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Daiwa House Logistics Trust: Good or not?

Monday, November 22, 2021

I woke up to not one, not two, not three but four comments from readers regarding Daiwa House Logistics Trust and I took that as a sign that I would have to take some time off from gaming to blog.

Daiwa House Logistics Trust's IPO ends this Wednesday (24th Nov.)

IPO? I usually avoid IPOs because they are usually priced well for the seller and not for the buyer.

IPO stands for "it's probably overpriced?"

Is it more of the same in this case?

Looking at the information available, as an investment for income, Daiwa House Logistics Trust is not overly attractive to me.

For someone who is new to investing for income and who is just starting to build a portfolio, this could have a place.

However, with a distribution yield of 6.3% to 6.5% which is similar to what my two largest investments in REITs, AIMS APAC REIT and IREIT Global, are offering, Daiwa House Logistics Trust just isn't that attractive to me.

If I do invest in Daiwa House Logistics Trust, it would probably be because I would like more diversification.

However, it would be just geographical diversification which is less meaningful than diversifying into non-REITs.

This is especially so since my wish is to build a more resilient income generating investment portfolio.




Increasing the size of my investments in the local banks, DBS, OCBC and UOB, I believe would be more meaningful and Singapore banks make decent investments for income too.

Bear in mind that the banks pay only a fraction of their earnings as dividends while REITs distribute 90% to 100% of their income to their investors.

In this light, we could even say that the banks are more attractive than Daiwa House Logistics Trust as investments for income as what would be their dividend yields if the banks were to pay 90% of their earnings as dividends? 

Banks also benefit from rising interest rates and while REITs can still perform well with higher interest rates when compared to bonds, they might experience some downward pressure.




Having said this, if Daiwa House Logistics Trust should see a significant decline in unit price, I might buy some.

The better investments I have made in REITs have almost always been post IPOs and that is saying something.

If I am wrong, it wouldn't be a tragedy as not making money is not the same as losing money.

Anyway, why am I not excited about this IPO other than the fact that I usually avoid IPOs?

After all, Daiwa House Logistics Trust is Japanese and some of my better investments were Saizen REIT, Croesus Retail Trust and Accordia Golf Trust.

The trio were all Japanese too and delisted subsequently, netting me some very nice gains.

I will continue to talk to myself.





1. Land lease.

Saizen REIT had only freehold Japanese residential buildings.

Croesus Retail Trust and Accordia Golf Trust had mostly freehold Japanese assets.

Daiwa House Logistics Trust will start with mostly leasehold Japanese assets.

Having more leasehold Japanese assets for their IPO helps to bump up their distribution yield as leasehold assets are usually cheaper while still commanding prevailing market rents.

This is especially the case for assets with much shorter remaining land leases.

VIVA Industrial Trust, anyone?

It helps to make the IPO look more attractive to investors.

Having mostly leasehold assets, the distribution yield really should be higher than the 6.3% at IPO.

The impression I get is that the IPO is probably priced more dearly.

If we look at past IPOs of S-REITs with mostly leasehold assets, most of their distribution yields were higher, if I remember correctly.




2. Japanese focus.

The Japanese focus of Daiwa House Logistics Trust might not last long since they have right of first refusal (ROFR) over 11 assets in Vietnam, Malaysia and Indonesia.

They market this as a good thing but one reason why I liked Saizen REIT, Croesus Retail Trust and Accordia Golf Trust was their focus on underappreciated and undervalued Japanese assets.

The Japanese market is probably more stable and less risky when compared to Vietnam, Malaysia and Indonesia.




3. Fund raising.

There are two things here.

We have been seeing some issuance of perpetual bonds by REITs to raise funds and the most notable is probably Lippo Mall Trust.

While perpetual bonds do not increase the gearing level of REITs, all else remaining equal, since they are treated as equity instead of debt, it is a form of financial engineering to make numbers look better.

Still, as long as the funds raised will help to improve performance and generate more income in a sustainable fashion for shareholders, it is a good thing.

I could be wrong but it is the first time I see a REIT having perpetual bonds issued at IPO and that makes me somewhat curious.




The second thing is that with the REIT being relatively small and with a relatively long list of ROFR assets, there could be more fund raising before long especially when the manager says they want to keep gearing below 40%.

Why start with only 14 Japanese assets and mostly leasehold ones with average remaining land lease of about 38 years?

Why not start with a larger portfolio and include most of these ROFR assets of which 17 are mostly Japanese freehold assets instead?

