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).

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.

OUE C-REIT will see DPU declining.

Back in 2014, when OUE C-REIT had its IPO, I warned that its gearing was too high and its distribution yield (which was financially engineered to be higher through income support given by the sponsor) was too low given its IPO price of 80c a unit. 

The IPO was a good deal for OUE Limited.

Cheers!

Investing in REITs, we should be prepared for fund raising because they distribute most of their income to their investors. 

When a REIT raises funds, we have to question their reason for doing so. 

If it is to invest in yield accretive assets, it is a good thing. 

Regular readers of my blog would be familiar with the argument that not all rights issues are bad.

See: 
REITs and rights issues: Dilutive or not?

In this instance, OUE C-REIT is placing out new shares at 64.3c a unit (which is some 20% lower than its IPO price) in order to strengthen its balance sheet. 

So, there will be no additional income from this exercise. 

In fact, DPU will most certainly decline since there will be more units in issue while income stays the same.

The REIT's 4Q 2016 DPU was 1.18c. 

This is a 9.36% reduction from a DPU of 1.26c in 4Q 2015 and this is after contribution from One Raffles Place which was acquired in late 2015 too.

OUE C-REIT has about 1,300,000,000 units in issue. 

Placing out around 233,000,000 units to strengthen its balance sheet will see some savings in interest expense but the REIT's DPU is likely to decline further.

Roughly, we could see interest expense reducing some $5 million per year or $1.25 million per quarter. 

While distributable income will increase by a similar quantum, in percentage terms, we will see about an 8% increase. 

Now, put this against an 18% increase in units in issue and do the math.

Math is not my strongest subject but I think we will see quarterly DPU declining to less than 1.1c which means less than 4.4c for a whole year. 

Just to put this in perspective, at the REIT's IPO, DPU was 5.44c.

Therefore, to get the same distribution yield as what was offered during its IPO, OUE C-REIT's units should trade at a much lower price compared to its IPO price. 

How much lower? 

About 20% lower which means a unit price of 64c.

Of course, we want to remember that without income support for OUE Bayfront, the REIT's DPU would be even lower. 

This income support will expire end of 2018. Coupled with new supply of office space which will worsen the excess supply situation in the CBD, OUE C-REIT is on a slippery slope.

So, demanding an even lower price than 64c a unit before investing in OUE C-REIT is not unreasonable but whether Mr. Market is willing to sell at a lower price is anyone's guess.

For anyone who is interested in reading more of my thoughts on OUE C-REIT and, specifically, why I avoided it, please see the related post below and its comments section.

Related post:
OUE C-REIT (12 Jan 14).

See OUE C-REIT presentation (26 January 2017): HERE.

Every 25bps increase in floating interest rates is expected to reduce distribution by S$0.7 million per annum, or 0.05 cents in DPU

OUE Limited is offering me money for IHC.

Mr Riady explains how he built up his business empire.

International Healthway Corporation Limited (IHC) was spun off from Healthway Medical Corporation (HMC) in 2013. Back then, its IPO price was 48c a share. 

Being a HMC shareholder, I was given free shares of IHC which I have mostly forgotten about until the recent saga in which the entire board of IHC was given the boot. 

Of course, it was revealed then that OUE Limited became a substantial shareholder of IHC.

Today, I received an offer from OUE to buy my shares. Offer price is 10.6c a share.

Two days ago, I blogged about receiving an offer from OUE for my shares in HMC. It seems that OUE sees potential in IHC too. Both IHC and HMC are probably undervalued in their eyes.

I don't have the business savvy, connections nor the foresight of the Riady family. What I do know is that they won't buy heavily into an investment unless they are able to benefit from it.

Both IHC and HMC suffered from having mediocre management which were too adventurous for their own good. 

With my small stakes in both entities, I got tickets to go for the ride with the Riady family. Yes, I won't be accepting this offer either.

Now, from an email I received regarding my blog on HMC recently, I must emphasize that I am rather cavalier about the offers because my stakes are not only small, they are also free of cost. What I am happy doing, of course, might not sit well with others.

I apologise if my blog post on HMC offended some readers and, now, my blog post on IHC too.

If you should feel upset with what you hear, eavesdropping on AK, tell yourself that he is just a mental blogger. Ignore him.

Anger is bad for health. Way too bad.

Related post:
HMC and free money from Lippo.

Healthway Medical and free money from Lippo. (Renamed "OUE Lippo Healthcare Limited".)

