An opinion of Soilbuild REIT.

This came about because of my comment on Facebook that "There are sponsors who are mainly interested to use their REITs to sell their assets to. REITs are their ATMs."

Reader:
Soilbuild owner also use the REIT to sell property right?

AK:
Must see how it is done. 😉
If sponsor sells property with rental support, usually, it is a sign that the property is overpriced.

Reader:
hmmm
Because I haven't heard many favourable talk about soilbuild owner

AK:
Oh, neither have I 😜
But if we are on the same side, it is OK.
LOL
If he hurts me, he hurts himself. 😉

Reader:
Haha I thinking just buy in those with solid management
at good prices
Less headache

AK:
Now, difficult.
So, I settle for good management at OK prices.
Or OK management at good prices. 😜
OK management at OK prices, I also take a bit.

Reader:
Because what I read so far is similar to OUE, soilbuild owner treat the reit as dumping ground to unlock cash

AK:
Eh... I dun see it leh... They do sell but they dun dump. No financial engineering as compared to OUE or Keppel.
Selling does not equal dumping.

Reader:
Sponsor is weak also

AK:
OK. If you say that, OUE and Keppel are strong sponsors. 😉
I like to see what they do and decide.
Saizen REIT didn't have strong sponsor.

Reader:
(Some concerns with valuations of assets.)

AK:
Book value and market value har?
The best way of looking at whether valuations are realistic is to look at market prices.
When a property like XXXXXX was delisted (together with Soilbuild) many years ago, it was undervalued. Of course, when relisted, they want to list at market value.

Reader:
haha I more conservative just worried owner play punk
if own also carry small position only

AK:
I think Soilbuild towkay has business savvy but not crooked.

Reader:
me KIV until better, I also don't like the heavy exposure to O&G

AK:
I remember the towkay has a 25% stake in the REIT. That is not a small stake.

Note:
Although Soilbuild REIT's business parks are attractive assets to own, it is true that their exposure to the O&G sector is a cause for concern. 

With Technics going bust, I estimated that 10% of their income is affected. I believe that Mr. Market has priced this in. 

If the entire O&G sector goes kaput, I guess that is when we might see Soilbuild REIT being punished by Mr. Market and its unit price could decline another 20%, maybe. This is improbable but possible.

Related post:
AA REIT, Soilbuild REIT and VIT.

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.