I have a couple of guesses but they are just guesses.




So, Daiwa House Logistics Trust, good or not?

As it is, Daiwa House Logistics Trust might seem decent enough for some as an investment for income but it isn't something I feel I must have in my portfolio.

It isn't screaming "BUY."

References:
1. VIVA Industrial Trust: 9% yield.

2. Saizen REIT.

3. Croesus Retail Trust.

4. Accordia Golf Trust.

5. Cutting losses in S-REITs.

6. Dividends from DBS, OCBC and UOB.




28 comments:

David said...

Hi AK,
Good Day.
Thank you for the sharings on Daiwa Logistic Trust.
I dont even know this IPO close on 24Nov2021:-)

Thanks for highlighting 'Freehold Properties'.
In Spore, i believe almost ALL industrial/logistic buildings are Leasedhold.
Only very small/very limited Freehold industrial/logistic properties in Spore.

I got the message. Daiwa Logistic may raise fund if they are going ahead to buy properties in vietnam, malaysia etc.

Thanks for telling us that Daiwa already has Perpetual bond. They r 'Smart':-)

Lately, logistic REIT suchas AREIT, Mapletree Industrial REIT etc, are on downtrend.

Best Regards
David

AK71 said...

Hi David,

There is expectation that interest rates will start rising sometime next year.

With economies improving and inflation being somewhat persistent, this expectation is reasonable.

Higher interest rate is likely to exert some downward pressure on the unit prices of REITs as their future financing cost will be impacted and this could negatively impact their DPU at least for a short while.

I am in no hurry as I feel that there could be a better time to invest in Daiwa House Logistics Trust. ;p

Like you said, they are smart.

I also not stupid, I hope. ;p

Reference:
Dumping all my investments in REITs.

Unknown said...

Hi AK,

We have another REIT going IPO this year. :)

If you're free, may I know if you could give your views on Digital Core REIT IPO? It's our 2nd data centre-focused REIT in SG. The numbers look good to me.. strong sponsor too. :)

Link: https://www.businesstimes.com.sg/companies-markets/digital-realty-seeks-to-list-data-centre-focused-digital-core-reit-in-singapore

Thank you for your time.

Regards,
Wong YX

AK71 said...

Hi Wong YX,

Going by my avoidance of Keppel DC REIT, apart from the fact that it is managed by Keppel, I obviously don't understand data centers well enough. ;p

So, I will refrain from blogging about Digital Core REIT. :)

If you have no clue as to what I am talking about, read the following blogs:
1. Is Keppel DC REIT an attractive investment for income?
2. DPU plunged at Keppel DC REIT.

garudadri said...

Dear AK
I concur with your views and will be not applying
The NAV as per prospectus is 76 cents and I would reckon that it needs to get to lower than 75 to entice me. Am fairly confident this will happen as interest rates rise. This is in addition to the small size of the REIT. As regards banks, the chances of another major drop are low but even a 5-10% dip will make me add to my positions for long term
Regards
Garudadri

AK71 said...

Hi Garudadri,

Daiwa House Logistics Trust could have a place in some investors' portfolios, of course.

It just doesn't entice me.

Well, at least not now. ;)

As for our local banks, unlike tech stocks like Alibaba which seem largely to thrive on hype and unrealistic expectations of future earnings, the share prices of DBS, OCBC and UOB seem to be more fairly priced.

Any weakness in their share prices could see more grounded investors accumulating.

As always, don't bite off more than we can chew and we should sleep better.

Peace of mind is priceless. :)

References:
1. Do not make difficult times more so.
2. His plight and my philosophy.
3. Investing with some common sense.

Hxn said...

Hi AK,

Thanks for sharing your view on Daiwa Logistic Trust.
Came across your blog when I was googling Daiwa Logistic Trust and find your blog very useful and learning alot from your sharing and talking to yourself! Really Wish I had start reading your blog in my younger days but I guess its never too late to start building our portfolio..

May I ask if I were to choose between AIMS APAC REIT and IREIT Global to be added into my portfolio, which would be a better choice to go in now for dividend?

Thanks

AK71 said...

Hi Hxn,

Welcome to ASSI. :D

Talking to myself means I suffer from borderline madness; so, eavesdrop at your own risk. ;p

As for choosing between AIMS APAC REIT and IREIT Global, they are both REITs but really different sub species because one holds mainly industrial assets and the other one holds mainly commercial assets.