Donkey years ago, I invested in Healthway Medical Corporation (HMC). 

I liked the numbers and I thought it was relatively undervalued compared to peers.

Anyway, I got in at 10 cents a share and was mostly divested by the time its share price doubled months later.

Some of my comments from 2009.

Unfortunately, HMC had troubles later on and the last time I looked at it, its PE ratio was 100x or more. 

I still have a very small position in HMC made up of scrip dividends collected over the years. 

Free of cost to me and mostly forgotten, the shares are not worth very much today.

Although HMC's performance has been inconsistent, booking a huge impairment recently, the Lippo Group is making a takeover offer of 4.2c a share. 

They are the same people behind First REIT which is one of my largest investments and, of course, OUE Limited. 

I like to think that the Lippo Group know what they are doing and that they think they could transform the potential they see in HMC. 

Sounds familiar? 

Yes, that is OUE Limited's slogan: 

"Viewing every development as an opportunity to transform its potential."






Like I said, I have a very small stake that is free of cost. 

If HMC has a chance at being transformed and of doing better in future at the hands of the Lippo Group, I want a share, no matter how small it is. 

So, I am not accepting the offer.

2016 full year passive income from non-REITs (Part 1).

During an "Evening with AK and friends", someone asked if I was going to sell my stocks as market guru Hu Li Yang was expecting a stock market crash. I said we should stay invested as the market was still awashed in liquidity and money will go to where it is treated best. See: Evening with AK and friends.



So, what did I do in 2H 2016 in the non-REITs space? I made various purchases but, mostly, I was buying DBS shares. Besides DBS, I also bought some shares of OUE Limited, PREH, Wilmar, OCBC, Breadtalk and Starhub.

(I am impressed by DBS' cost management. Their cost to income ratio keeps declining.)

The narrative for investing in OCBC was similar to the one for DBS. Although all three local banks' stocks looked cheap to me, my preference was for DBS because of the perceived cheaper valuation.


The reason for me putting some money in OCBC's stock was mostly because my long position in DBS grew so big (and I do mean BIG) that it was prudent for me to step on the brakes. 




Using a strategy I employ frequently for stocks which I am highly confident in, my relatively large position in DBS included both a core position for income as well as a trading position.

Why not UOB? 


Well, I think UOB has been a bit laid back. I am not saying that it is a bad thing, mind you, but its growth story seems less exciting.

Of course, some might say that DBS and OCBC have been more "adventurous" but I like to think that they are more enterprising.

I feel that growing their wealth management business more aggressively will continue to set them apart from UOB as that business contributes more and more to their earnings.

Next, Wilmar. I continue to like Wilmar's business strategy and their very impressive scale of operations. It is an amazingly complex business and, to be quite honest, I have no way to analyse most of its operations.

However, when Mr. Kuok thinks their shares are cheap and bought more at $3.00 a share, that was a pretty clear signal to me. At that price, we would also be buying at around its NAV which seems conservative.

Source: RHB.

Having accumulated a rather significant long position in Wilmar in recent years, I am quite happy to wait while being paid to do so.

Now, for OUE Limited. I blogged about my rationale for increasing exposure to OUE Limited when I shared my numbers for 1H 2016 (see related post #1). Back then, I added at $1.51 a share. In 2H 2016, I added more at $1.53 a share.

Twin Peaks.

My decision to increase exposure was mostly driven by the even larger discount to NAV from the time I initiated a long position. 

There is much value in OUE Limited but waiting for value to be unlocked requires a lot of patience. Well, remember, a wise man did say before that the big money is in the waiting.

Along similar line of reasoning, I also added to my investment in PREH at 80c a share a few days ago. This is the lowest price I have ever paid for PREH. The last time I bought any PREH shares was more than a year ago. 

It is interesting to me that Mr. Ron Sim, Mr. Pua S.G. and Mr. Kuok K.H. have been increasing their stakes in PREH on price weakness. 

PREH is an asset play but it is also a growth story. It is not for the faint hearted.

PREH

As for Breadtalk, I have a more recent blog post on my decision to initiate a position. I compared it to Old Chang Kee and QAF Limited, both of which I have been a shareholder of for many years. 

If you are interested to know why I had a change of heart and decided to initiate a smallish long position in Breadtalk, go to the related posts at the end of this blog post (see related post #2).

