The bad news is that Justco, the Singapore Exchange’s latest mainboard listing closed 17.5% lower than its IPO price of 94 cents. On the other hand, Futu and Tiger dropped by more than 30% in their pre-market opening. Nonetheless, for Nasdaq, the night is still young and there’s time to make up for the drop.
P/E ratio of 102x too high to stomach
JustCo’s earnings per share (EPS) in FY2025 was 0.71 cents. Retail investors would have looked at the somewhat quaint P/E of more than 100x and baulked. Even after falling 17.5% to 77.5 cents, JustCo’s historic P/E is 102x. On the positive front, operating margins improved significantly in 2025 vs 2024.
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Media who met JustCo’s management came away pointing out that JustCo is debt-free. Indeed it is. But, check out the capital structure. JustCo’s retained earnings are a negative figure which could decimate share capital if prolonged. Very likely, JustCo listed to shore up its shareholders' funds. One of the largest provisions in the balance sheet is the provision for reinstatement costs. The faster the growth, the higher this number is likely to be as evidenced by the growth in 2025 vs 2024.
NYU’s Stern Business School had a paper on WeWork at the time of its ill-fated IPO which didn’t materialise. The main risk was high leverage where WeWork took on debt for its long-term lease commitments. This is absent in JustCo. A timing mismatch existed where the lease payments were for many years into the future, but rental revenues were short-term. This was a further risk for WeWork. This is relevant to JustCo.
Owning a building comes with two advantages over leasing and this will be obvious to S-REIT investors. The Singapore regulators have prescribed a regulatory ceiling of 50% for aggregate leverage. That forces REITs to keep their aggregate leverage well below the ceiling. The regulator also has a prescribed floor for S-REITs’ interest coverage ratios.
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The second advantage of owning property is its valuation. If the property value rises after the landlord has bought it, the equity component builds up and the aggregate leverage falls - something familiar to S-REIT investors. The converse is true as evidenced by the trouble US-based office S-REITs are in.
The NYU paper says “WeWork does not just have a mismatched model, it has scaled up at a rate that has never been seen in the real estate business, going from one property in 2010 to more than 500 locations in 2019, adding more than 100,000 square feet of office space each month.”
Justco’s risks about which it warns investors in its prospectus are similar. The leases for the premises have initial lease tenures of three to ten years with some having a renewal option for an additional three to five years. Its management contracts typically have terms of three to ten years with some having a renewal option of between three to six years. The renewal of leases and management contracts are subject to renegotiation of rental rates, management fees, and other material terms.
According to the prospectus, 15.7% of tenants stay for less than a year, 30.5% for 1 to 3 years, 26.8% for 3 to 5 years, and the remainder for more than 5 years.
An important difference between WeWork and JustCo is that in Singapore, the main tenant (JustCo) is responsible for its own renovations. In the US, the landlord is responsible for renovations and “tenant incentives”.
Furthermore, JustCo is one of a number of WeWork-type entities. These include Regus, The Great Room and WeWork itself.
Based on the SGX announcement, around 60% of the stabilisation fund was utilised on May 22.
