DAIWA House Logistics Trust (DHLT) is proposing to acquire a portfolio of 2 logistics facilities and a piece of freehold land in Japan for a total consideration of 4.68 billion yen or S$47.7 million.

In a filing late on Wednesday (Sep 21), the real estate investment trust (Reit) manager estimates this to represent an 11.8 per cent discount to the properties’ average appraised value.

It intends to finance the acquisition through a combination of bank borrowings as well as a proposed sponsor subscription of units in DHLT amounting to 1.25 billion yen. The subscription’s minimum issue price of S$0.77 per unit represents a premium of 14.9 per cent to DHLT’s closing price as at Sep 20, 2022.

As the Reit’s maiden acquisition, it is expected to lift DHLT’s distribution per unit (DPU) by about 1.3 per cent on a pro-forma basis from the time of its Nov 26, 2021 listing up until Jun 30, 2022. This is assuming that both the proposed acquisition and sponsor subscription will be completed on Dec 2, 2022.

Both free logistics facilities in the target portfolio – DPL Iwakuni 1 & 2 and D Project Matsuyama S – are 100 per cent occupied as of end-June 2022 and count listed companies among their tenants.

DPL Iwakuni 1 & 2 is a multi-tenanted logistics facility developed to specifications including ceiling heights of up to 8 m and floor loads of up to 2.5 tonnes per square metre, while D Project Matsuyama S was built to cater to the specific needs of its tenant, including temperature-controlled facilities for frozen or chilled foodstuff storage.

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The freehold land parcel, D Project Iruma S Land, is an existing property in the portfolio of DHLT where the Reit presently owns a leasehold interest.

Acquiring the land will better preserve its value by avoiding a gradual decline in the valuation due to the shortening of its land lease term, said the manager. It added that the overall value of this property will also be enhanced as freehold properties are generally valued based on a tighter cap rate compared to leasehold properties.

The target portfolio collectively spans a land area of about 420,393 square metres (sq m), an overall occupancy rate of 98.6 per cent, and a weighted average lease expiry (WALE) by net lettable area (NLA) of 6.8 years as at end-June 2022.

The acquisition is expected to bring DHLT’s enlarged portfolio to a total NLA of 444,728 sq m, total land area of 458,910 sq m, an overall occupancy rate of 98.6 per cent and a WALE by NLA of 6.7 years on a pro-forma basis.

It will also bring the proportion of freehold properties in DHLT’s enlarged portfolio to 54 per cent from 48.3 per cent; and raise the proportion of properties on freehold land and land with leases exceeding 40 years to 88.8 per cent from the current 84.8 per cent.

The Reit manager believes enlarging its portfolio with this acquisition will broaden DHLT’s earnings base and diversify its portfolio across various regions in Japan to mitigate potential concentration risk, as well as potential impacts to the portfolio from earthquakes.

“The strategically located quality portfolio is 100 per cent freehold and is fully occupied by high-quality tenants including one of the largest integrated logistics companies in Japan. We believe that the proposed acquisition will enhance the quality of the existing portfolio,” commented Takeshi Fujita, chief executive of the Reit manager.

DHLT : DHLU 0% ended Wednesday unchanged at S$0.67 before the announcement was made.