Daiwa House Logistics Trust (DHLT)

FY2025 Performance Analysis: Distribution Compression, Macro Headwinds,
and Strategic Implications for Singapore’s REIT Sector
February 2026 | SGX: DHLU.SI | Sector: Industrial / Logistics REIT

1. Company & Case Overview
   Daiwa House Logistics Trust (DHLT) is a Singapore-listed real estate investment trust (S-REIT) focused on income-producing logistics and industrial properties across Japan and Southeast Asia. Sponsored by Daiwa House Industry Co., Ltd. — one of Japan’s largest housebuilders and logistics real estate developers — DHLT listed on the Singapore Exchange (SGX) in 2021 and has since expanded its portfolio to 19 properties valued at approximately S$835.2 million.
   This case study examines DHLT’s FY2025 full-year results (year ended 31 December 2025), which revealed a 9.6% year-on-year decline in Distribution Per Unit (DPU) to 4.33 cents, even as net property income grew modestly. The divergence between operating performance and distributable income highlights structural tensions common in cross-currency REITs operating in a rising interest rate environment, and carries broader implications for Singapore as a regional REIT hub.

1.1 FY2025 Key Financial Metrics at a Glance

Metric FY2025 FY2024 Change
Distribution Per Unit (DPU) 4.33 cents 4.79 cents -9.6% y-o-y
Net Property Income (NPI) S$44.2 million S$43.9 million +0.7% y-o-y
Distributable Income S$30.4 million S$33.6 million -9.4% y-o-y
Portfolio Valuation S$835.2 million S$836.0 million -0.1% y-o-y
Aggregate Leverage 40.2% ~38.5% +170 bps
Interest Coverage Ratio (ICR) 5.5x 5.5x Stable
Portfolio Occupancy Rate 87.8% ~93% Below full
Weighted Average Lease Expiry 6.6 years ~7.0 years Shortening
Fixed-Rate Borrowings 99.3% ~95% Improved hedge
Unit Price (26 Feb 2026) S$0.555 — -0.89% on day

2. Case Analysis: Dissecting the DPU Decline
   2.1 The NPI-Distribution Divergence
   A critical analytical insight from DHLT’s FY2025 results is that the 9.6% DPU decline was not driven by operational underperformance. Net Property Income — the most direct measure of property-level profitability — actually grew by 0.7% year-on-year to S$44.2 million. This growth was supported by two key contributors: (i) the addition of DPL Gunma Fujioka, a newly acquired Japan logistics property, and (ii) the full-year contribution from D Project Tan Duc 2 in Vietnam, acquired mid-FY2024.
   The compression occurred entirely at the financial structure level. Two factors drove the S$3.2 million reduction in distributable income: first, higher interest costs associated with acquisition financing; and second, a significantly lower realised foreign exchange gain compared to FY2024. This NPI-distribution divergence is a pattern observed across many Asia-Pacific cross-currency REITs operating with leveraged balance sheets during periods of monetary tightening.
   2.2 Interest Rate and Currency Risk Exposure
   DHLT’s primary income-generating assets are denominated in Japanese Yen (JPY), with secondary exposure to Vietnamese Dong (VND). Both currencies have experienced depreciation pressure against the Singapore Dollar in recent years, creating a structural headwind to SGD-reported distributions. In FY2025, the manager cited ‘weaker foreign currencies’ as a partial offset to NPI growth, confirming continued translation losses.
   On the interest rate dimension, DHLT carries S$-equivalent borrowings at a weighted average debt tenor of 2.9 years (post-refinancing), with 99.3% fixed-rate coverage. While this high fixed-rate ratio provides near-term insulation, it also means that as existing facilities mature and are refinanced, they will be rolled over at materially higher rates — particularly in Japan, where the Bank of Japan has shifted from ultra-loose policy and is expected to continue raising rates at a measured pace through 2026.
   2.3 Occupancy and Portfolio Quality
   Portfolio occupancy declined to 87.8% as of 31 December 2025, down from near-full occupancy in prior periods. Notably, 16 of the 19 properties remain at 100% occupancy, indicating that the drag is concentrated in three assets experiencing vacancy. The WALE of 6.6 years remains long by Singapore REIT standards, providing income predictability over the medium term and reducing near-term re-leasing risk.
   2.4 Balance Sheet and Leverage
   Aggregate leverage stands at 40.2%, approaching but not yet breaching the Monetary Authority of Singapore (MAS)-mandated 45% ceiling for REITs with ICR above 2.5x. With an ICR of 5.5x, DHLT retains compliance headroom, but the narrowing gap to the leverage ceiling meaningfully constrains its capacity for further debt-funded acquisitions without dilutive equity issuance. This is a consequential constraint, as inorganic growth has historically been a key driver of REIT DPU accretion.
3. Outlook: Key Variables and Scenarios
   3.1 Bank of Japan Policy Trajectory
   The single most consequential external variable for DHLT’s forward DPU trajectory is the Bank of Japan’s interest rate path. Following decades of unconventional monetary policy, the BOJ raised its policy rate to 0.5% in January 2025 and has indicated further gradual tightening as inflation remains above its 2% target. The manager’s own commentary acknowledges ‘upwards pressure on interest rates’ persisting, though it expects increases at a ‘measured pace’.
   For DHLT, each 25 basis point increase in Japanese refinancing rates represents a meaningful compression of distributable income given the quantum of JPY-denominated borrowings. Analysts estimate that a 50-basis-point increase in weighted average cost of debt could reduce DPU by approximately 0.15–0.20 cents annually, equivalent to a further 3–5% decline from FY2025 levels.
   3.2 Currency Outlook
   The JPY/SGD exchange rate remains a swing factor. A reversal of yen weakness — which some market participants anticipate as BOJ normalisation gains pace — could provide a meaningful tailwind to SGD-translated distributions. Conversely, if the Federal Reserve maintains elevated rates while BOJ tightens only gradually, the interest rate differential may persist, keeping the yen under pressure. DHLT does not disclose the extent of its currency hedging programme, which creates analytical uncertainty.
   3.3 Occupancy Recovery
   The restoration of portfolio occupancy from 87.8% toward the historical 95%+ level represents an organic upside catalyst. Given that 16 of 19 properties are fully occupied, lease-up success at the three affected assets could add approximately S$2–3 million in incremental NPI annually, partially offsetting financial structure headwinds. The timeline for lease-up depends heavily on demand conditions in the specific sub-markets (notably Japan’s inland logistics corridors) and the nature of the vacancies.
   3.4 Scenario Summary

