This is not an online get-rich-quick scam to invest in commercial property

It seems like the commercial property segment in Singapore is heating up.

Last week, GAW capital snapped up PoMo, a nine-storey office and retail development in Selegie Road with remaining leasehold of 64 years, for S$342 mil or S$1,900 psf NLA from Enviro-Hub and BS Capital. Oxley also confirmed its interest in buying Chevron House at a reported price of S$660 mil or S$2,526 psf NLA from Deka Immobilien and Oxley is currently doing due diligence on the property.

Today, it was reported that Nadathur Group, one of the co-founders of Infosys, is buying New Cape Inn, a 76-room freehold hotel in Tiong Bahru, for S$67 mil or S$881,579 per key. The price reflects about 2% gross yield.

Is the commercial property sector entering a new upcycle? How can I gain exposure to the multi-million commercial property sector? This are some questions that you might be thinking right now.

SPK is going to sell you an online get-rich-quick scam?

What if SPK tells you that there is an opportunity to:

  • Invest in a 929-year leasehold mixed-use development in River Valley at below S$1,500 psf?
  • Invest in a leasehold serviced apartment in River Valley at below S$1,200 psf?
  • Invest in a freehold office building in Tanjong Pagar at below S$2,200 psf?
  • Have some of the shrewdest businessmen in the property sector to take care of your investments?

Don’t worry. SPK is not running an online get-rich-quick scam.

If you think that the above opportunities are good enough to get you excited over, then you should look at investing in United Engineers Ltd.

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Diversified exposure to commercial, retail and hospitality segments

United Engineers owns a diversified portfolio of prime commercial properties in Singapore. Most of its assets are either freehold or have long leasehold tenures, and they are strategically located either in prime districts or near transportation hubs or major thoroughfare. The flagship property of the group – UE Square is a familiar name among Singaporeans and you might be surprised to know that this property is valued at just S$1,482 psf NLA! Where can you find a commercial property at such price today?

UE also owns the freehold office building at 79 Anson Road, and the freehold office/industrial building at 450/452 Alexandra Road. It also operates the Park Avenue Rochester, a 351-room hotel and Rochester Mall in the One-North. Other smaller assets include Park Avenue Robertson (a 36-room serviced apartment in River Valley) and UE Bizhub Central at Ang Mo Kio (corporate HQ).

UEL

Valuation of these other assets is also undemanding. Just look at Park Avenue Robertson. It is valued at S$1,198 psf, almost half the price of what nearby new launch – Martin Modern is selling. Even though Park Avenue is an older property, such a big price gap might still be difficult to justify. The valuation of Park Avenue Robertson is probably the transaction price of a resale OCR condominium in today’s market.

Leave your investments in the good hands of Mr Zhong Sheng Jian and Mr Pua Seck Guan

With the recent change in controlling ownership at UE, the company is now being led by a consortium of experienced property developers – Yanlord and Perennial Real Estate. Yanlord is a very successful developer in China led by Mr Zhong Sheng Jian and Perennial Real Estate was established by Mr Pua Seck Guan and backed by Wilmar International.

With a strong team of businessmen behind UE, it will probably give you more confidence that your investments is being well-taken of!

So what do you get when you invest in United Engineers?

These are probably what you will get when you invest in United Engineers:

  • Diversified portfolio of commercial and hospitality assets in Singapore
  • Attractive property valuations that are probably below market transaction prices today
  • A hospitality business under Park Avenue Brand
  • A strong management team to manage your investments

Sounds like a good deal, isn’t it?

But readers should take note that investing in shares can be very different from investing in properties. Share price fluctuates daily and price movement could be a function of the general market sentiments or broad-based market movements that may not have anything to do with the fundamentals of the company, and it may take time for a company to realise its full value. Readers should consider their risk appetite, investment horizon, overall portfolio exposure before making an investment.

Happy investing!   

 

IMPORTANT NOTICE

The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.

Happy reading!

 

 

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The Curious Case of Sing Holdings: A classic case of “Buy the Rumor, Sell the News”?

Sunday evening – Sing Holdings and Wee Hur announced that Parc Botannia sold 230 units on the first weekend of launch

Monday evening – Sing Holdings’ share price surprisingly fell by 4% whilst Wee Hur’s share price rose almost 2%

The Curious Case of Sing Holdings?

