Boustead Singapore

[valuestalker]

http://boustead.listedcompany.com/newsro...967A.1.pdf

Well done to the IR team at Boustead. From the presentation materials at the retail investor day, I certainly have a better understanding on the core divisions within Boustead even though I am not present today.

I noticed that the leasehold portfolio size has shrinked by about 5,500 sqm.
Probably continental alloys has exercised their option to buy?
No announcement though.

[jim_city]

I'm a noob and hope i don't seem too stoopid...but it seems like 23 million for a 20 storey building sounds quite cheap doesn't it? That's almost 1 million a floor.. I am just thinking that the piling and the plumbing and wiring costs might already be a big chunk right?

On the contrary, I think it is a good step for them to expand their skill sets and i'm actually glad that they are looking into new areas... In case, the revenues from the Energy-Related Engineering Division continue to decline, it's probably a good thing that they find new sources of revenue?

[piggo]

As long as it is profitable,its good money...haha

@$449 psf, it looks reasonable

[Musicwhiz]

Boustead share price is doing well today - levels not seen for a long time and this is even after shareholders has received the dividends yesterday...

Not really surprising if you consider that STI is hitting a 52-week high. Probably just an upward valuation adjustment.

[shanrui_91]

By strict definition, it does seemed like Boustead has strayed away from its industrial properties expertise. However, when we talk about industrial properties, we can be talking about logistics, warehouse, business park or factory. Business park is often considered as the next best alternative to office spaces for the corporation and as such business park rental often tracks the office rental. Hence, Boustead is still sticking to its core competence in building what they are good at as they have also built Starhub Green and many other office spaces in the non-CBD area. If they are building residential or hospitality development, that might then be a concern.

Boustead Project prides themselves in being able to execute project fast with most projects being completed in 12-15 months. However, one area which Mr Wong has highlighted is that while BP's expertise is in building, they are at a slight disadvantage to the REITs when it comes to DBL. This is because the REITs can negotiate terms without taking in consideration the taxation factor while Boustead has to take into account taxation when they are bidding for the projects. He gives a rough guidance that the current portfolio is worth around 200-250 million and that he has already set up a team to explore the option though they might still choose not to REIT it at the end. Anything is possible and they might also be willing to team up with other players if it is feasible and attractive.

(vested)

[Nick]

Boustead has built a private hospital in the past - http://www.bousteadprojects.com/announce...warded%20S$18.6m%20Contract%20to%20Design-and-Build%20Singapore%27s%20First%20Private%20Hospital%20Fully-Dedicated%20to%20Cancer%20Treatment.pdf - so I don't think their competency is restricted to solely industrial projects.

Agree with Shanrui on competition with REITs. Taxation is a major advantage for REITs and more of them are jumping into the development bandwagon including small cap REITs like AIMS REIT (redevelopment of Gul Way for CWT) and Cambridge REIT (BTS in Seletar Aerospace Park etc). This will make it increasingly difficult for Boustead to build up a portfolio of industrial assets for rental income. A REIT model is definitely possible - Freightlinks did IPO Sabana REIT by injecting 5 industrial properties with book value of approx $90 mil (market valuation: $192 mil) though it did had to partner Blackwood to form SIP and source for more properties. Personally, I think it is best for Boustead to keep the properties or divest it to listed REITs for hard cash rather than taking the trouble of forming another REIT. But that is just my own personal view haha !

(Not Vested)

[gutman]

Boustead has built a private hospital in the past - http://www.bousteadprojects.com/announce...warded%20S$18.6m%20Contract%20to%20Design-and-Build%20Singapore%27s%20First%20Private%20Hospital%20Fully-Dedicated%20to%20Cancer%20Treatment.pdf - so I don't think their competency is restricted to solely industrial projects.

Agree with Shanrui on competition with REITs. Taxation is a major advantage for REITs and more of them are jumping into the development bandwagon including small cap REITs like AIMS REIT (redevelopment of Gul Way for CWT) and Cambridge REIT (BTS in Seletar Aerospace Park etc). This will make it increasingly difficult for Boustead to build up a portfolio of industrial assets for rental income. A REIT model is definitely possible - Freightlinks did IPO Sabana REIT by injecting 5 industrial properties with book value of approx $90 mil (market valuation: $192 mil) though it did had to partner Blackwood to form SIP and source for more properties. Personally, I think it is best for Boustead to keep the properties or divest it to listed REITs for hard cash rather than taking the trouble of forming another REIT. But that is just my own personal view haha !

(Not Vested)

Agree with Nick on keeping the properties.

Correct me if I am wrong. Boustead makes an annual recurring rental income of 14 to 15 mil from these properties. That's about 6-7% yield, based on the property portfolio of 200 to 250 mil. Unless they are seeking to monetize those assets, otherwise, they can really just sit on those properties with the recurring income.

[wee]

Hi Nick,

Insightful comments. I just would like to add, I agree that it should be well within the competency of BP to build commercial projects. However, they should not be moving down the value chain, or into areas where there are more -- or stronger -- competitors (not saying that they are since I have no info). For e.g., it appears that the Oxley project may not be designed by Boustead (on the basis that there is no mention of "design" in the press release, whereas in their usual industrial project releases, they will almost always mention "design and build".)

