MapletreeLog Trust's Melbourne property acquisition could have 'significant implications', says DBS

SINGAPORE (Sept 18): DBS Group Research believes Mapletree Logistics Trust’s forward purchase of a logistics property in Melbourne could have “significant implications” on the REIT’s strategic intent in Australia.

The manager of MLT on Tuesday announced it has entered into a conditional forward purchase agreement for a one-storey modern logistics facility to be constructed at 15 Boterro Place in Truganina, Melbourne – one of the fastest-growing industrial precincts in Australia.

The property will be acquired with vacant possession, and MLT will be responsible for leasing the warehouse, which sits on a freehold land spanning some 25,650 sqm, and will have a net lettable area of approximately 15,100 sqm when completed.

See: MapletreeLog Trust enters into agreement to buy Melbourne logistics property for $17.4 mil

While the property purchase price of A$18.4 million ($17.4 million) will have “minimal impact” on MLT, DBS lead analyst Derek Tan opines that the REIT could be taking on a calculated risk to enhance returns – in what could shape up to be a “giant leap” for MLT.

“Most interestingly, MLT has decided to ‘inhouse’ the leasing strategy for this property, unlike its previous acquisitions in Australia which generally came with an anchor tenant, tied to a long WALE,” Tan says in a flash note on Wednesday.

“If this plan is successful, it will be an extension of its strategy to add value in Australia, which accounts for close to 8% of asset value as of 2Q19,” he adds.

If the leasing strategy works, Tan believes MLT may over time take a more active role in managing its assets in Australia.

“Successful leasing strategy will prompt MLT to look at a broader investment universe within Australia, which imply higher returns over time,” Tan says.

He adds that the estimated stabilised yield on cost of 6.3% represents “a decent return for Australia in the current climate”.

DBS is keeping its “buy call on MLT with an unchanged target price of $1.85.

As at 11.34am on Wednesday, units in MLT are trading 2 cents higher, or up 1.3%, at $1.60. This implies an estimated price-to-earnings (PE) ratio of 21 times and a distribution yield of 5.1% for FY20F.