Betting your shirt on property

Switching from clothes to property, the Singapore brand remains very viable

FOR those who want to foray into real-estate investment trusts (Reits) but are finding them a tad too expensive, a cheaper alternative would be former shirt maker and retailer Second Chance Properties.

It is not exactly a Reit in the strict sense, as it has other businesses, including apparel, gold, jewellery and securities investment. But, Second Chance’s founder and head honcho Mr Mohamed Salleh has over the last few years built up an extensive portfolio of small properties (60 to be exact) at a cost of some $87 million.

These range from outlets in shopping malls like Lucky Plaza, Far East Plaza, City Plaza and Peninsula Plaza to shophouses in housing board estates like in Geylang, Ang Mo Kio, Serangoon North, Toa Payoh, Jurong and Tampines.

An end-June valuation of all the properties by Jones Lang LaSalle showed they were worth some $118.4 million, an increase of $15.1 million over the previous year. The properties account for most of the group’s total assets of $158.56 million.

In the last financial year, which ended June 30, the company’s property division was the largest contributor to pre-tax profits accounting for $21.12 million of the $26.9 million earned.

The securities division, which contributed $12.81 million in FY2007, saw a sharp decline in pre-tax earnings to just $1.6 million in the wake of the United States sub-prime mortgages crisis.

Pre-tax contribution from its apparel division amounted to $2.69 million($2.06 million previously) while the gold and diamond jewellery section earned $4.03 million ($3.76 million).

What makes Second Chance so attractive is its dividend policy of announcing what it is going to pay, way in advance. For instance, it announced on Aug 27 this year that it will be recommending a tax-exempt dividend of 3.5 cents a share for the financial year ending June 2009 and 3.8 cents a share for FY 2010.

This amounts to yields of over 10 per cent on its current share price of just over 30 cents apiece, well over what you can get from putting money in the bank, or even from most other regular Reits on the market here.

Asked how Second Chance can make such promises,Mr Mohamed, who started out as a men’s tailor in 1974 in Peninsula Plaza, points out that rentals have been locked-in for the next few years for most of the properties.

“While some properties come to the end of their tenancy, others are being renewed. Many of our tenants are also in for the long haul and stay with us,”Mr Mohamed says.

Apart from his own-use outlets for his jewellery and apparel business, tenants include such well-known names as Bossini, Giordano, Hang Ten and 7-Eleven.

But, as in all other investments in equities, an investor in Second Chance runs the risk of a falling share price, which in the worst case, could wipe out almost every cent invested.

On the other hand, one also stands to gain from a run-up in share prices, offering a handsome return on both capital outlay and in dividends.

Second Chance’s foray into property like its name was by chance. Just after it got listed in 1997, the region was hit by the financial crisis which wiped out billions of dollars in the value of shares and properties.

“We had raised $5.4 million from the listing and with the crash of the property market we saw an opportunity to buy on the cheap,” he recalled with glee and pride.

The company was able to raise another $5 million from the sale of his gold business “and with the $10 million or so in capital, we were to leverage that and buy $30 million worth of properties”.

And so, in 1999, Mr Mohamed changed the name of his company from Second Chance Enterprises to Second Chance Properties to better reflect the change in its core business.

Perhaps investors would do well to have a second look at the company.

Source : Today – 18 Sep 2008

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