Property development is a cyclical business.
Property projects take between three to five years to complete.
Sometimes, it takes longer if projects are massive.
When times are good, property developers make a lot of money.
When projects are completed in a down cycle, these developers get stuck with unsold properties.
Property developers don’t have the explosive growth like technology companies.
But rather, it’s a series of lumpy revenues and earnings.
Singapore’s developers face limited land bids, periodic property measures and thin profit margins.
You don’t find a consistent revenue growth line.
And that’s normal.
That’s why its shares are always stuck moving up and down.
That’s why property stocks are always bouncing up and down. But never going up in one direction.
It doesn’t mean this is a bad thing.
Let’s look if there are any interesting Singapore developers:
Singapore Blue-Chip Developer #1: CapitaLand (SGX:C31)
CapitaLand will become CapitaLand Investment Management (CLIM) by end of 2021.
CapitaLand will de-list its property development business.
And what’s remaining is a more competitive, property management business.
This will also put CLIM to be Asia’s third largest property management business.
Rather than managing a basket of stocks, CLIM manages a basket of physical properties.
It will manage six listed Singapore REITs, and more than 20 unlisted property funds.
This is a powerful business model.
Because it makes CLIM “asset-light”.
A traditional property developer has to worry about project cycles and lumpy earnings.
For CLIM, all it needs is to find as many properties to manage.
And charges a fee for it.
After CapitaLand’s reorganization, CLIM will manage S$78 billion of funds under its management (FUM). And plans to grow to S$100 billion by 2024.
CLIM will also manage another S$27 billion of lodging-related properties. And plans to grow this by another 30% over the next three.
That will have CLIM managing over S$135 billion of properties under its management in three to four years time.
If you ask me, I’d say it’s a realistic goal.
There are already S$10 billion of properties ready to be managed by CLIM over the next few years.
This is on top of CapitaLand’s development projects worth S$7.6 billion.
It’s not the massive growth I like to see, but CLIM’s revenues and earnings will be much more stable than a property developer’s.
CLIM’s total management fees right now is S$786 million.
And I expect this to continue growing steadily.
Singapore Blue-Chip Developer #2: UOL Group Limited (SGX:U14)
UOL is a major Singapore property developer.
It’s owned by the Wee Family that runs United Overseas Bank (UOB).
Today, the company’s valuable assets are in property development projects, investment properties and hotel operations.
In its recent half yearly results, UOL Group generated S$1.1 billion of revenues, 31% higher compared to last year. And it produced net profits of S$154 million.
During its latest financial results, most of its profits are coming from property projects.
It was only last year during the COVID pandemic that saw UOL’s revenues and profits affected in its hotel operations.
UOL has a track record of over 50 years in the property business.
It holds a strong property portfolio including its Pan Pacific Hotels Group brand — Pan Pacific, PARKROYAL COLLECTION and PARKROYAL.
It also, through United Industrial Corporation owns many prime offices in Singapore.
Over the past years, UOL produced a steady stream of income from its investment properties and hotels. That gives it a steady flow of income.
If you ask me, UOL is a dividend play more than anything else.
Since 2012, the company has on average paid out S$0.16 per share dividends to shareholders.
UOL’s 2.4% dividend yield is consistent year after year.
Currently, the market values UOL’s businesses at S$6 billion, putting its shares at a discount to its book value.
But that’s also because its hotel operations got hit badly. Hotel profits contribute close to a third of UOL’s earnings.
At this share price, I find there’s little reason why UOL should go down further.
If you think hotels will recover over the next two to three years, UOL might be an interesting play some upside.
Otherwise, I’m seeing this as a safe, low dividend yield stock for a portfolio.
Singapore Blue-Chip Developer #3: City Development (SGX:C09)
City Development, or CDL is another big time Singapore blue-chip developer.
It owns a series of hotels, property projects, investment properties, stocks and bonds.
Its a family-owned business by the Kwek Family.
The company was founded in 1963 and developed projects in Malaysia and Singapore.
In its recent half yearly results, CDL has tangible assets generating revenues of S$1.1 billion.
And it has properties across Singapore, China and Australia.
Most of its revenues are split between development, investment properties and hotel rentals.
These are all high quality property projects located in Singapore. So it’s hard to doubt the accuracy of its property value. Unlike emerging countries.
CDL shares came under fire because of the CDL-Sincere Projects.
CDL was forced to write down more than 90% of its billion dollar investment in a Chongqing-based Chinese developer.
This showed that local developers venturing into overseas market is never easy.
But then again, CDL has total assets worth S$24 billion.
Not that this saga would hurt CDL’s business one bit. Just that the market doesn’t like CDL got caught in a China property fraud.
On average, CDL has historically been trading at a 30% discount to its book value.
This discount is probably because of the fact that CDL is owned largely by the Kwek family.
As minority shareholders, there’s no control over what families can do to their companies. Hence the huge discount.
I’d see CDL as a more stable property play, less downside given its discount to book value.
But you probably won’t see a huge gain on its shares.
My take on Singapore developers
Singapore developers make good investment candidates because their properties are easy to value.
The asset value is easily found in financial statements.
And you know owning a set of high quality properties can bring a lot of stability to your portfolio.
Sometimes, investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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