Hi Idea Hive, thanks for sharing your research on SUTL. We looked at SUTL Enterprise in July 2023 and decided to pass primarily because we worked out that SUTL Enterprise only had 14 years (back then) left for its lease of One Marina 15. The company paid S$32 million in 2006 for the land lease, and it would be profitable to renew at the same rate it got the land for back in 2006. But Singapore has seen some serious inflation in land prices, so by the time the lease-renewal comes up for One Marina 15, it's likely going to be *much higher* than S$32 million. So, we think most of the cash that SUTL Enterprise has on the balance sheet is probably locked up for a long time in anticipation of the lease renewal and has very little chance of being returned to shareholders.
Another more minor worry we picked up was that SUTL Enterprise is only a small part of the the Tay family's overall business empire which is the SUTL Group. We thought it was possible that SUTL Enterprise may not receive full management-attention.
Regarding the Sentosa leasehold, I would expect the company and the government to reach an agreement on a long-term extension at favorable rates for BHU. Sentosa Cove is a leisure- and tourism-focused location (unlike mainland Singapore), and Singapore's pro-business government has outlined plans to make Sentosa a "globally recognized" tourist destination. So, the government appears to be incentivized to retain BHU as the leaseholder, especially given its solid operational track record with the marina and the significant sunk costs.
Now, I agree there is a possibility that the company might need to utilize a large portion of its net cash for the land lease renewal. However, assuming a 2.5x increase in the lease payment (broadly in line with the Singapore residential real estate price index as a very rough proxy), the total lease payment would amount to $80m or less than S$3m per year. In this scenario, One 15 Marina would still remain highly profitable.
As for the Tay family, BHU is indeed just a small part of the larger business consortium owned by the family. However, it is worth noting that the track record of the company's CEO, Arthur Tay, is quite impressive. He successfully pivoted the company to become a leading marina operator since taking over leadership in the early 2000s. Additionally, boating appears to be one of his main passions. So, while he also serves as the CEO of the parent company, these aspects give some confidence that he will remain focused on creating shareholder value at BHU.
on the risks - how has the government behaved in the past with ground leases? do we expect in 2034 a renewal, a take back, etc by the lessor? typically in the final few years of a leasehold interest, the lessee is not incentivized to invest because of the limited time remaining. this reduces residual value - how does that play into your analysis?
As mentioned in another comment, I expect the lease to be extended in 2034, given the government's plans to make Sentosa a "globally recognized" tourist destination and BHU's strong operational track record with the marina. I view BHU's management stating that they are in discussions with the government about the renewal as a positive sign, indicating that the extension is likely to be announced in the near to medium term.
Just checked on Bloomberg and the ticker I'm seeing for SUTL Enterprise Ltd is SUTL (in Singapore) and SUTLF (on US exchanges). I'm not seeing it listed under BHU or BHU-SI on any exchange. Am I missing something?
and what’s the family’s track record with returning capital to shareholders vs reallocating it into non core businesses? seems like the market expects the latter and want to understand the magnitude and likelihood of that risk
As noted in the write-up, while management has a track record of pursuing non-core projects (e.g., a money-losing project in Malaysia that was eventually shut down), in recent years, we have seen material improvements in shareholder returns, including stock buybacks in 2020, a large special dividend in 2021, and an increased regular dividend in 2023.
Hi Idea Hive, thanks for sharing your research on SUTL. We looked at SUTL Enterprise in July 2023 and decided to pass primarily because we worked out that SUTL Enterprise only had 14 years (back then) left for its lease of One Marina 15. The company paid S$32 million in 2006 for the land lease, and it would be profitable to renew at the same rate it got the land for back in 2006. But Singapore has seen some serious inflation in land prices, so by the time the lease-renewal comes up for One Marina 15, it's likely going to be *much higher* than S$32 million. So, we think most of the cash that SUTL Enterprise has on the balance sheet is probably locked up for a long time in anticipation of the lease renewal and has very little chance of being returned to shareholders.
Another more minor worry we picked up was that SUTL Enterprise is only a small part of the the Tay family's overall business empire which is the SUTL Group. We thought it was possible that SUTL Enterprise may not receive full management-attention.
Just our 2 cents - happy to hear your thoughts!
Hi, thanks for the comment.
Regarding the Sentosa leasehold, I would expect the company and the government to reach an agreement on a long-term extension at favorable rates for BHU. Sentosa Cove is a leisure- and tourism-focused location (unlike mainland Singapore), and Singapore's pro-business government has outlined plans to make Sentosa a "globally recognized" tourist destination. So, the government appears to be incentivized to retain BHU as the leaseholder, especially given its solid operational track record with the marina and the significant sunk costs.
Now, I agree there is a possibility that the company might need to utilize a large portion of its net cash for the land lease renewal. However, assuming a 2.5x increase in the lease payment (broadly in line with the Singapore residential real estate price index as a very rough proxy), the total lease payment would amount to $80m or less than S$3m per year. In this scenario, One 15 Marina would still remain highly profitable.
As for the Tay family, BHU is indeed just a small part of the larger business consortium owned by the family. However, it is worth noting that the track record of the company's CEO, Arthur Tay, is quite impressive. He successfully pivoted the company to become a leading marina operator since taking over leadership in the early 2000s. Additionally, boating appears to be one of his main passions. So, while he also serves as the CEO of the parent company, these aspects give some confidence that he will remain focused on creating shareholder value at BHU.
on the risks - how has the government behaved in the past with ground leases? do we expect in 2034 a renewal, a take back, etc by the lessor? typically in the final few years of a leasehold interest, the lessee is not incentivized to invest because of the limited time remaining. this reduces residual value - how does that play into your analysis?
As mentioned in another comment, I expect the lease to be extended in 2034, given the government's plans to make Sentosa a "globally recognized" tourist destination and BHU's strong operational track record with the marina. I view BHU's management stating that they are in discussions with the government about the renewal as a positive sign, indicating that the extension is likely to be announced in the near to medium term.
Just checked on Bloomberg and the ticker I'm seeing for SUTL Enterprise Ltd is SUTL (in Singapore) and SUTLF (on US exchanges). I'm not seeing it listed under BHU or BHU-SI on any exchange. Am I missing something?
The stock is listed under the ticker BHU on the Singapore Stock Exchange - see the link below.
https://investors.sgx.com/securities/all?security=BHU
and what’s the family’s track record with returning capital to shareholders vs reallocating it into non core businesses? seems like the market expects the latter and want to understand the magnitude and likelihood of that risk
As noted in the write-up, while management has a track record of pursuing non-core projects (e.g., a money-losing project in Malaysia that was eventually shut down), in recent years, we have seen material improvements in shareholder returns, including stock buybacks in 2020, a large special dividend in 2021, and an increased regular dividend in 2023.