Sunday, 18 March 2018

Will SIM-Only Plans Cannibalise Regular Telco Plans?

It has been a year since I last wrote about telcos. Looking back at what I wrote, it has been gratifying to see that I was right about M1's revenue/ profits bottoming out sometime in 2H2017 and Starhub facing challenges in its Pay TV and broadband businesses. See Challenging Times Ahead for Starhub's Dividends for more info.

Even so, there have been hits and misses in my analysis. One of the misses is the Impact of SIM-Only Plans on Telcos. There, I wrote that "for each subscriber who chooses to switch (from regular telco plans), SIM-only plans will result in a significant drop in revenue. The impact to profit is also negative but smaller than the decline in revenue. However, the no. of subscribers who choose to switch to SIM-only plans is likely to be small."

A year later, I have a better understanding of SIM-only plans. My analysis that SIM-only plans will result in a drop in revenue and profitability is still correct, as shown by the decline in Average Revenue Per User (ARPU) since 3Q2015, when M1 launched the first SIM-only plan. Given that existing subscribers who wish to downgrade from the regular telco plans to SIM-only plans have to wait until their contracts expire, and the typical contract period is 2 years, the effects of SIM-only plans will only disappear 2-3 years later, which is around now. As shown in Fig. 1 below, the year-on-year (YOY) decline in ARPU for M1 has moderated starting from 3Q2017.

Fig. 1: Changes in M1's Revenue & ARPU
The part that I got wrong is the popularity of SIM-only plans. It appears that SIM-only plans are quite popular, as shown by the rise in the no. of M1's post-paid customers, which has been growing by at least 3% YOY since 3Q2015 (note: the no. of post-paid customers reported by M1 also includes those of Circles.Life, the Mobile Virtual Network Operator that leases network capacity from M1. Thus, part of the rise in customer numbers is due to Circles.Life).

Fig. 2: Changes in M1's Post-Paid Customers

Thus, when you put the 2 parts together -- (1) SIM-only plans will result in a significant drop in revenue and more moderate drop in profits for each subscriber who chooses to switch from regular telco plans, and (2) SIM-only plans are quite popular, the inevitable outcome is that M1 will see declining revenue and profitability for 2-3 years from 3Q2015 till now. This is evident from the YOY decline in revenue from 3Q2015 to 2Q2017 as shown in Fig. 1 above. In other words, SIM-only plans will cannibalise the regular telco plans that are more profitable. 

Yet, although SIM-only plans will cannibalise the regular telco plans, they also create demand of their own. Given the low-cost nature of SIM-only plans, it will attract new customers who are not on the regular telco plans. In past earnings conference calls, M1 had mentioned that SIM-only plans are value accretive at the EBITDA level, because they attract new customers and eliminate the need for mobile phone subsidies. They also mentioned that approximately 30% of new customers are on the SIM-only plans.

Perhaps the best way of thinking about regular telco plans and SIM-only plans is to borrow an analogy from the airline industry: full-service airlines and budget airlines. Regular telco plans are like full-service airlines; you get a mobile phone, telco services (voice, SMS & data) and maybe a few Value-Added Services (VAS). Whereas SIM-only plans are like budget airlines; you get only telco services. If you need a mobile phone or some VAS, you need to top-up cash. Although budget airlines do take away customers from full-service airlines, they also create demand of their own. Likewise, SIM-only plans will create demand of their own. 

Nowadays, it is not uncommon to have airlines operating full-service brands and budget-service brands under one roof. Likewise, all 3 local telcos have regular and SIM-only plans. Investing Wolf recently compared the regular and SIM-only plans of the 3 telcos (see link). One of them is actually not very competitive in the SIM-only plans, perhaps worried about the cannibalisation of its regular telco plans! It is as good as not having SIM-only plans. We all know what happens to airlines that insist on flying full-service only.

P.S. I am vested in M1, Netlink Trust and Singtel.

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Sunday, 11 March 2018

How To Select a Housing Loan Package

After selecting our desired condominium, the next step is to choose a housing loan package. There is a variety of loan packages, such as fixed or floating interest rates. For fixed interest rate packages, you could choose whether to fix the interest rates for 1, 2 or 3 years, after which the loan reverts to floating interest rates. For floating interest rate packages, you could select whether to peg the interest rates to the Singapore Interbank Offered Rate (SIBOR), Swap Offer Rate (SOR) or fixed deposit rates. Assuming that you choose a SIBOR or SOR package, you have to further decide whether to peg to the 1-month or 3-month SIBOR/ SOR. Likewise, for fixed deposit rate packages, you can choose between 9-month, 15-month or 36-month fixed deposit rates. The choices can be fairly overwhelming.

Step 1: Fixed or Floating

The first step to decide is whether to go for a fixed or floating interest rate package. Given that US Federal Reserve (Fed) has increased interest rates 5 times since Dec 2015 and plans to increase them another 4 times this year, we decided it is prudent to choose a fixed interest rate package instead of a floating interest rate package.