Well, probably not. It seems more likely to be a classic case of “Buy the Rumor, Sell the News”. Let’s take a look at Sing Holdings’ share price movement. Prior to the recent run-up in Sing Holding’s share price since July, its share price was hovering around S$0.35 and for the past 4 months, its share price shot up by over 40% to close at S$0.495 last Friday.

 

Sing Holdings
Sing Holdings 1-year share price chart

 

It is likely that investors had already priced in a strong sales performance at Parc Botannia prior to the actual launch. The eventual announcement on Sunday probably brings little surprises to the investors and was probably just to validate the guided sales price given by Sing Holdings and the confirming the strong buying interests at Parc Botannia (which was probably expected). Without many positive surprises to push the share price further up, investors might have taken this opportunity to take profit, in particular for those investors who bought the shares in July at S$0.35 per share.

Then why did Wee Hur’s share price increase?

Let us take a look at Wee Hur’s share price chart below.

Wee Hur
Wee Hur 1-year share price chart

Wee Hur’s share price had remained pretty stagnant at around S$0.24 for most of the year and it was only recently, in October, that Wee Hur’s share price started to trend higher. As at last Friday, Wee Hur’s share price closed at S$0.28, gaining around 17% since the run-up in October. In comparison to Sing Holding’s share price performance, Wee Hur’s shares would not be as overbought as Sing Holdings and it probably means that investors might not have priced in the full impact of Parc Botannia’s launch as optimistically as they had done so on Sing Holdings’ shares. This is probably why Wee Hur’s shares manage to see some gains today.

As a value investor, SPK tends to ignore the short-term noise in the market and focus on the long-term value of a company. From this perspective, SPK still believes in the long-term value of Sing Holdings base on his earlier analysis of the company. There might be a possibility of profit taking to continue for the next few days, but for those believers in Sing Holdings’ value, this might be a good chance to accumulate! But, DYODD please! (DO YOUR OWN DUE DILIGENCE)

Keep Calm and Carry On Investing!

 

Is CapitaLand ready to jump on the enbloc bandwagon?

OLYMPUS DIGITAL CAMERA

Singapore property giant – CapitaLand announced its earnings for the quarter ended 30th September 2017 yesterday. From reading the announcements and presentation by CapitaLand, one question came to SPK’s mind – “Is Capitaland ready to jump on the enbloc bandwagon?”

Let SPK share some of his personal insights and key takeaways from CapitaLand’s results below:

1. CapitaLand is running out of landbank and sales inventory in Singapore

Take a look at the CapitaLand’s Singapore property sales performance this year in the table below:

CL1

Amidst the improvement in market sentiments, CapitaLand has performed credibly in the past few quarters, selling more than a hundred units of its existing property inventory every quarter.

Despite the improvement in sentiments and better sales, CapitaLand has continued to come out with marketing strategies, such as deferred payment scheme, rental rebate scheme and discounts from list price. This was probably because a significant number of units in its inventory are big size units with high price quantum. These units are still difficult to sell under current market conditions. CapitaLand might be using this window of opportunity to clear its inventory of ‘difficult-to-sell’ stocks and avoid further ABSD.

So, what is left for CapitaLand to sell in Singapore?

CL2

As at October 2017, CapitaLand has only a remaining 141 residential units in its Singapore sales inventory. Majority of them could probably be sold out within a quarter or two if we use its past sales performance as a gauge, although some of the units may remain difficult to sell.

In its sales inventory, the majority of the unsold units (38%) are the remnant units in Sky Habitat and CapitaLand has recently introduced a 5% rental rebate, on top of the 15% discount off list price to buyers, which makes the pricing looks attractive at around S$1,400 psf. Hence, it is expected that sales of Sky Habitat will continue to remain strong and this project should sell out rather sooner than later.

You might be wondering what is the big issue even if CapitaLand does not have anything to sell. In an ideal scenario, CapitaLand would probably be better to just sit patiently on its cash hoard, bid for land at realistic prices and wait for one day when the market cools and it can then buy land at a reasonable price and start selling again.
But in reality, considerations are always different. Without new project sales, CapitaLand’s earnings will drop, at a time when other developers are going report strong earnings from new launches. This might result in a drop in Its share price and shareholders may also lose confidence in its management. Hence, replenishing its landbank might seem more urgent than before with its earnings at stake.

