 97.6% as of December 2024, largely due to the departure of a major tenant at the Sendai property, which represents about 6% of DHLT's net lettable area (NLA). 

DHLT is actively seeking new tenants, particularly among major third-party logistics (3PL) providers and local logistics companies.

Rental uplift for renewals

During 1Q 2025, two of the three expired leases were successfully re-tenanted with three- to five-year lease terms, achieving a 13% rental uplift. 

Looking ahead, all three leases expiring in 2Q 2025 have been renewed with a 9% rental increase. For the remaining leases set to expire in 2025, DHLT is actively engaging tenants and remains optimistic about renewals. 

The trust’s weighted average lease expiry (WALE) improved to 6.7 years, with 55% of leases set to expire in 2030 or later.

Acquisition of logistics asset in Tokyo

In 1Q 2025, DHLT acquired DPL Gunma Fujioka, a logistics property in Greater Tokyo, for JPY4.0 billion. 

The property is leased to a blue-chip multinational corporation under a six-year lease commencing in April 2025. 

The acquisition was made at a 23.4% discount to valuation and is expected to be yield accretive, increasing the trust's Distribution Per Unit (DPU) by 3.3%.

Increase in gearing ratio

Aggregate leverage rose to 41.1%, up from 38.5% at the end of December 2024, following the drawdown of a fixed-rate loan to fund the recent acquisition. 

The interest coverage ratio (ICR) remains strong at 7.4x, comfortably above the regulatory minimum of 1.5x. 

DHLT continues to manage its capital prudently, with 99.3% of its debt at fixed rates and all properties unencumbered. 

The weighted average debt tenure remains steady at 2.5 years, while the average borrowing cost inched up slightly to 1.69% from 1.66% at the end of 2024. 

This increase reflects the refinancing of JPY10.0 billion in November 2024 at a higher fixed rate, following the Bank of Japan’s shift away from its zero-interest-rate policy.

Management expects limited direct impact from trade tariffs

Management expects minimal direct impact from global trade tariffs, given that less than 10% of its tenants in Japan are export-oriented. However, trade tensions may introduce short-term economic uncertainty. 

The large supply of logistics space in Japan has presented near-term challenges, although the supply pipeline is projected to peak in Greater Tokyo by the end of 2026. 

Growth in third-party logistics (3PL) and e-commerce is expected to drive demand for logistics space moving forward. 

In Vietnam, economic growth remains supportive of logistics sector expansion. 

DHLT's D Project Tan Duc 2 is fully leased to a single tenant under a long-term lease expiring in 2043, underscoring the stability and income visibility of its Vietnamese operations.

Maintain Neutral

Following a 8.2% decline in distribution per unit (DPU) in 2024, we expect DHLT’s DPU to remain under pressure in 2025. Based on our forecasts, DHLT offers a FY25E distribution yield of 8.2%. 

DHLT trades at a price-to-book valuation of 0.81x, based on its net asset value per unit of S$0.70 as of 31 March 2025.

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