Invest in property developers? My portfolio.

Oh, no! Another short blog?

Although I like undervalued investments, there is always the possibility of such investments staying undervalued for an extended period of time.

Some readers might have noticed that this is usually the case with property developers.

My preference is, therefore, to invest in property developers that are able and have shown a willingness to reward shareholders with meaningful dividends.

The wait can be a long one and being paid while we wait makes it more affordable for most people.

Although individually my investments in property developers are definitely not big enough to be in my list of largest investments, collectively, they could be.

In late 2019, I shared the list of property developers I was invested in.

They were the following:

1. Guocoland

2. Ho Bee Land

3. Hock Lian Seng

4. OUE

5. Perennial Holdings

6. Tuan Sing

7. Wing Tai

The list has shrunk as I let go of my positions in Tuan Sing, Perennial Holdings and OUE. 

Tuan Sing was sold a few years ago when its share price rose to what I felt was fair value. 

Perennial Holdings was delisted and I made a small gain in the process a few years ago. 

OUE was a very small investment in the list and it wasn't very impactful. 

So, I let go of that investment and used the money to increase my exposure to our local banks instead.

For a while now, I have been left with the following property developers in my portfolio:

1. Guocoland

2. Ho Bee Land

3. Hock Lian Seng

4. Wing Tai

With interest rates much higher today, property developers are unlikely to do much better than before.

However, these four companies are undervalued and they should still be able do well enough to pay meaningful dividends.

I like being paid while I wait.

For example, Wing Tai Holdings which is trading at close to 70% discount to NAV is offering a 4% dividend yield.

It is like Warren Buffett buying socks at a huge discount but it doesn't stop there because the socks, in this case, pay us for wearing them!

Having said this, I am not increasing exposure to property developers although I am more than comfortable to hold on to my existing investments.

Related posts:
1. Perennial Holdings stock spikes!
2. Invested in Tuan Sing Holdings.
3. Hock Lian Seng should be 69c.
Recently published:
Fixed income strategy. My plan.

Quek Leng Chan ups stake in Guocoland. Is AK buying? (How much exposure to property developers does AK have?)

Someone asked me if I would be increasing my investment in Guocoland recently as it is still trading at a big discount to NAV.

In fact, he also asked if I would be increasing my exposure to the property sector since interest rates look like they will stay low for some years to come.

Although I like undervalued investments, there is always the possibility of such investments staying undervalued for an extended period of time.

Some readers might have noticed that this is usually the case with property developers.






My preference is, therefore, to invest in property developers that are able and have shown a willingness to reward shareholders with meaningful dividends.

The wait can be a long one and being paid while we wait makes it more affordable for most people.

Guocoland is a pretty good fit.

Since becoming a shareholder of Guocoland, I have received three rounds of 7c DPS.

Dividend yield is about 3.8%.

That is pretty decent for a property developer.








I became a shareholder of Guocoland in 2017.

That was when I noticed persistent insider buying and decided to do an incomplete analysis.

Then, I decided to invest in Guocoland which was trading at a hefty discount to valuation. 

Well, there is more insider buying now.

Following recent purchases, Mr. Quek Leng Chan's stake in Guocoland increased to almost 72%.

Although paying a price of $2.05 a share is more than 10% higher compared to what we paid back in 2017, the price is still a big discount to the NAV of $3.47 a share.






I am quite happy to hold on to my investment in Guocoland but I won't be adding now.

Reason?

Although individually my investments in property developers are not big enough to be in my list of largest investments, collectively, they are.

So, which property developers am I invested in?

They are:

1. Guocoland
2. Ho Bee Land
3. Hock Lian Seng
4. OUE
5. Perennial Holdings
6. Tuan Sing
7. Wing Tai

(If you want to read my past blogs about these entities, click on their names above as they are hyperlinked.)






Based on market value, together, they probably account for a sizable chunk of my investment portfolio.

For a retiree like me, I feel that is enough exposure to property developers.

For sure, I do not know when value would be unlocked and this unknown makes limiting the total investment exposure to 10% of my portfolio or lower sensible.

What if value is not unlocked in my lifetime?

Hmmm...






Although I am not interested in increasing my exposure to property developers, I have increased my investment in the property sector by putting more money into the following business entities not too long ago:

1. IREIT
2. Centurion
3. Accordia Golf Trust

(If you want to read my past blogs about these entities, click on their names above as they are hyperlinked.)