On the points of REITs - mostly agree with you. The competition from REITS is not only from the angle of bidding for new DBL projects. Theoretically, the REIT competitors can go to Boustead's existing DBL tenants and propose that the latter exercise their options and sell the property to the REITs, at a price that only make sense to REITs. So it appears to me that either Boustead needs to move fast, i.e. list a REIT and make the offer themselves, or someone else would when the opportunity arises.

Boustead has built a private hospital in the past - http://www.bousteadprojects.com/announce...warded%20S$18.6m%20Contract%20to%20Design-and-Build%20Singapore%27s%20First%20Private%20Hospital%20Fully-Dedicated%20to%20Cancer%20Treatment.pdf - so I don't think their competency is restricted to solely industrial projects.

Agree with Shanrui on competition with REITs. Taxation is a major advantage for REITs and more of them are jumping into the development bandwagon including small cap REITs like AIMS REIT (redevelopment of Gul Way for CWT) and Cambridge REIT (BTS in Seletar Aerospace Park etc). This will make it increasingly difficult for Boustead to build up a portfolio of industrial assets for rental income. A REIT model is definitely possible - Freightlinks did IPO Sabana REIT by injecting 5 industrial properties with book value of approx $90 mil (market valuation: $192 mil) though it did had to partner Blackwood to form SIP and source for more properties. Personally, I think it is best for Boustead to keep the properties or divest it to listed REITs for hard cash rather than taking the trouble of forming another REIT. But that is just my own personal view haha !

(Not Vested)

[shanrui_91]

Agree with Nick on keeping the properties.

Correct me if I am wrong. Boustead makes an annual recurring rental income of 14 to 15 mil from these properties. That's about 6-7% yield, based on the property portfolio of 200 to 250 mil. Unless they are seeking to monetize those assets, otherwise, they can really just sit on those properties with the recurring income.

That should not be the proper way to calculate the yield. Firstly, what's on the balance sheet is at cost and not at the $200-$250 million range. Secondly, yield should be calculated using net property income and not revenue.

Halfway through, Boustead certainly has a lot of options to explore currently. However, I am sure that the purpose of building DBL portfolio has never been about creating a REIT but more of creating a recurring income to balance off the orderbook and project basis of its energy, water and real estate division.

A REIT at this moment in time is certainly the best option given the valuation of REIT and that MAS has not yet clamped down on the REIT manager's business model despite. Boustead will be able to raise equity to acquire portfolio and will then gear up further to expand and grow. The attraction will be more of the base fee, performance fee, acquisition and divestment fee that makes ARA so attractive. Of course, the problem they have right now is that they do not have the adequate size though anything is possible. I believe it will be great if Boustead finds a partner so that there is a strong sponsor that have a pipeline of potential acquisition available. It seemed hard to rely on Boustead DBL business as a stable pipeline of acquisition for the future REIT.

And if Boustead were to divest the DBL portfolio, it certainly means that shareholders are very likely to get some special dividend. However, I am sure the cash hoard will grow even further which is not exactly favourable given that Boustead has been unable to utilize its current cash hoard. As compared to a REIT that can grow in size, Boustead may become slightly less attractive as all is left will be the geospatial providing some form of stability.

In any case, it is certainly not a must for Boustead to reit its portfolio or to divest them. Many companies do have investment properties that generate incomes for them. What's more Boustead have the portfolio at cost rather than purchased at market value.

(vested)

[greengiraffe]

Agree with Nick on keeping the properties.

Correct me if I am wrong. Boustead makes an annual recurring rental income of 14 to 15 mil from these properties. That's about 6-7% yield, based on the property portfolio of 200 to 250 mil. Unless they are seeking to monetize those assets, otherwise, they can really just sit on those properties with the recurring income.

That should not be the proper way to calculate the yield. Firstly, what's on the balance sheet is at cost and not at the $200-$250 million range. Secondly, yield should be calculated using net property income and not revenue.

Halfway through, Boustead certainly has a lot of options to explore currently. However, I am sure that the purpose of building DBL portfolio has never been about creating a REIT but more of creating a recurring income to balance off the orderbook and project basis of its energy, water and real estate division.

A REIT at this moment in time is certainly the best option given the valuation of REIT and that MAS has not yet clamped down on the REIT manager's business model despite. Boustead will be able to raise equity to acquire portfolio and will then gear up further to expand and grow. The attraction will be more of the base fee, performance fee, acquisition and divestment fee that makes ARA so attractive. Of course, the problem they have right now is that they do not have the adequate size though anything is possible. I believe it will be great if Boustead finds a partner so that there is a strong sponsor that have a pipeline of potential acquisition available. It seemed hard to rely on Boustead DBL business as a stable pipeline of acquisition for the future REIT.

And if Boustead were to divest the DBL portfolio, it certainly means that shareholders are very likely to get some special dividend. However, I am sure the cash hoard will grow even further which is not exactly favourable given that Boustead has been unable to utilize its current cash hoard. As compared to a REIT that can grow in size, Boustead may become slightly less attractive as all is left will be the geospatial providing some form of stability.

In any case, it is certainly not a must for Boustead to reit its portfolio or to divest them. Many companies do have investment properties that generate incomes for them. What's more Boustead have the portfolio at cost rather than purchased at market value.

(vested)

Hi Shanrui,

Based on Boustead's indicative lower end of S$200m worth of ind prop portfolio, what is the net debt associated with the entire portfolio and the per share worth based on your understanding?

Thanks in advanced
GG