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).

FY2017 passive income from non-REITs (Part 4).

If you have not read the 3 earlier parts, read them HERE (PART 1), HERE (PART 2) and HERE (PART 3).

Although most of my investments have an emphasis on income, regular readers know that I also have some money in investments which would hopefully give me a mix of income and growth. 

Such investments, some bigger and some smaller, as a whole, form a smaller proportion of my portfolio compared to my investments for income.

This is consistent with the capital allocation pyramid which I have shared many times before.

Keeping this in mind, I added to my investment in Wilmar at under $3.10 a share as Mr. Market turned pessimistic in 4Q 2017.

Buying at a discount to NAV and at a price 10% lower than what Archer Daniels Midland Co paid to increase their stake more than a year ago seems like a good idea to me.

Wilmar is a growth story and I believe that value is still being created.

More valuable than it was in the past, undervalued now, we could see Wilmar's value being unlocked in 2019 if the plan to list in China succeeds.

See related post at the end of this blog for my simple analysis on Wilmar's value.

Wilmar definitely demands quite a bit of patience from investors and with a dividend yield of about 2%, it isn't anything to shout about but it is nice that I am getting some pocket money while I wait.






In the same vein as my investment thesis for Guocoland earlier in the year, I decided to put some money in Ho Bee Land towards the end of 4Q 2017.

After a run up in its share price, I waited for a retreat to a long term support which is the rising 200 days moving average (200d MA) before nibbling.

From a fundamental perspective, with a NAV per share of $4.55, my purchase was at a 47% discount to NAV which is pretty attractive to me.

Of course, there is no point in buying at a large discount to NAV if the investment just sits in our portfolio and looks pretty.






It is only a worthwhile investment if value is unlocked or if it generates an income for us.

Ho Bee Land's major shareholder owns more than 70% of the company but this, in itself, is no guarantee that value would be unlocked. So, it is important to be paid while I wait. 

Looking at the numbers, I feel that Ho Bee Land would be quite comfortable with a higher DPS but to avoid disappointment, I am going with an assumption of a rather undemanding 5c annual DPS.

Although I am quite comfortable with my entry price, I am not crazy about it and I would probably be accumulating only if Mr. Market decides to give me a better offer.







After all that has been said, I am expecting 2018 to be a year of reduced passive income as a result of having a greater proportion of investments with lower dividend yields in my portfolio.

That story to be told next year.

To conclude this final blog of 2017, FY 2017 distributions received from non-REITs:

S$ 481,902.09










So, it all works out to be approximately S$40,158.00 a month.

Without the huge distribution from Croesus Retail Trust, everything else being equal, off the top of my head, I estimate a big decline of more than 80% in my passive income from non-REITs in 2018.

Here is wishing everyone a happy, healthy and prosperous 2018!





Related post:
Accumulating Wilmar.