2. A Change in the tone of management’s forward-looking outlook guidance

Let us take a look at the written outlook guidance from CapitaLand’s management:
Feb 2017

“CapitaLand expects the impact of property cooling measures to continue to weigh on the residential market. Nonetheless, the Group will continue to selectively source for new sites to stock its residential pipeline.”

Apr 2017

“CapitaLand expects the property cooling measures to continue to weigh on the residential market. Nonetheless, the Group will continue to selectively source for new sites to stock its residential pipeline.”

Aug 2017

“CapitaLand expects the property cooling measures to continue to weigh on the residential market. Nonetheless, the Group will continue to source for well-located sites to build its residential pipeline.”

Nov 2017

“The Group expects residential property market sentiment to improve, underpinned by increased buying volume and a rise in home prices. The Group will continue to adopt a disciplined approach and source for well-located sites to build its residential pipeline.”

 

Yes, after many quarters of concerns on the impact of government’s cooling measures, the dark cloud has finally dispersed and management is now more optimistic on the Singapore residential market!

Time for CapitaLand to act?

During the last enbloc cycle, CapitaLand (under former CEO, Mr Liew Mun Leong) was one of the big players in the market, snatching up 2 big plots of HUDC sites (Farrer Court and Gillman Heights) with its joint venture partners. Will CapitaLand under Mr Lim Ming Yan adopt the same strategy to build up its landbank, and creating wealth for enbloc owners?

Maybe SPK is reading too much into it. But let’s watch this space closely.

 

Investment Idea – Is Wee Hur also a good investment if Parc Botannia sells well?

weehur logo

A reader asked SPK this question – “You have recommended Sing Holdings. But what about Wee Hur Holdings Ltd? Wee Hur is also the developer (partner with Sing Holdings) and main contractor of Parc Botannia.”

 

A very valid question. Let SPK answer this question below:

1. The impact of Parc Botannia’s profit to Wee Hur will not be as significant as it will be to Sing Holdings

Wee Hur is also a SGX-listed company and it is also a partner (together with Sing Holdings) in the development of Parc Botannia. However, Wee Hur holds only a minority stake of 30% in the project. Based on SPK’s estimates in the earlier post, Wee Hur’s share of profit from Parc Botannia would work out to be around S$44 mil to S$52 mil.

But let’s not forget that Wee Hur is also the main contractor for Parc Botannia. Assuming that the construction contract is valued at S$155 mil and Wee Hur makes a profit margin of 13% (base on its past construction margin) from the contract, then Wee Hur would probably make an additional profit of S$20 mil from the construction job. Hence, total profit that Wee Hur could potentially derive from Parc Botannia is estimated to be around S$64 mil to S$72 mil.

Looks decent, isn’t it? But if we compare this potential profit against Wee Hur’s current book value of S$345 mil, this potential profit from Parc Botannia can only lift Wee Hur’s book value by 19%~21%, to S$409 mil~S$417mil.

In contrast, the impact of Sing Holdings’ potential profit (from Parc Botannia) to its book value is more significant. We have mentioned previously that Sing Holdings book value could potentially jump 40% to 47% because of Parc Botannia. This is also due to Sing Holdings’ smaller book value base as compared to Wee Hur.

2. Wee Hur’s core business is in the risky construction business

Wee Hur’s construction arm contributed the bulk of the company’s revenue and profit in the last financial year. SPK is not an expert in construction but based on reports and observations, the construction industry has already become a cut-throat business, with the entry of low-cost China construction companies. In addition, exposure to raw material price fluctuation could add another layer of risk to the construction companies. With their thin margins, there is little buffer or room for error and an increase in costs could result in losses to the construction company.

Recently, news reports also mentioned that the construction sector continued to be hard-hit by sluggish demand and delayed payments, with little relief in sight.

construction

Considering the lack of upside and yet the higher risk involved in Wee Hur’s business, it would seem that Sing Holdings might be a better choice to invest in, isn’t it?

 

IMPORTANT NOTICE

The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.

Happy reading!

Investment Idea – Is Parc Botannia going to be the big windfall for Sing Holdings?

Sing Holdings Limited

Sing Holdings will be launching Parc Botannia this weekend. Is Parc Botannia going to be the big windfall for Sing Holdings?  Would Sing Holdings be a company that is worth investing in?