If I were starting out and looking at both REITs, I would be inclined to invest in both for some geographical as well as sectorial diversification.

You might be interested in these blogs:
1. AIMS APAC REIT, IREIT and Ascott REIT-BT.
2. IREIT Global: 214 for 1000 rights issue.
3. AIMS APAC REIT to buy Woolworths' HQ.

Hxn said...

Hi AK,

Thanks for your prompt reply

As I was reading your other posts on VICOM and ComfortDelgro. May I know what's your pov on them as compared to REITs shares if i would like to include in my portfolio as well?

Also, I am currently holding a small portion of 5G3 for many years which gives me decent dividend before 2019. However, recent year it has been staying stagnant and the dividend has been dropping.

I always been thinking if I should sell it to buy Singtel or others (such as REITS, VICOM, comfortDelgro) but always sit on it and procrastinate. Could you please shine some light on this?

Tyvm

AK71 said...

Hi Hxn,

Unfortunately, I am not a certified financial adviser and will not be able to advise anyone on specifics like you have requested.

Here in ASSI, I share my journey towards financial freedom and some might find my philosophy and strategies palatable.

If ASSI has inspired others to invest for income towards financial freedom, then, I am glad. :)

I will say that REITs are relevant income generating instruments but I decided to increase the proportion of non-REITs in my portfolio to build a more resilient portfolio.

It is about not putting all our eggs in one basket. ;)

These blogs be interesting:
1. Is investing in REITs right for you?
2. Good time to buy now or should I wait?

Hongjin said...

Hi AK

Just wondering if you may expand your expertise into the world of options.

not sure if this below mentioned method can be considered to be another method of earning passive income.

Recently stumbled upon an option strategy called the option wheel.

This is the link:

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.reddit.com/r/wallstreetbets/comments/iz68r4/how_to_consistently_outperform_the_sp500_using/&ved=2ahUKEwiSyYzh2LX0AhXn63MBHTfVA7cQjjh6BAg3EAE&usg=AOvVaw1r1fmVbJI3q6kyfwMhxXG_

Basically you sell puts and calls on index fund and collect premium. That premium can acted as your dividend.

I feel what the article make sense. And it ride on the fact that s and p 500 is always on the uptrend in the long run.

Any views on this ? :)

AK71 said...

Hi Hongjin,

I don't have any interest in options trading but I know people who do it.

Options trading to make money requires trading which is similar to what I used to do more of which was trading stocks.

If we are good at it, we can make some good money but it isn't passive income.

I have always thought that calling the money made through options trading passive income is just clever marketing by some people to get attention.

I am a lazy fellow and I like dividend stocks which truly generates passive income. ;)

To be sure, I know someone who lost a big chunk of money in options trading before.

Just like any financial instrument, consider the possible downside and not just the upside.

Good luck. :)

References:
1. Grew more daring and lost $100K.
2. How did AK create a 6 digits annual passive income

Hongjin said...

Ah icic.

Yah I'm definitely still holding my dividend stocks. Just exploring if this particular wheel option strategy works in index fund, riding on the fact that it usually goes up long term.

:)

AK71 said...

Hi Hongjin,

As long as you have done your due diligence and know what you are getting into, it is a legitimate way to make some money.

It isn't bad to have options (pun intended.)

Bad AK! Bad AK! ;p

Hongjin said...

Hahaha yeah...

Enjoy your gaming ! Maybe next time you want to explore the play to earn games on Blockchain?

I know Blockchain or crypto is a big nono for u but just suggesting if and only if it becomes mainstream.

Side note, miss my PS4 gaming days. But with kids, these times are hard to come by

AK71 said...

Hi Hongjin,

Oh, I rather like blockchain but I think there is too much dishonest activity going on where crypto currencies are concerned.

Of course, there is also too much misinformation on "investing" in crypto currencies.

I doubt very much that the crypto currencies and gaming formula will become mainstream anytime soon especially after Steam said no to all of them.

Of course, time will tell.

Oh, Neverwinter is free to play on PS4 just in case you find some free time one day. ;)

For newer readers who do not know what I am talking about:
1. My final word on Bitcoin and friends.
2. Stop telling people I am a retiree.

Cory said...

Hi AK, just off topic a bit. Elite Comm Reit yield is high, and sturdy tenants. However it seems never in your radar at all. Is there something you see is not worth the risk ?

Cory

AK71 said...

Hi Cory,

I usually give IPOs a miss and that was what I did with Elite Commercial REIT (ECR.)

