Mapletree Logistics Trust is selling an ageing warehouse near Singapore’s Changi International Airport to a local furniture retailer for S$22 million ($16.34 million), freeing up cash to invest in fresh assets, according to a bourse filing late Tuesday.

The trust’s manager struck an agreement with Nova Furnishing Holdings to sell the 11,315 square metre (121,794 square foot) warehouse at 3 Changi South Lane in eastern Singapore for a price 39.2 percent higher than the property’s S$15.8 million book value as of 1 October.

Disposing of the three-storey asset is in line with the Temasek Holdings-linked REIT’s “rejuvenation strategy” of pursuing higher-yielding properties, especially since there is only limited potential to convert the 23-year-old warehouse into a modern facility.

“With its outdated warehouse specifications, the property is no longer suitable nor efficient to meet the requirements of today’s logistics users,” the trust’s manager said. “Given its relatively small land area, there is also limited potential for redevelopment into a modern, ramp-up logistics facility.”

Freeing Up Space

The purchase price represents a 58 percent increase over the S$13.9 million that MLT shelled out when it bought the property 16 years ago through a sale-leaseback deal with SGX-listed communications service provider, Kingsmen Creatives.

Located in the south of Changi International LogisPark within a 10-minute drive of the airport, the cargo lift warehouse features an ancillary office space which was 85 percent occupied as of March 2022 and has 36 years left on the leasehold tenure for its site, which expires in 2058.

The deal allows Nova Furnishing, a local manufacturer of household furniture, to add a Changi location to its five existing showrooms spread across Geylang, Ang Mo Kio, Tai Seng district in the central eastern region, Jurong West to the west and Woodlands in the north.

Following the sale, MLT will still have seven Changi South assets in its portfolio, including a pair of logistics facilities located opposite the target property at 6 and 8 Changi South Lane.

The trust’s manager said the capital unlocked from the latest divestment will be used to fund committed investments and pare down debt, while any divestment gains will be distributed to unitholders.

“The capital released will improve MLT’s financial flexibility to pursue investment opportunities with higher yield or higher growth potential to deliver long term sustainable value to unitholders,” it said, adding that it had already obtained JTC Corp’s in-principle approval for the transaction, which is expected to be completed by the first quarter of 2023.

Flight to Quality

While the divestment is not expected to have a material impact on MLT’s asset value and net property income, letting go of the Changi asset will trim the REIT’s portfolio to 185 properties spread out across its home city, Australia, China, Hong Kong, India, Japan, Malaysia, South Korea and Vietnam.

The REIT’s latest disposal comes after warehouse rents in Changi have already risen by 3.4 percent in the 11 months through November, from an average monthly rate of S$2.66 per square foot in 2021 to S$2.75 per square foot by the end of last month, based on data from Cushman & Wakefield.

Xian Yang Wong, research head for Singapore at the property consultancy expects rents in this area to continue rising in 2023, noting that newer buildings with higher specifications will likely outperform older facilities in terms of rental growth.

“Notwithstanding current challenges, the long term prospects of the industrial market remain promising, underpinned by the growth of new economy sectors such as e-commerce, life science and technology,” Wong told Mingtiandi in an email.

“Industrial sites with good site attributes and strong redevelopment potential continue to be highly sought after.”