I woke as much as not one, not two, not three however 4 feedback from readers relating to Daiwa Home Logistics Belief and I took that as an indication that I must take a while off from gaming to weblog.
Daiwa Home Logistics Belief’s IPO ends this Wednesday (twenty fourth Nov.)
IPO? I normally keep away from IPOs as a result of they’re normally priced properly for the vendor and never for the client.
IPO stands for “it is in all probability overpriced?”
Is it extra of the identical on this case?
Trying on the info accessible, as an funding for revenue, Daiwa Home Logistics Belief isn’t overly engaging to me.
For somebody who’s new to investing for revenue and who’s simply beginning to construct a portfolio, this might have a spot.
Nonetheless, with a distribution yield of 6.3% to six.5% which has similarities to what my two largest investments in REITs, AIMS APAC REIT and IREIT International, are providing, Daiwa Home Logistics Belief simply is not that engaging to me.
If I do spend money on Daiwa Home Logistics Belief, it might in all probability be as a result of I would really like extra diversification.
Nonetheless, it might be simply geographical diversification which is much less significant than diversifying into non-REITs.
That is particularly so since my want is to construct a extra resilient revenue producing funding portfolio.
Growing the scale of my investments within the native banks, DBS, OCBC and UOB, I consider can be extra significant and Singapore banks make respectable investments for revenue too.
Keep in mind that the banks pay solely a fraction of their earnings as dividends whereas REITs distribute 90% to 100% of their revenue to their traders.
On this mild, we might even say that the banks are extra engaging than Daiwa Home Logistics Belief as investments for revenue as what can be their dividend yields if the banks had been to pay 90% of their earnings as dividends?
Banks additionally profit from rising rates of interest and whereas REITs can nonetheless carry out properly with greater rates of interest when in comparison with bonds, they could expertise some downward strain.
Having stated this, if Daiwa Home Logistics Belief ought to see a big decline in unit worth, I’d purchase some.
The higher investments I’ve made in REITs have virtually at all times been submit IPOs and that’s saying one thing.
If I’m unsuitable, it would not be a tragedy as not earning money isn’t the identical as dropping cash.
Anyway, why am I not enthusiastic about this IPO apart from the truth that I normally keep away from IPOs?
In any case, Daiwa Home Logistics Belief is Japanese and a few of my higher investments had been Saizen REIT, Croesus Retail Belief and Accordia Golf Belief.
The trio had been all Japanese too and delisted subsequently, netting me some very good positive factors.
I’ll proceed to speak to myself.
1. Land lease.
Saizen REIT had solely freehold Japanese residential buildings.
Croesus Retail Belief and Accordia Golf Belief had largely freehold Japanese belongings.
Daiwa Home Logistics Belief will begin with largely leasehold Japanese belongings.
Having extra leasehold Japanese belongings for his or her IPO helps to bump up their distribution yield as leasehold belongings are normally cheaper whereas nonetheless commanding prevailing market rents.
That is particularly the case for belongings with a lot shorter remaining land leases.
VIVA Industrial Belief, anybody?
It helps to make the IPO look extra engaging to traders.
Having largely leasehold belongings, the distribution yield actually must be greater than the 6.3% at IPO.
The impression I get is that the IPO might be priced extra dearly.
If we take a look at previous IPOs of S-REITs with largely leasehold belongings, most of their distribution yields had been greater, if I keep in mind accurately.
2. Japanese focus.
The Japanese focus of Daiwa Home Logistics Belief won’t final lengthy since they’ve proper of first refusal (ROFR) over 11 belongings in Vietnam, Malaysia and Indonesia.
They market this as an excellent factor however one cause why I favored Saizen REIT, Croesus Retail Belief and Accordia Golf Belief was their deal with underappreciated and undervalued Japanese belongings.
The Japanese market might be extra secure and fewer dangerous when in comparison with Vietnam, Malaysia and Indonesia.
3. Fund elevating.
There are two issues right here.
We’ve got been seeing some issuance of perpetual bonds by REITs to boost funds and probably the most notable might be Lippo Mall Belief.
Whereas perpetual bonds don’t enhance the gearing stage of REITs, all else remaining equal, since they’re handled as fairness as a substitute of debt, it’s a type of monetary engineering to make numbers look higher.
Nonetheless, so long as the funds raised will assist to enhance efficiency and generate extra revenue in a sustainable style for shareholders, it’s a good factor.
I may very well be unsuitable however it’s the first time I see a REIT having perpetual bonds issued at IPO and that makes me considerably curious.
The second factor is that with the REIT being comparatively small and with a comparatively lengthy record of ROFR belongings, there may very well be extra fund elevating earlier than lengthy particularly when the supervisor says they need to maintain gearing under 40%.
Why begin with solely 14 Japanese belongings and largely leasehold ones with common remaining land lease of about 38 years?
Why not begin with a bigger portfolio and embody most of those ROFR belongings of which 17 are largely Japanese freehold belongings as a substitute?
I’ve a few guesses however they’re simply guesses.
So, Daiwa Home Logistics Belief, good or not?
As it’s, Daiwa Home Logistics Belief may appear respectable sufficient for some as an funding for revenue nevertheless it is not one thing I really feel I will need to have in my portfolio.
It is not screaming “BUY.”
1. VIVA Industrial Belief: 9% yield.
2. Saizen REIT.