Starhub. In June last year, when I did a technical analysis for Starhub, I said:

"The widening of the Bollinger Bands indicates increased volatility. The OBV shows selling pressure. The MACD is declining and shows no sign of a positive divergence. These are all on the weekly chart which suggests that continuing weakness in the longer term should not surprise us." Read blog post: here.


We saw Starhub's stock price sinking and I nibbled  again in late November. I feel that Mr. Market is right to be concerned but might be overly pessimistic about Starhub's prospects with the introduction of a 4th telco.

There is plenty of speculation now but, to be realistic, it will take time for the new entrant (which is expected to enter the market in 2018) to gain traction and it remains to be seen how successful it will be.




Back in June 2015, I also said that SPH and Starhub were similar:

"They could see earnings come under pressure for different reasons but that makes them similar too as the challenges are very real.... I would like to have some buffer in terms of dividend yield buying into SPH and Starhub because I am investing in them primarily for income and not growth." Read blog post: here.

I believe I am getting a much thicker cushion buying Starhub at under $2.80 a share and that was what I did.

As for SPH, let me share here a recent conversation with a reader:

I have been a SPH shareholder for many years and I am happy enough to be paid while I wait.
---------------------
As this turned out to be a very long blog post, I chopped it up into two parts. Read Part 2: HERE.
Related posts:

1. 1H 2016 income from non-REITs.

2. Breadtalk, OCK and QAF.

3. Made $1m investing for income.
4. 2016 FY income from S-REITs.

An incomplete analysis of OUE Limited (Updated).

UPDATED (4 Oct 17):

OUE Limited is more of an asset play to me. Just like Guocoland (read blog: here) and Tuan Sing (read blog: here), as an investment for income, it isn't very persuasive for now. 

For now?

For those who work in the CBD, they will know that the redevelopment of OUE Downtown into a mixed-use development has been completed.





Downtown Gallery and Oakwood Premier OUE Singapore started operations in May and June 2017 respectively.

Downtown Gallery has 150,000 sq ft of retail space while Oakwood Premier OUE Singapore has 268 serviced residences comprising studio, one-bedroom and two-bedroom units. 

Logically, we should see income contributions in 3Q 2017. Recurring income stream should strengthen.


The 462 units OUE Twin Peaks is mostly sold.

Latest NAV per share: $4.38.

I like that OUE Limited seems more interested in pursuing recurring income instead of having a heavy reliance on development properties.




----------------
I really enjoyed this email from a reader:

Hi AK,

I'm a long-time fan of your blog (around 5 years, I think!). I especially liked the back-of-the-envelope calculations you used to do when valuing stocks.

I read your post on OUE as an asset play a few years back but only got around to evaluating it myself last week over the long weekend. 

In OUE's latest financial report for 2Q 2015, it's NAV/share is reported to be $4.31. At the current price of $1.60, that's a pretty crazy 63% discount! But it immediately raises the question of whether reported net asset values can be trusted. 

So I decided to try and value the properties... Fortunately, OUE only has a few properties that haven't been divested to their REITs:

1. OUE Downtown - fair value S$1,477m

2. US Bank Tower - fair value US$530m

3. Marina Mandarin (30% stake) - fair value S$560m

4. OUE Twin Peaks - book value S$768.2m

OUE Downtown comprises 2 office towers, OUE Downtown 1 and 2, the first of which is being transformed to a mixed-use development. OUE Downtown 1 is having its low-mid zones converted to serviced suites and its podium converted to a shopping mall, while the upper levels, plus the entire OUE Downtown 2, will remain as office space. 

To value this building, I turned to URA's records of sale transactions for commercial properties over the past quarter (Jun-Sep 2016), looking for office buildings of roughly the same age and located in the same area (districts 1 and 2). I found transactions for office space in 3 buildings that looked relevant:

1.  International Plaza - S$1,626 psf

2. Shenton House - S$1,602 psf

3. People's Park Centre - S$1,296 psf

There were multiple transactions for International Plaza and People's Park Centre over this period, with the psf value increasing for higher floors, but since I wanted to value OUE Downtown conservatively I opted for the lowest psf values. Since OUE Downtown has a net lettable area of 867,000 sq ft, assuming it can be sold for the same S$1,296 psf as office space in People's Park Centre gives us a valuation of S$1.1 billion.

Going further back in time, in Nov 2015 the CPF Building, which is very close to OUE Downtown and which lease expires in the same year, was sold for S$1,697 psf of net lettable area. This gives me some confidence that my valuation is indeed conservative.

