Daiwa House Logistics Trust IPO- 3 Reasons Why I Am Staying Away From It.

The talk of the town recently is on the IPO of Daiwa House Logistics Trust ("DHLT"). Although I see a number of good reviews on it, personally, I will neither be taking part in its IPO nor buying any units post IPO (unless its price plummet to justify a higher distribution yield of at least 7.5%). I will do a quick background introduction of this new SGX REIT and then state the 3 reasons on why I am staying away from it.  

Some background on this new IPO on SGX this year

DHLT is a Singapore REIT established with the investment strategy of principally investing in a portfolio of income-producing logistics and industrial real estate assets located across Asia. The initial portfolio of DHLT (the “IPO Portfolio”) will comprise 14 high quality modern logistics properties in Japan with an appraised value of approximately JPY 80,570.0 million or S$952.9 million and an aggregate net lettable area (“NLA”) of approximately 423,920 square metres (“sq m”).

Three reasons why I am staying away from DHLT:

There are some points that I do not feel comfortable when it comes to DHLT. 

(1) DHLT is supposedly from a renowned sponsor Daiwa House Industry Co Ltd which is one of the largest construction and real estate development companies in Japan.

It is stated that the sponsor Daiwa House Industry Co Ltd is one of the largest real estate developer in Japan. In addition, it is also listed on the Tokyo Stock Exchange. Unfortunately, I am not familiar at all with Daiwa House. This is different from property groups like Lendlease listed on the Australian Stock Exchange. I will prefer to monitor its financial performance  for some time first before taking up a small stake in it for diversification. 

(2)  Some reviews reported that DHLT is a Japan-focused logistics REIT. This is not true.

DHLT is not a pure Japan-focused REIT. The sponsor intend to recycle its Indonesian, Malaysian and Vietnamese properties via DHLT in the near future. I do have personal doubts on the quality of such overseas assets. It gets very tricky when we deal with such overseas market properties. Not every REIT has the expertise of long standing groups like Mapletree. Will unit-holders end up with the shorter end of the stick?

(3) Will the REIT do well in rental collection in the face of deflation challenges in Japan's economy

The current property bubble and debt crisis in China reminds me of the same for Japan back in 1990s. Japan's "Lost Decade" was a period that lasted from about 1991 to 2001 that saw a significant slowdown in Japan's previously bustling economy. The Japanese's battle with deflation and the liquidity trap is a long drawn one that unfortunately still affects Japan even today. 

Parting thoughts on this IPO
For now, I think I will be staying away from DHLT as alluded to my discomfort over the 3 points listed above. Note that DHLT public tranche subscription will end by 24 November 2021 (Wed) 12pm. The REIT will commence trading on 26 November 2021 (Friday) 2am. Will this IPO flopped upon 1st day of trading or will it rise sharply?