Step 2: Fix for How Many Years

This is a tricky question. Thankfully, there are some hints. Besides setting the current interest rates, the US Fed governors also provide their projections of future interest rates. By plotting the interest rate projections, we can see how US interest rates are likely to move in the coming years. Fig. 1 below shows the current Fed dot plot, which indicates that the median interest rate projections will rise from 1.375% in 2017 to 2.125% in 2018, 2.6875% in 2019 before finally peaking at 3.0625% in 2020. Having said that, do note that these are just projections by individual US Fed governors. The actual interest rates may differ from the projections depending on how strong the economy is in the coming years.

Fig. 1: US Fed Dot Plot

Given the rise in interest rates over the next 3 years, it makes sense to fix the interest rates for 3 years. However, on the other hand, a 3-year fixed interest rate package is naturally more expensive than a 2-year package, since banks bear the risks of interest rates rising rapidly. Using the bank that we chose as an example, the interest rates for a 2-year and 3-year package are as follows:

2-Year 3-Year
Year 1 1.48% 1.68%
Year 2 1.48% 1.68%
Year 3 15M FD+1.43% 1.68%
Afterwards 15M FD+1.43% 15M FD+1.55%

As shown above, not only is the fixed portion of the interest rates higher, the margin for the floating portion of the interest rates is also higher (note: not all loan packages are as such). For a $650,000 loan over a 25-year tenure, we will end up paying $11,867 more in total interest if we were to select the 3-year loan package. That is equivalent to an extra interest of 1.83% on the $650,000 loan. For the 2-year loan package to be more expensive than the 3-year loan package, the 15-month Fixed Deposit (15M FD) rate, which is currently 0.25%, has to reach close to 2.0%.

We decided on the 2-year loan package. In the event interest rates continue to rise, we can choose to re-finance and fix the interest rates when the lock-in period expires. If conditions permit at that time, we might also choose to pay down some of the loan.

Step 3: Peg to Which Base Interest Rate

As discussed above, we selected a loan package that is pegged to the fixed deposit rates. Fixed deposit rates are actually board rates set by individual banks and are therefore less transparent compared to SIBOR and SOR, which are set collectively by a group of banks. The conventional wisdom is that if banks were to raise their fixed deposit rates to earn more interest on the loans, they would also have to pay more interest on the fixed deposits. Hence, banks are less likely to raise fixed deposit interest rates. However, the reality is that 98% of local banks' deposits have maturity of less than 1 year. Raising the interest rates on fixed deposits of more than 1 year maturity will not hurt them. See Behind Fixed Deposit Home Loan Rates for more info.

On the other hand, although SIBOR and SOR are more transparent, they are more volatile compared to fixed deposit rates. The shorter the SIBOR/ SOR tenure (i.e. 1-month vs 3-month SIBOR/ SOR), the more volatile the rates are. Also, between SIBOR and SOR, SOR is affected by the USD/SGD exchange rate and therefore fluctuates more than SIBOR. See Why Singapore Interest Rates Might Rise Faster than Expected for more info.

Comparing between the transparency of SIBOR/ SOR loan packages and the stability of fixed deposit loan packages, we went for stability as they provide greater visibility on the amount we have to pay every month, which helps us in planning other expenses.


There is a large variety of housing loan packages. It can get overwhelming at times, especially since you have to decide on a loan package quickly after you sign the option to purchase the property. Choosing the right loan package can save you some money and offer greater visibility in later years.

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Sunday, 4 March 2018

How Much is Proximity to a MRT Station Worth?

In my last 2 blog posts, I discussed the price differential of different ages of condominiums, size of units, as well as how long is the leasehold of the condos. See Areas Where We Saved for Our House Purchase and Could We Afford a Freehold Property? for more info. In both posts, I mentioned my preference for proximity to a MRT station, as there are usually more amenities such as shopping centre, market, hawker centre, etc. Staying close to a MRT station also means that we save on a car, which could potentially cost $200K or more in future expenses. However, I also note that the closer a condo is to a MRT station, the more expensive it is. So how much more expensive is it?

Let us compare 2 condos that are still being built. One is within walking distance of a MRT station while the other one is far away from it. Using the same convention as the last 2 blog posts, the one that is near to a MRT station is Condo C (the same Condo C in Areas Where We Saved for Our House Purchase), while the one that is far away is known as Condo D (Condo D is in the same area as Condos E & F in Could We Afford a Freehold Property?) Both are 99-year leaseholds. Both will be completed in 2020. So, the main difference between Condos C and D is the proximity to a MRT station.

The average transaction price of the condo units for the 2 condos from Jan 2017 to Jan 2018, by no. of rooms and floor area respectively, are shown below.

Rooms Condo C Condo D

2 $1,027 $845
2+Study $1,091 -
3 $1,226 $1,138
4 $1,532 $1,385
5 $1,717 -

Area Condo C Condo D

601-700 - $845
701-800 $1,027 -
801-900 $1,091 -
901-1000 $1,226 $1,138
1001-1100 - -
1101-1200 $1,532 $1,385
1201-1300 - -
1301-1400 $1,717 -

Do note the limitations for the data above, which are described in greater details in Areas Where We Saved for Our House Purchase. However, because both are newly launched condos, there are a lot more transactions for them. Hence, their prices are more reflective of the current investor sentiments. On average, Condo C has 12.2 transactions per month while Condo D has 63.9 transactions per month.