Obviously there are still some caveats with this valuation, I can think of at least 3:

1. OUE Downtown 1 is going to have retail and hotel components; these might be valued less than office space is, especially if the mall and the serviced suites are not successful.

2. OUE Downtown has about 50 years remaining on its lease, so depreciation each year henceforth is 2%.

3. There is significant supply of new premium office space coming online in 2017 and 2018 (e.g. Marina One, DUO Tower), which may depress valuations for older buildings like OUE Downtown.

For the US Bank Tower, I used pretty much the same approach. The US Bank Tower is a freehold Class A office building in downtown Los Angeles, so I looked for recent transactions for prime office buildings in the same area. Here I was able to find transactions for 3 entire buildings:

1. One Bunker Hill - US$300 psf, sold in 2015

2. 800 Wilshire Blvd - US$358 psf, sold in 2015

3. The Desmond - US$573 psf, sold in 2016

Again, I took the lowest psf value and multiplied it by the US Bank Tower's 1.44 million sq ft of net lettable area. This gave me a value of about US$430 million. 

Now if OUE did divest this building for this amount that wouldn't be a great deal for them, since they bought the building for about US$370m and spent US$50m renovating it - a total cost of US$420 million. But I believe they should be able to fetch a higher psf for the US Bank Tower, because:

1. It is an iconic building; when built in 1989, it was the tallest building in the whole of California (and is still the second tallest).

2. It is significantly newer than all 3 of the buildings listed above; The Desmond was built in 1916, One Bunker Hill in 1930 and 800 Wilshire Blvd in 1972. The US Bank Tower on the other hand was built in 1989.

Nevertheless there are also at least 2 caveats with 

this valuation:

1. Occupancy is still only 75%. This is an improvement from the 60% occupancy when OUE first purchased the building in 2013, but 25% vacancy is still quite a bit higher than that for Class A office buildings in LA overall, which is 15.6%. All 3 of the LA office buildings above had occupancy above 90% when they were sold. Then again, the 75% figure is for end-June 2016, which is when asset enhancement works had just completed, so it's possible that occupancy has already improved since then.

2. California is a seismically active region and although the US Bank Tower is supposedly designed to resist an earthquake measuring up to 8.3 on the Richter scale, obviously if the building is destroyed it will have no value.

With OUE Downtown and the US Bank Tower out of the way, that leaves us with the Marina Mandarin hotel and OUE Twin Peaks. 





I think these properties are less relevant to my investment thesis though. OUE does not have a controlling stake in Marina Mandarin (its effective interest is only 30%) and so it can't make the decision on whether or not to divest the hotel.

The Twin Peaks condo is more interesting. Popular opinion is that the prospect of paying extension charges if OUE is unable to finish selling all 426 units has been weighing on the share price. When I called an agent to inquire, I was told the following:

- Tower 2 of Twin Peaks is completely sold

- 50% of units in Tower 1 have been sold, 20% are under negotiation (including for the bulk sale of some floors) so only 30% are still available

- The developer has bought a few floors for himself (???) When I asked OUE's IR about this, I was assured that they had bought only a few units, but still.

There is an article in yesterday's Straits Times (13/9/2016) which states that half of a batch of 86 units at Tower 1 have been sold since the units were launched in July, so it does seem that sales have picked up. 

If OUE can maintain this sales momentum, I think there is a good chance that they will be able to avoid the extension charges that will kick in Feb 2017 if units are left unsold. That the company has reversed some of its previous impairment losses on Twin Peaks in its latest financial results is also a good sign. 

It's true that even if OUE manages to sell all Twin Peaks units the project may still be loss-making overall, but this also doesn't seem too important to my valuation since I am assuming that all the costs for the land and development costs have already been incurred and accounted for (please let me know if I'm wrong!).

If Twin Peaks and Marina Mandarin are not important to my valuation (as long as extension charges for Twin Peaks are avoided), that means I'm counting on the valuations of OUE Downtown and the US Bank Tower. I established earlier that I think conservative valuations of these properties are S$1.1b and US$430m  respectively. Assuming, again, a conservative exchange rate of 1.3 USD - 1 SGD, that adds up to S$1.1b + S$559m = S$1.66b.

What is OUE's current market cap? Each share trades at about $1.60 and there are close to 903m shares, so the market cap is about S$1.44b. 

In other words, the combined, (what I believe are) conservative valuations for OUE Downtown and the US Bank Tower, already exceeds what Mr. Market thinks the entire company is worth! 