Also, I was more interested in strengthening the proportion of non-REITs in my portfolio.

To be honest, I was also somewhat wary of ECR's sponsors which partially share the same roots as VIVA Industrial Trust's sponsors and we know how I feel about VIVA. ;p

It doesn't mean that I am not interested in ECR at all but I am in no hurry.

Interesting to see what happens in 2023 because ECR has such an incredibly high tenant concentration risk that the large number of lease break options available in that year could be a bomb if exercised.

Could be another Sabana REIT or maybe not. ;p

Hongjin said...

Thanks for your insights !! Really appreciated !

Btw, do u happen to have any articles about how much % we should withdraw from passive income during retirement ?

Saw some talked about 4% withdrawal rule. Not too clear how they derive that. Does that rule change if my passive income grow at a much bigger % than 4%?

Would like to do some calculation myself so that I can safely draw out what I need, retain my capital and yet beating inflation :)

Betta man said...

Hi AK,

what is your opinion of the latest Digital Core Reits?Thks

https://www.drwealth.com/digital-core-reit-ipo/

AK71 said...

Hi Hongjin,

Just talking to myself as usual, of course. ;p

There are many blogs about % withdrawal to fund our retirement but I don't have a similar blog.

I am sure it is all pretty subjective because how much we need in retirement is going to be quite different from person to person.

It also depends on whether we are going to retire earlier or later.

We must also hedge longevity risk and that is where an annuity like CPF LIFE comes in.

Of course, I will say that we cannot go wrong to have a bigger buffer.

Then, keep our needs simple and our wants few.

It is quite simple to understand but having a realistic plan and sticking to it is probably the difficult part for many people.

Having the discipline and patience to work the plan is one thing but there are externalities which can throw a spanner in the works especially if the plan isn't grounded enough.

Eventually, unless we are very unlucky, if we keep at it, we will succeed. :)

Newer readers might want to read these blogs:
1. How much passive income is enough?
2. Retirement adequacy for late bloomers.
3. Retire with investment grade bond and annuity.
4. An annuity: To have or not to have?
5. How to have a comfortable retirement?
6. To retire by 45, have a plan.

AK71 said...

Hi Betta man,

Wong YX asked me the same thing.

If you scroll up, you will see my reply.

I feel it is a business that is pretty hyped up and getting a distribution yield of 4.75% from an investment that distributes all its income and more than its earnings doesn't seem very attractive to me.

Of course, like I said, this is a business which I probably don't understand enough to invest in and I could be totally wrong. ;p

Siew Mun said...

All the 3 banks at today's 30 Nov share price offers a dividend higher than 4.25% of DCR, they do not give out 100% of their profit, no currency exchange risk and no risk of changes to US tax withholding loopholes. Though it's not an apple to apple comparison.

AK71 said...

Hi Siew Mun,

I agree that the local banks are more attractive as investments for income than Digital Core REIT.

It also makes sense for me as they make for a more resilient portfolio especially in the event that interest rates go higher.

Alan said...

Hi AK
What do you think if if comfort delgro. Now is about all time low.
I am holding to a considerable amount of it
I remember you buying it previously. Are you still holding it.
If yes do you think it is wise to average it.
Thanks
Alan

AK71 said...

Hi Alan,

I increased my investment in ComfortDelgro in November last year.

My opinion of ComfortDelgro has not changed since then and I am staying invested.

I like the fact that I am being paid while waiting for recovery which now seems like it could be delayed due to the Omicron variant of COVID-19.

Very unfortunate but it isn't a tragedy.

You know I won't answer the bit as to whether it is wise to average in. ;p

Remember, peace of mind is priceless. :)

References:
1. Investment in ComfortDelgro is larger now.
2. Ask 2 questions if we are losing sleep.

Verseun said...

Hi AK. I am actually concerned about the messages the management is sending.

1) It sent a message previously that it was prioritizing cashflow and was conservative. However it did an about turn on the IPO of its Australian subsidiary which could help the company unlock value.

2) Around 70 to 80 percent of the business is from Public Transportation . Which sees increasing costs due to oil hikes and decreasing subsidies on labor. Price hikes will seem modest in the coming years due to the economy.

3) Continued decline in its taxi business despite consolidation of the industry with exit of some players.

4)Weaker ridership numbers going forward at least until 1Q or 2Q 2022

AK71 said...

Hi Verseun,

Thank you for the very thoughtful comment.

I have published my reply as a blog:
ComfortDelgro: AK replies to comments.


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