Monday 18 January 2021

Divesting ISDN and using the proceeds

 With the run up of ISDN, I have moved it to purchasing stocks in Ho Bee Land and SIIC Environment.

Ho Bee Purchase

The decision to purchase Ho Bee is more of a defensive position as the company has a strong recurring cashflow rental of about $190 million to support its expected annual 10 cents yield. At the price of $2.42, the dividend yield is about 4+% which is decent.

Market analysts are alluding to a possible monetization of REIT by Ho Bee of its Singapore, UK and Australia Office properties. While the unlocking of properties into a REIT will indeed free up a lot of cash, I don't think the upside is a lot. CapitaLand REITs are yielding at 4+% and it is likely Ho Bee, if it lists a REIT, will be pricing it at about 5% yield. This is similar to the current yield of the parent company. Readers will comment on the REIT being able to use leverage to amplify its dividends, but Ho Bee itself is highly geared at a 45% ratio in its current state; hence it has to pass a large amount of its debts to the REIT. This means it is difficult for Ho Bee to use the magic of leverage to juice up its assets value. Hence the upside is limited. 

The upside is Ho Bee becoming a REIT manager.

Assuming a $2.9 billion asset monetization into a REIT, applying a 2% AUM fee as revenue and a potential sale of its Singapore biomedical office property into the REIT in future, we are looking at a REIT manager with decent profits (similar to ARA). Majority of Ho Bee's commercial assets are in Singapore (e.g. Metropolis which forms $2 billion out of $2.9 billion of its significant real estate). In a property craze country like Singapore where the government has done little to curb the property appreciation, the effects of a downwards valuation risk to Ho Bee's assets is minimal. Hence Ho Bee will act as a defensive part of my portfolio earning a 4% yield, while one can wait for the unlocking of value in its Singapore properties. 

SIIC Environment Purchase

Bought this company shares because it offers 5+% as yield. While it is highly geared, it is a utility company in waste water treatment and power generation; companies in this industry such as Sembcorp Industries are highly geared. On the contrary, SIIC is less leveraged than SCI and is offering a higher dividend yield. 

On a apple to apple comparison, SIIC environment offers better value than Sembcorp Industries.

1 comment:

  1. Hi, did you compare Ho bee with guocoland before deciding on Ho bee?