That looks really compelling, especially since I haven't even taken into account the values of its stakes in OUE Commercial REIT and OUE Hospitality Trust, which are significant:

- 35% of OUE Hospitality Trust, which has a market cap of S$1.2b

- 65% of OUE Commercial REIT, which has a market cap of S$900m

-----------------------------

This fits in very nicely with what I said during the last "Evening with AK and friends".

I will add that if we look at OUE Limited as an asset play, we have to be very realistic about the time it might take to see value unlocked. It could be years before we see anything. 

So, we need to size our position conservatively as well unless we have money to burn and we need to be very patient.

Related posts:
1. OUE Limited: A nibble.
2. An incomplete analysis of Wing Tai.
3. OUE Limited: An asset play.

BREXIT and 1H 2016 income from non-REITs.

Were there any major development in the non-REIT space for me in 2Q 2016? 

Selling most of my investment in NeraTel probably qualifies. I sold about 90% of my investment in NeraTel. 

Being a relatively substantial part of my investment portfolio, the sale, as you might have guessed, bumped up the cash level in my portfolio by quite a bit.

A happy problem?

In the short term, with the divestment gains, it is probably a happy problem but if I do not put the money to more productive work, we would have to remove "happy" from the phrase. So, I put some of the money to work.

In the non-REIT space, in 1Q 2016, some readers might remember that I bought DBS, DBS and more DBS. Even now, DBS is trading at a discount to NAV and a relatively low PE ratio of about 8x. Paying out about a third of its earnings as dividends, the yield is almost 4%. 

Thanks to BREXIT, I was able to add to my investment in DBS as its share price declined, breaking a technical support. I would like to collect more on any further weakness.

In 2Q 2016, I also added to my investments in Starhub, VICOM, QAF Limited and Croesus Retail Trust on lower prices offered by Mr. Market.

Investing for income, I am interested in entities which have strong income generating abilities. Of course, they must pay meaningful dividends.


A handful of readers asked me for my thoughts on Croesus Retail Trust's proposal to be internally managed. It is quite interesting since it would be the first investment trust to be internally managed in Singapore if the deal is accepted by its unitholders.

All else remaining equal, internal management is a good thing for Croesus Retail Trust as it would mean that profits which would have gone to the external manager could be distributed to unitholders instead. The probability of conflict of interest between an internal manager and the unitholders will also be lower.

Of course, an external manager of any investment trust is a profitable enterprise, earning regular fees. No external manager in his right mind would give this up for a song. The price to internalise Croesus Retail Trust's manager is set at a princely sum of S$50 million.

For FY2015, the external manager recorded earnings of about S$500,000. Paying S$50 million to internalise the management would mean paying a PE ratio of 100x. Comparatively, ARA which manages a portfolio of REITs like Suntec REIT is trading at a PE ratio of about 15x. Go figure.

Although I like the idea of an internal manager for Croesus Retail Trust, I think paying S$50 million for this would be a price too high.

Post BREXIT, I also added to my investment in OUE Limited which I first blogged about in 2014 as a possible asset play. I basically paid 50c for what was worth $1.00. It was a smallish position as I was wary of the situation with Twin Peaks condominium. See my past analysis: here.

I decided to add to my investment because the situation with Twin Peaks has improved with many more units sold but the stock traded at an even bigger discount to NAV. While waiting for value to be unlocked, I will get some pocket money from the regular dividends OUE Limited declares.

Very much along the same line of thought, I decided to also increase my investment in Wing Tai Holdings. Although they have much more exposure to development properties compared to OUE, they have a stronger balance sheet. Mr. Market could be overly pessimistic. See my past analysis: here.

In 2Q 2016, I received income from:

1. APTT
2. ST Engineering
3. SPH 
4. PREH
5. QAF Limited
6. Wilmar
7. ARA
8. Hock Lian Seng
9. SCI
10. SMM
11. OUE Ltd
12. Hong Leong Finance
13. DBS
14. NeraTel
15. Accordia Golf Trust
16. Croesus Retail Trust
17. Starhub
18. Ascendas H-Trust


I hope I have not missed out anyone.

Total income received from non-REITs in 1H 2016:

S$ 58,545.01

That is about S$ 9,757.00 a month.

I will continue to nibble at stocks and if a correction in the magnitude of 10% or more should happen, I am prepared to buy much more.


Related posts:
1Q 2016 income from non-REITs.