I’ve attended all of Boustead’s AGMs since being a shareholder for close to five years now. Without fail, shareholders in the AGM will always question how management will unlock the value of Boustead.
Recently, Boustead announced a proposed demerger (a spin-off) of their real estate solution business to unlock shareholder value through issuance of dividend in specie. Therefore, if the transaction is completed, Boustead will own 51% of the newly listed company called Boustead Projects Limited (BPL) while the rest of the entitled shareholders own the remaining 49%.
I attended Boustead’s EGM regarding the proposed demerger and here are some of the insights during the EGM:
5 Quick Things I Learned from Boustead Singapore’s EGM 2015
- Demerger is part of the succession plan. BPL will have more autonomy to move on its own with less constraints reporting to Boustead’s board. Hence, with this in place, BPL is able to make decisions faster making them more competitive as its marketplace is changing very fast.
- Properties held for sale and investment properties stated in the financial statement are based on historical cost. Boustead does not revalue their properties because they do not want the revaluation to cause their profits to fluctuate with market prices. The historical cost of the property value stated on the balance sheet is approximately S$162.5 million. A 3rd-party independent valuation of the same properties is approximately S$367.8 million. Hence, the book value of Boustead is understated due to their conservative approach in accounting.
- Currently, BPL is facing some industry headwinds. The Singapore property market is not as buoyant as before. BPL is facing stiff competitions for their construction and lease back projects, which may see margins affected in the near future. BPL recently expanded out of Singapore into Iskandar, Malaysia with reasonable penetration success.
- BPL’s investment properties may see positive rental reversion in the future. Most of the properties are built for single tenants specific to their needs. Mr. Wong, CEO of Boustead, feels that BPL has room for rent increases in the near future as rental prices now are below the current market rates.
- Boustead will not spin off its geo-spatial business segment at the moment. Wong feels that the geo-spatial business balance sheet is not mature yet but mentioned that the business may have the chance to spin off in the future if it grows to a size where it can stand on its own.