Mapletree Logistics Trust (MLT SP) - DBS Research 2017-08-15: Building Up Cash Reserves For A Bigger Catch

MAPLETREE LOGISTICS TRUST M44U.SI

Mapletree Logistics Trust (MLT SP) - Building Up Cash Reserves For A Bigger Catch

Sale of two industrial properties in Singapore at premiums to NAVs.
7 Tai Seng Drive sold to Sponsor at 114% above NAV; building could be converted to a higher-specification property.
Sale proceeds to be deployed to other investments; gains from 7 Tai Seng Drive to be paid out to unitholders.

Mapletree Logistics Trust (MLT) recently announced the sale of two industrial properties in Singapore - 7 Tai Seng Drive for S$68m, and 4 Toh Tuck Link for S$14.5m. The exit prices represent 114% and 5% premiums to their respective fair values.

“Best use” could be a high-specification industrial property. The property, 7 Tai Seng Drive, was acquired in 2006 for S$38m and last valued at S$31.8m as at Mar 2017. The consideration for sale by the manager is due to the limited scope for redevelopment into a modern warehouse facility. The purchaser is Mapletree Investments Pte Ltd (Sponsor).
While the premium achieved by MLT is significant when compared to the selling price, we note that the property is located within the prime Paya Lebar iPark which has in recent years transformed into a thriving industrial community with a number of high-specification properties nearby.
We believe that the “best-use” for the property could be an industrial high-specification property (possibly a data-centre?). The sale is subject to JTC approval and expected to complete in 4Q17.

Non-core asset. The asset, 4 Toh Tuck Link, is a four-storey cargo-lift warehouse and was acquired for S$11m back in 2006 and last valued at S$14.0m. The property has a gross floor area (GFA) of 8,641 sqm on a land site of 5,761 sqm and is currently 60% occupied since the expiry of the master lease.
The manager believes that the current plot ratio of 1.5x is close to the maximum plot ratio of 1.6x, thus offers limited scope to increase GFA to build into a modern logistics facility. The purchaser is an unrelated third party, Venus Beauty Pte Ltd, which we believe to be an end-user.

We like the manager’s proactive approach towards reviewing portfolio properties’ relevance in today’s changing needs for manufacturers and 3PLs which may render selected smaller-sized properties to see sub-optimal vacancies given inefficient layouts, and impacting operational efficiencies.
Total sales proceeds of c.S$82m can be redeployed, while the estimated net gains of S$38m on 7 Tai Seng Drive will be paid out to unitholders over time after the completion of the deal. This provides the manager with additional buffer to smoothen out its earnings profile in the midst of volatility in the medium term.
Over the past few months, the manager has sold close to c.S$247m worth of properties (two properties in Japan for S$165m, and S$82m in two properties in Singapore). The proceeds will enable the manager to redeploy capital to other acquisition targets.
No change to our BUY call and TP of S$1.28.

Derek TAN DBS Vickers | Singapore Research Team DBS Vickers | Mervin SONG CFA DBS Vickers | http://www.dbsvickers.com/ 2017-08-15

DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.280 Same 1.280