Friday, 18 October 2019

Tuan Sing Holdings: Transisting Towards a Singapore Commercial Developer

Currently Tuan Sing Holdings is a conglomerate operating in three business areas:

1. Hotel Property

The company owns hotel assets in Australia in Hyatt regency Perth ad Grand Hyatt Melbourne. Both are freehold assets. However, performances has been relatively muted with the company barely breaking even. This segment is not a major profit contributor to the group

2. Property Development

Tuan Sing is increasingly becoming active in this region with the recent completion of its Grade A Singapore Office at 18 Robinson Road which is a freehold land. Similarly, the group is now  redeveloping Sime Darby Centre which is a part freehold and part 999 years lease. Furthermore, Tuan Sing recently secured a low 2.80% interest on its bonds, which means its loans will be at a low interest rate.

18 Robinson Road recently started operations in 2019 and has started its leases with tenants and retail shops. Therefore, I am expecting increase in revenue recognised by the company and cashflow from rentals starting from Q4 2019. This will be further improved by the completion of Sime Darby centre in 2020. 

Next, the company is currently developing small niche high end projects such as Kandis Walk, these will be additional cashflow generated in the short run from its residential development projects. 

Tuan Sing's property development arm is likely to be cash flow accretive for a long period of time 

3. Industrial Services

Tuan Sing Holdings owns Stake in SP corporation and Gul Technologies. Profits have been relatively stable but they do not move much beyond the 1 million mark for the group.

Overall, Tuan Sing's business arm of 1) and 3) do not make much to the bottom-line. However, these two segments have been cashflow accretive and been sustaining the company's 0.6 cents dividends.

Expecting More Dividends from Tuan Sing

18 Robinson Road is a Grade A commercial office and retail development in Singapore's city centre. Following the occupancy rate of Grade A spaces, one can reasonably expect 18 Robinson to be 90% leased for both commercial and its retail spaces. The building has approximately 80,000 in square feet of commercial space for lease and about 30,000 square feet of retail.

Ignoring rental yields from its car park space and assuming current commercial rental rate of $11.30 per square foot, retail rental of $5.73 per square feet and 90% occupancy rate, one can expect $11.59 Million in annual revenue for Tuan Sing

From Capitaland Commercial Trust financial results, approximately 70% of revenue flows in as operating cashflow due to cash expenses etc, therefore one can expect 18 Robinson to yield $8.11 Million in annual cashflow

Currently Tuan Sing has 1,186 million shares in circulation, this means 18 Robinson Road is able to add another 0.68 cents in cashflow and in turn, dividends. The company currently has a sustainable dividend policy of 0.6 cents. Hence, it is quite possible for them to maintain a future dividends of 1.2 cents.

I am expecting another round of dividend increase when Sime Darby centre comes online. As both of these properties are freehold status and not 99 year leases like most of other REITs, these cashflow is perpetual in nature and only subjected to property market conditions.

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