It should be obvious that the ability to generate a meaningful recurring income stream has always been an important consideration for me.

It has become more so as I grow more settled into my early retirement.

Of course, I am only doing what makes sense to me.

Others have to do what makes sense to them.

Oh, totally unrelated, I watched the following video by CPFB and had a good laugh:





Related post:
Largest investments updated (4Q 2019).

Guocoland declared 7c DPS and is AK selling?

Reader:
Guocoland declared a 7cts dividend. The share price also up a lot since I followed your call in Mar. Are you keeping your investment for dividend or selling? I am sure you know a famos investment blogger sold all his shares in Guocoland already...

AK:
1. AK does not issue BUY, SELL or HOLD calls. AK is just talking to himself here in ASSI.

2. Whether AK is keeping for dividend or selling his investment should have no bearing on your decision to keep or to sell or, indeed, to buy more. Ask yourself why did you invest in Guocoland in the first instance?

3. Similarly, the fact that another blogger has sold his investment in Guocoland should not mean that you should sell too. He probably had a plan. What is yours?





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I believe that Guocoland will have the ability to pay better dividends as its flagship property in Singapore, Tanjong Pagar Centre, matures.

The fact that Guocoland has declared a DPS of 7c which is higher than the year before shows their willingness to reward shareholders better in tandem with a growing ability to do so.

To an investor for income, the ability and the willingness of a business entity to pay meaningful dividends is a key consideration in the decision making process.

Why did I invest in Guocoland at the price which I did earlier in March this year? Please see related post below.

Related post:
Invested in Guocoland.

Invested in Tuan Sing Holdings.

When a reader asked me what I thought about Tuan Sing Holdings as it trades at almost 60% discount to NAV, it got me interested enough to take a closer look because this is something I think I understand.

I approached this in a way that is similar to my approach to investing in Guocoland. 

Substantial shareholders, the Liem family, and also Koh Wee Meng of Fragrance Group together hold a 60% stake in Tuan Sing. 







It is interesting to note that Mr. Koh's purchase price in 2014 was 43c a share and Tuan Sing's NAV per share then was 68c.

Based on its Annual Report for 2016, Tuan Sing's NAV per share grew to 77c and its stock is now trading at a lower price than in 2014. 


On the face of it, therefore, Tuan Sing is worth more today and with a lower share price, it is more undervalued than before.





Why is this so?

Tuan Sing's earnings have been in decline and Mr. Market probably doesn't like that. 

To top it off, Tuan Sing's gearing level is pretty high and interest cover ratio has also weakened from 14x in 2012 to just 2.2x in 2016.

At the current price level, there seems to be plenty of value waiting to be unlocked but it also seems to be thornier an investment.

We must remember that undervalued could stay undervalued for some time. So, it would be good to be paid while we wait. 




Do they pay dividends?

Tuan Sing pays a dividend but it is nothing to shout about. How much? 0.5 cent to 0.6 cent a share. 

Assuming a purchase price of 33c a share, we are looking at a dividend yield of 1.5% to 1.8%. 

Anyone who buys into Tuan Sing for income has to be mental. 





1.5% to 1.8% is lower than the 2.7% dividend yield from Guocoland based on an entry price of $1.83 a share and that was not an ideal investment for income either.

We know that property developers usually have pretty lumpy earnings but I am most interested in the fact that Tuan Sing has a relatively big portfolio of investment properties in Singapore, China and Australia.

Therefore, like Guocoland, Tuan Sing has the potential to become a more attractive investment for income investors if future payouts should increase together with any increase in future cash flow. 




Of course, this is somewhat speculative as it is anyone's guess what the Liems have in mind.

Source: Tuan Sing Holdings Limited.

To continue along this line, Tuan Sing's portfolio of development properties is pretty small at less than 10% of its total portfolio value. This reminds me of OUE Limited which I also have a relatively small investment in.

A big reason probably why Tuan Sing's gearing level is so high, their earnings is much reduced and, consequently, their interest cover ratio is so poor is because quite a big portion of its investment properties are still under development. They have yet to generate any income.




It stands to reason that once Tuan Sing's investment properties are fully completed, once they start generating income, earnings will improve and, significantly, it is worth noting that this will be recurring income which is something investors for income look for.

