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Is The Latest Property Deal Between Mapletree Logistics Trust And Keppel Telecommunications & Transport Ltd Justified?

Earlier today, Mapletree Logistics Trust (SGX: M44U) announced that it will be selling one of its properties to Keppel Telecommunications & Transport Ltd (SGX: K11).

Both parties have explained their own reasoning for wanting to conduct the deal and it’s interesting to see who’s right and who’s wrong. Let’s find out.

The point of view of Mapletree Logistics Trust

According to the announcement by the REIT, it wants to sell its 20 Tampines Street 92 property for a sum of S$20 because management wants to improve its portfolio by getting rid of “low yielding, older assets with limited redevelopment potential.”

Mapletree Logistics Trust’s Manager further explained that the property is a single-user property with outdated specifications. With its small land area, the Manager does not feel that redeveloping the site would make much economic sense.

From Mapletree Logistics Trust’s point of view, it sounds like the property isn’t very attractive and that it is wise for the REIT to sell it. This raises the question, why would Keppel T&T want to buy it then?

The point of view of Keppel T&T

According to Keppel T&T, it is purchasing the property through a subsidiary of Keppel Data Centres Holding Pte Ltd. Keppel Data Centres Holdinng is a 70-30 joint venture between Keppel T&T and Keppel Land Limited. Both Keppel T&T and Keppel Land are in turn under the giant corporate umbrella of Keppel Corporation Limited (SGX: BN4). Keppel Land was in fact, privatized by Keppel Corp just earlier this year.

Keppel T&T’s main reason for buying the Tampines property is to redevelop it into its fourth data centre in Singapore.

20 Tampines Street 92 is physically near Keppel T&T’s current data centres, namely the Keppel Datahub 1 and Datahub 2. As such, the company is planning to redevelop 20 Tampines Street 92 into a Tier III, carrier-neutral specifications data centre with robust security systems and a gross floor area of 183,000 square feet.

Once the project is completed, Keppel T&T will have “one of the largest data centre footprints in Singapore.” This includes the assets of Keppel DC REIT (SGX: AJBU) (Keppel T&T manages and partially owns Keppel DC REIT) and Keppel Data Centres Holding.

Who is right?

It seems that both Mapletree Logistics Trust and Keppel T&T have very legitimate reasons for wanting to buy and sell, respectively, the property in question.

To Mapletree Logistics Trust, which focuses mainly on real estate that serves logistical needs, the property is too small and old to be redeveloped into anything meaningful for the trust. But, the property appears to be a good fit for Keppel T&T’s aims to redevelop it into a new data centre.

This shows that both the buyer and seller in a deal can be right at the same time due to them having different needs and objectives.

But in any case, both Mapletree Logistics Trust and Keppel T&T had left out a very important point in their discussion about the deal. Both did not mention if the S$20 million price tag of 20 Tampines Street 92 is fair. There can be times when your reasoning for an investment is right but the price that you bought or sold at can change the whole situation. It would be interesting to see how the deal eventually unfolds and if it would actually benefit both parties as predicted by their management.

It is worth noting though, that S$20 million is a very small amount of money for both Mapletree Logistics Trust and Keppel T&T. That’s especially so when considering their asset base (total assets for the former and latter are currently at S$4.74 billion and S$1.37 billion respectively). As such, the deal would most likely not have any significant impact on either party.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Keppel Corporation Ltd.