Mapletree Logistics Trust - DBS Research 2019-09-18: One Small Step In Melbourne, One Giant Leap For MLT


Mapletree Logistics Trust - One Small Step In Melbourne, One Giant Leap For MLT

  • Forward purchase of a property in Melbourne a first for Mapletree Logistics Trust.
  • Minimal impact on numbers; but significant implications on REIT’s strategic intent in Australia.
  • Successful leasing strategy will prompt Mapletree Logistics Trust to look at a broader investment universe within Australia, which imply higher returns over time.

What’s New:

Mapletree Logistics Trust: Expansion of its Australian investment strategy

  • MAPLETREE LOGISTICS TRUST (SGX:M44U) announced that it has entered into a conditional forward purchase agreement with Wooreddy Investments Pty Ltd (Vendor) for the acquisition of a warehouse in Melbourne, Victoria for A$18.4m. See Mapletree Logistics Trust's announcements.
  • The vendor is a large private industrial builder in Australia with more than 60 years of track record and clientele including Australian companies like Woolsworth, Coles and Linfox.
  • The property is a single-storey warehouse at 15 Boterro Place in Truganina, Melbourne and will have an NLA of 15.1k sqm when completed.
  • Designed with Grade A specifications, the property will be built to high-quality specifications and will have differentiating features (ESFR sprinkler system and 2k sqm canopy), which allow users to operate 24/7 under all weather conditions.
  • The property is located within one of the fastest-growing industrial precincts in Australia with strong connectivity.
  • The completion of the underground expressway (West Gate Tunnel), reducing peak travel time from West Melbourne to the port and CBD to c.30 minutes, could be an attraction for 3PLs to look for industrial space in the precinct over time.

Our thoughts:

Taking on calculated leasing risk to enhance returns.

  • The property will be acquired with vacant possession and settlement to take place in 3Q20. Most interestingly, Mapletree Logistics Trust 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.
  • If this plan is successful, it will be an extension of its strategy to add value in Australia, which accounts for c.8% of asset value (as of 2Q19). We believe that over time, and if proven to be successful, Mapletree Logistics Trust may take a more active role in managing its assets in Australia.
  • This would allow Mapletree Logistics Trust to look at a broader investment universe (apart from the current core/core-plus strategies) and over time, look at value-add/development opportunities, thereby improving the returns of the overall portfolio.
  • With a stabilised yield on cost of 6.3%, this represents a decent return for Australia in the current climate where returns for stabilised assets have compressed to < 6%, especially in the key cities of Sydney and Melbourne.
  • Minimal impact on our numbers and we maintain our estimates and BUY call, with Target Price at S$1.85.

Derek TAN DBS Group Research | Rachel TAN DBS Research | https://www.dbsvickers.com/ 2019-09-18
SGX Stock Analyst Report BUY MAINTAIN BUY 1.850 SAME 1.850