Of course, Tuan Sing still have development properties to sell but since that business is a relatively small portion of their entire portfolio, if they should sell well, it is the icing on the cake. If they don't sell well, it is not going to be a disaster either. 

Cake without any icing, anyone?




Tuan Sing is another asset play and if the valuation is to be believed, they are a pretty heavily undervalued asset play too. 

Just like my investments in OUE Limited, Wing Tai, PREH and Guocoland, my investment in Tuan Sing is only a nibble because it could be a long wait before value is unlocked.




In the news this year:
Sime Darby Centre purchased
and
Tuan Sing's earnings tumble 64%.
Related posts:
1. Guocoland analysis.
2. PREH analysis.
3. OUE Limited analysis.
4. Wing Tai Holdings analysis.

Invested in Guocoland with Mr. Quek Leng Chan.

I am going to pre-empt a response to this blog and say that although I am known more as an investor for income, I also invest in stocks which are not for the purist income investor.

To my regular readers, this would be quite apparent in many instances. So, by revealing that I bought into Guocoland recently would not surprise them.




Guocoland is a developer with businesses in Singapore, Malaysia, China and Vietnam. They also have some exposure to the U.K. and Australia through a 27% stake in Eco World International, helmed by Mr. Liew Kee Sin who left SP Setia after it was bought out in a hostile takeover in 2014.

Business Times dated 21 Feb 17.

Guocoland recently got my attention because of a series of insider buying by Mr. Quek Leng Chan. Of course, I do not know exactly why he was buying but Peter Lynch said if insiders buy, it is usually because they think they will make money from doing so (i.e. the stock is undervalued).

Doing more research into Guocoland gave me a second and bigger push to become a shareholder. Being a developer, earnings are lumpy. Most assets are development properties meant for sale.


However, Guocoland is going to see an increase in recurring income and a big increase too. 

This is in the form of Tanjong Pagar Centre in Singapore and Damansara City in Kuala Lumpur. 

Guocoland is the majority stakeholder in both projects.




Quite possibly, Guocoland is worth more than what its book value of about $3.00 a share suggests. 

At $1.85, the discount to NAV is about 38% but if my guess is correct and the RNAV is higher, then, the discount is more than 40%.

Do take note that I am no expert in this area and these are just my back of the envelope scribbles. OK, if you must know, I really scribbled on this:

Want to own a piece of prime commercial property in Singapore's CBD? 

What about Tanjong Pagar Centre at a discount?

This gives me a feeling of deja vu because it is similar to Saizen REIT's past situation. 

If the sale of certain assets at a premium in China and Malaysia by Guocoland in the recent past were good instances to go by, all the assets they are holding now could be worth more.





I like recurring income.

I like buying good stuff at a big discount.

If Mr. Quek thinks his company stocks are cheap enough for him to buy more at $1.85 a share earlier this year, then, I want in. 

There has been speculation that Guocoland could be taken private because of the big discount to valuation and the very small float. Mr. Quek's stake is almost 70% of the issued shares.





So, to add a bit of speculative flavor:

GuocoLand rated "buy" at target prices of $2.55. UOB notes that GuocoLand is a potential privatisation play due to its stock trading at a deep discount of 45% to its revalued net asset valuation (RNAV). A low public float of 21% and a high majority-sponsor stake of 68% are also contributing factors.

Of course, I don't know if it is going to happen.

Guocoland, like my investments in OUE, Wing Tai and PREH, is more of an asset play with no guarantee that value will be unlocked soon. 




So, I have sized my investment in a way that will make patience more affordable.

What does this mean?

If we are invested in an undervalued business and we are waiting for its value to be realized, it requires patience but we must be able to afford patience.

In general, we would be able to afford patience if 

1. We are not investing with borrowed funds.

2. We are not investing with funds we need in the near future for other purposes.

3. We are not investing an amount of money that might make us lose sleep at night.

Now that I have gotten that reminder out of the way, did I mention that Guocoland has a rather predictable 5c dividend per share every year too?


I like being paid while I wait.





Finally, another word of caution. I did a lot more research into Guocoland than what I am sharing here. 

Knowing what I know, I decided that I want Guocoland in my portfolio. You should do your own research too.