Daiwa House Logistics Trust to Sell Troubled Sendai Warehouse Back to Sponsor for S$85.6M

Singapore-listed Daiwa House Logistics Trust has agreed to sell its mostly vacant Sendai warehouse to sponsor Daiwa House Industry for JPY 13.5 billion (S$85.6 million). The REIT will also acquire a fully leased Hiroshima facility, aiming to boost portfolio occupancy and restore distribution levels.

Singapore-listed Daiwa House Logistics Trust has agreed to sell a mostly vacant Japanese warehouse back to its sponsor for JPY 13.5 billion (S$85.6 million), exiting a troubled asset and freeing up capital to buy a fully leased Hiroshima facility and repay debt. The REIT will divest DPL Sendai Port to Daiwa House Industry and acquire DPL Hiroshima Itsukaichi Port from Fuyo General Lease for JPY 8.2 billion, DHLT’s manager said in a Friday filing. The disposal price is 2.7 per cent above the average independent valuation, while the acquisition is priced 16.7 per cent below valuation.

Occupancy at the Sendai property plunged from 100 per cent at the end of 2024 to 23.9 per cent on 1 October, with the sponsor submitting the only offer following a marketing exercise that included approaches to independent institutional buyers. “We believe that in the current circumstances, the proposed transactions offer an optimal solution to the challenges faced by DPL Sendai Port,” said Jun Yamamura, chief executive of the manager.

Daiwa House Industry’s proposed purchase would return the 63,117 square metre (679,382 square foot) shed to the developer at a price 16.6 per cent above the JPY 11.58 billion paid by DHLT when the property entered its initial portfolio at the REIT’s November 2021 listing. The manager had considered reconfiguring the warehouse to improve its marketability, but said the work would require substantial capital expenditure and prolonged downtime. Additional borrowing and reduced property income during construction would further pressure performance, with no certainty that the investment would significantly improve leasing.

Despite the premium to valuation, the disposal is expected to produce a S$6.3 million ($5 million) deficit against the property’s June-end book value after estimated transaction costs of S$7 million. The related-party sale requires unitholder approval. Part of the proceeds would fund the acquisition of the Hiroshima warehouse, a three-storey facility completed in 2017 with 44,885 square metres of net lettable area. The property sits in the Itsukaichi district of Hiroshima Port, about 10 kilometres (6 miles) from the city centre.

Fully occupied by two third-party logistics companies, the Hiroshima facility has a vehicle ramp serving its second floor. Together, the two transactions would have raised portfolio occupancy from 88.5 per cent to 96.9 per cent on a pro forma basis as of 30 September. Based on pro forma 2025 income, the acquisition carries an implied net property income yield of 5.7 per cent, compared with 4.2 per cent for DHLT’s other Japanese assets. A CBRE report cited in the announcement puts vacancy among Hiroshima’s large multi-tenanted logistics facilities at zero since the fourth quarter of 2023, with new supply constrained by scarce sites and rising construction costs.

The recycling plan follows an 18.8 per cent year-on-year decline in DHLT’s first-half distribution per unit to 1.82 Singapore cents. Net property income fell 13.4 per cent to S$19.5 million as vacancies and yen weakness outweighed additional income from an earlier acquisition, according to the trust’s August earnings release. The combined transactions would have lifted first-half DPU by 11 per cent to 2.02 cents and net property income by 7.9 per cent, according to the manager’s pro forma calculations. On a full-year 2025 basis, DPU would have risen 5.5 per cent to 4.57 cents.

Remaining net disposal proceeds are intended for debt repayment and general corporate and working capital requirements. The transactions would reduce aggregate leverage from 40.1 per cent to 38.3 per cent on a June-end pro forma basis, leaving approximately S$190 million of borrowing headroom against the 50 per cent leverage limit. The balance sheet relief comes as DHLT faces refinancing pressure. In August, Yamamura said JPY 12 billion in borrowings drawn during Japan’s negative interest rate era would mature towards the end of 2026 and were expected to be refinanced at higher rates. The projected distribution gains are historical illustrations rather than forecasts, with subsequent changes including higher refinancing costs excluded from the calculations. Even after the illustrated uplift, first-half DPU of 2.02 cents would remain below the 2.24 cents distributed a year earlier.