To answer these questions, SPK shall do some analysis on Sing Holdings for the benefit of the readers here.

 

Sing Holdings will have a significant cash hoard after the divestment of Robin Residences

Robin-Residences-Tanglin-Holland-Bukit-Timah-Singapore

Sing Holdings completed the disposal of its entire 100% equity holding in Sing Holdings (Robin) Pte Ltd on 8th September. Sing Holdings (Robin) Pte Ltd hold 29 strata units in the freehold Robin Residences.

With the completion of the divestment, Sing Holdings will receive cash of S$72.7 million. Adding on to the S$60 mil on Sing Holdings’ balance sheet, this means that the company will have a cash hoard of S$132.7 mil that is equivalent to S$0.33 per share!

 

Parc Botannia will be the potential windfall for Sing Holdings

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In SPK’s earlier post titled “Pac Botannia will be launching next weekend. How can you profit from it?”, it was estimated that Sing Holdings could potentially make a profit of S$100 mil to S$120 mil if it successfully sells out Parc Botannia at S$1,280 psf average. This would bump up its book value by 40% to 47%, from the current S$255 mil to S$355 mil – S$375mil! That would translate to a book value per share of 88.5 cents to 93.5 cents. And by the time Sing Holdings fully sell out and complete Parc Botannia in 3 years’ time, its cash hoard would have ballooned to S$233 mil to S$253 mil, after repaying its project loan for Parc Botannia!

 

What about its debt? It has S$292 million of debt on its balance sheet! A cause for concern?

Yes, on the surface, this might look scary. With a total debt of S$292 mil and a high gearing (debt to asset) ratio of close to 50%, Sing Holdings seems to be a risky investment. Even with the cash hoard of S$132.7 mil, it is still unable to cover its debt and it is still in a net debt position.

Should we be worried? Well, let’s take a closer look at its debt. Out of the S$292 mil, it is estimated (by SPK) that approximately S$215 mil was used to fund the upfront land and development costs for Parc Botannia. This project loan will be fully paid-off by the sales proceeds from Parc Botannia upon completion. As long as Parc Botannia is able to sell well, the repayment of the loan would not be of any concern. Early signs of strong demand for Parc Botannia should give us some comfort on this.

The balance debt of S$77 mil was for the funding of the acquisition of Travelodge Docklands, a freehold 14-storey hotel located in Melbourne, Australia with 291 guestrooms. This is a stable income generating asset and hence, it should generate sufficient cashflow to service the debt and shouldn’t have much issue with refinancing as long as it continues to perform.

 

Looks too good to be true? Is it a riskless investment?

Yes, all investment comes with risks. So what is the key risk in investing in Sing Holdings? From SPK’s perspective, one key risk is the sales performance of Parc Botannia. In the event that the sales is not ideal, Sing Holdings may cut price and hence, the upside to book value will be reduced.

Another risk is the future land acquisition by Sing Holdings. After Parc Botannia, Sing Holdings will run out of land bank and launch inventory. What will it do? It needs to bid for development land at Government Land Sales and collective sales. Given the heated competition for land at this stage, it is important for Sing Holdings not to overbid for land and increase the risks of the company and shareholders. But from past trends, Sing Holdings tend to go into land bids and tenders in partnership with a main contractor, with Sing Holdings hold a majority stake. This shows prudence in risk management by the company.

 

What is the upside potential we are looking at?

Sing Holdings’ last traded price of S$0.50 per share translates to a price to book ratio of 0.78x. On its reappraised book value of $0.885 to S$0.935 per share, Sing Holdings valuation would look even more attractive, at 0.53x to 0.56x price to RNAV. Let us just assume a re-rating of the stock to 0.8x price to RNAV, and this would imply a potential profit of 43% to 50% in capital gain! Looks like a BUY, isn’t it?

 

IMPORTANT NOTICE

The information and opinion contained in this blog posting above is based solely on the personal analysis of Singapore Property Kaki (“SPK”) and is for general information purposes only. SPK assumes no responsibility for errors or omissions in the contents of this blog posting. In no event shall SPK be liable for any special, direct, indirect, consequential, or incidental damages or any damages whatsoever, whether in an action of contract, negligence or other tort, arising out of or in connection with the use of the content in this blog posting. SPK reserves the right to make additions, deletions, or modification to the contents at any time without prior notice.

Happy reading!