Scenario Key Assumptions Estimated DPU Impact Probability (indicative)
Base Case BOJ +50bps by end-2026; JPY stable; occupancy recovers to ~91% 4.10–4.30 cents ~50%
Bear Case BOJ +100bps; JPY continues to weaken; occupancy stagnates at ~88% 3.70–3.90 cents ~25%
Bull Case BOJ pauses; JPY appreciates 5–8% vs SGD; full occupancy restored 4.50–4.70 cents ~25%

4. Solutions and Strategic Recommendations
   4.1 For DHLT’s Management
   The trust’s management faces a multi-dimensional challenge requiring coordinated responses across capital structure, asset management, and investor communications.
   Active currency hedging programme: DHLT should consider establishing or expanding rolling JPY/SGD forward contracts or cross-currency swaps to reduce earnings volatility from translation risk. While hedging carries a cost premium, it would provide greater DPU visibility and potentially support valuation multiples.
   Selective divestment of underperforming assets: The three properties with vacancies should be evaluated for strategic divestment if lease-up proves protracted. Recycling proceeds into higher-yielding assets or debt reduction would strengthen the distribution base and create leverage headroom.
   Equity-funded acquisition pipeline: Given the 40.2% leverage ratio, future growth should be funded primarily through equity capital raising. While dilutive in the near term, DPU-accretive acquisitions with sufficient yield spread over cost of equity can restore distribution growth.
   Tenant diversification in Vietnam: D Project Tan Duc 2’s ongoing contribution should be safeguarded through proactive lease renewal negotiations and potential expansion to additional Vietnamese logistics nodes, diversifying away from yen-concentration risk.
   Transparent hedging disclosure: Enhanced disclosure of currency hedging ratios and sensitivity analyses would reduce investor uncertainty and support a more accurate market valuation of the trust.

4.2 For Investors
At the current unit price of S$0.555 and FY2025 DPU of 4.33 cents, the implied distribution yield is approximately 7.8%. This must be assessed in the context of distribution risk, currency exposure, and leverage constraints.
Risk-adjusted valuation: The 7.8% yield represents a premium of approximately 300–350 basis points over the Singapore 10-year government bond yield (~4.3–4.5%), broadly consistent with historical spreads for single-country industrial REITs. However, the downside scenario implies yield compression to ~6.7%, which may not adequately compensate for cross-currency and refinancing risks.
Catalyst monitoring: Investors should monitor BOJ policy statements, JPY/SGD spot rates, and DHLT’s quarterly occupancy updates as leading indicators of DPU trajectory before re-rating the trust.
Portfolio context: DHLT may be appropriate as a yield-enhancement component within a diversified S-REIT portfolio, but concentration risk should be managed given its single-sponsor structure and ~80% Japan asset exposure.

5. Impact on Singapore
   5.1 Singapore as a Regional REIT Hub
   Singapore is the premier listing destination for Asia-Pacific REITs, hosting over 40 listed REITs and business trusts with combined assets under management exceeding S$150 billion. DHLT’s FY2025 challenges are not isolated — they reflect broader structural pressures on the approximately 15–18 Japan-focused or Japan-significant S-REITs that collectively form a substantial segment of Singapore’s listed REIT market.
   A persistent decline in DPU across Japan-exposed S-REITs would dampen retail and institutional investor sentiment toward the asset class, potentially raising the cost of equity capital for future REIT listings and follow-on offerings. Singapore’s Economic Development Board (EDB) and MAS have actively promoted the city-state as an REIT listing hub for Asian assets, and sustained distribution compression among Japan-focused trusts could challenge this positioning.
   5.2 Implications for MAS Regulatory Framework
   DHLT’s leverage trajectory — rising from approximately 38.5% to 40.2% within a single fiscal year — illustrates the pace at which acquisition-driven leverage can approach regulatory limits. The MAS revised its leverage framework in 2020 to allow up to 50% aggregate leverage for REITs with ICR of at least 2.5x, a measure designed to provide flexibility during the COVID-19 period. As interest rates have normalised, the MAS may come under pressure to review whether the 45–50% band remains appropriate, or whether tighter constraints would better protect unit-holders against distribution erosion.
   5.3 Impact on Singapore Retail Investors
   S-REITs are widely held by Singapore retail investors, who constitute a significant proportion of the SGX’s retail participation base. REITs are commonly relied upon for retirement income, particularly among investors in the Central Provident Fund (CPF) Investment Scheme. A sector-wide DPU compression cycle — driven by rising global interest rates, yen weakness, and higher refinancing costs — could materially affect household income for retirees and near-retirees with concentrated REIT holdings.
   Financial literacy around cross-currency REIT risks remains uneven among retail participants. The DHLT case underscores the importance of MAS’s investor education initiatives and of SGX’s disclosure requirements ensuring that currency risk, hedging ratios, and sensitivity analyses are communicated clearly in earnings materials.
   5.4 Broader Macroeconomic Linkages
   Singapore’s financial sector contributes approximately 13–15% of GDP, and the SGX REIT market is a key component of its asset management ecosystem. Sustained weakness in S-REIT valuations has second-order effects on fund management fee revenues, property trust administration services, and legal and accounting advisory services — all sectors in which Singapore has developed deep expertise. Preserving the health of the REIT sector is therefore a macroeconomic, not merely financial, priority.

5.5 Summary of Singapore Stakeholder Impacts

Stakeholder Exposure Key Risk Recommended Response
Retail Investors DPU income dependency Distribution compression; FX losses Diversify across REIT sectors; review FX exposure
Institutional Fund Managers AUM & fee revenue Sector de-rating; redemptions Selective repositioning; short-duration hedging
SGX / MAS Market credibility Reduced REIT listing attractiveness Enhance disclosure standards; review leverage rules
Singapore Economy Financial sector GDP Asset management revenue decline Support REIT competitiveness through tax/regulatory policy
Japan-Focused S-REITs (Peers) Valuation benchmarking Contagion from DHLT de-rating Accelerate hedging programmes; improve communications

6. Conclusion
   DHLT’s FY2025 results present a textbook case of operational resilience overshadowed by financial structure vulnerabilities. Net property income grew, occupancy remained high in most assets, and the portfolio retained long lease expiries — yet distributable income fell materially, driven by the compounding effects of higher interest costs, lower realised exchange gains, and the structural peso of cross-currency exposure.
   The path to DPU recovery is navigable but dependent on external variables largely outside management’s control: the pace of BOJ normalisation, JPY/SGD rate movements, and global risk appetite for yield assets. Management’s stated commitment to balanced borrowing tenors, fixed-rate hedging, and measured growth provides a credible framework, but may prove insufficient if the macro environment deteriorates beyond the base case.
   For Singapore, DHLT’s experience is a useful stress test of the S-REIT model under conditions of monetary tightening and currency headwinds — conditions that, while not unprecedented, are more severe than those experienced during most of the post-GFC period. The regulatory, institutional, and retail ecosystem around Singapore’s REIT market will need to evolve to address these risks if the city-state is to sustain its position as Asia’s pre-eminent REIT listing and investment hub.