From the data above, it is natural that Condo C, which is close to a MRT station, is more expensive than Condo D. For a 2-room unit, Condo C is more expensive than Condo D by $182K, but that is also partly because Condo C has a larger floor area. The average floor area of a 2-room unit in Condo C is 771 sq ft, while that in Condo D is 660 sq ft. The price difference for a 3-room unit and 4-room unit is $88K and $147K respectively.

Using a 3-room unit as an example, would I be willing to pay $88K more for proximity to a MRT station? Definitely! In terms of finance, we save on a car (or 2 cars to last us until we retire). Each car can easily cost $100K, not to mention the running costs. So while we pay $88K more for the convenience of a MRT station, we save at least $200K in future expenses from not having to own a car. The net saving is at least $112K for staying close to a MRT station. In terms of travelling time, assuming we do not own a car, we save at least 15 minutes travelling from the MRT station to Condo D as compared to Condo C. Multiply that by 2 for the journey to-and-fro, and multiply the resultant figure by the no. of journeys per year, it adds up to very significant time savings. In terms of convenience, there are usually a lot more amenities near to a MRT station. If you are hungry, you could go to some nearby coffeeshops which are open 24 hours a day. If you forget to buy something, you could walk to a 7-eleven store to get it. In contrast, if you stay in an area with no MRT station, even getting something can mean a 20-minute bus ride to the nearest town!

In conclusion, while a condo within walking distance of a MRT station is more expensive, the higher price will usually pay off by itself in terms of finance, travelling time and convenience.

Sunday, 25 February 2018

Could We Afford a Freehold Property?

As mentioned in last week's blog post, Areas Where We Saved for Our House Purchase, we were looking for a condominium somewhere in between where our parents stay. The area that we looked at has only 99-year leasehold condos. Since leasehold properties have to be returned to the government after the lease expires, we wondered, out of curiosity, whether we could afford a 999-year leasehold or freehold condo which could retain value much better than a 99-year leasehold condo.

In recent years, there are very few new 999-year leasehold or freehold condos. We went to an area where there are a few older condos, aged around 10 years old, which is the age of the condo that we bought. Our condo is a 99-year leasehold starting from 2002 and completed in 2007. There, we found a condo which is a 956-year leasehold starting from 1928 (leaving it with 867 years more on the leasehold) and another condo which is a freehold. For all purpose and intent, the 956-year leasehold is almost like a 999-year leasehold. Continuing the convention used in last week's blog post, we will call the above-mentioned 3 condos as Condo A (99-year leasehold), Condo E (999-year leasehold) and Condo F (freehold). The average transaction price (not price per square foot) of the condo units between Jan 2017 and Jan 2018, by no. of rooms and floor area respectively, are shown below.

Rooms Condo A Condo E Condo F

99-year 999-year Freehold
2 $953 $1,111 $1,007
2+Study $979 - -
3 $1,182 $1,438 $1,255
4 - $1,830 $1,680
Penthouse - $2,450 $2,320

Area Condo A Condo E Condo F

99-year 999-year Freehold
801-900 $953 - -
901-1000 $979 $1,111 $1,007
1001-1100 - - -
1101-1200 $1,182 - -
1201-1300 - $1,438 $1,255
1301-1400 - - -
1401-1500 - - -
1501-1600 - $1,830 -
1601-1700 - - $1,680

Do note the limitations for the data above, which are described in last week's blog post. On average, Condo A has 3.1 transactions per month, Condo E has 2.8 transactions while Condo F has 0.8 transactions.

Looking at the data above, the 999-year leasehold condo is more expensive than the freehold condo, likely due to the small no. of transactions for the freehold condo. I will assume that the prices for Condo F are anomalies and consider only the 999-year leasehold condo.

Comparing between Condo A and Condo E, the price difference is $158K for a 2-room unit and $256K for a 3-room unit. A 2-room unit in Condo E costs slightly less than a 3-room unit in Condo A and is still within our loan eligibility. However, the area where Condos E and F are located is far away from any amenities. It has no MRT station, shopping centre, market, hawker centre, not even a retail mom-and-pop stall. Even the bus stop along the main road is some distance away. To buy groceries, we would need to take a bus to the nearest town centre and cart them back. It would be difficult to commute to and fro daily. A car is necessary, which would add at least another $200K in future expenses. After considering these additional expenses, the 999-year leasehold or freehold condo is out of our reach.

In the final analysis, even though a 999-year leasehold or freehold condo would provide much better investment value, it is really inconvenient for us. A house should be a place where we seek comfort after a hard day of work, not a place where we have to labour to and fro everyday. For these reasons, we did not consider the 999-year leasehold or freehold condo.

Monday, 19 February 2018

Areas Where We Saved for Our House Purchase

I have never been a fan of property investments, mainly because of the demographic changes that Singapore will face in the next few decades. See A Prediction About Properties 13 Years Ago for more information. Yet because I am planning to get married, I have no choice but to get a property of our own. I could not possibly be telling my girlfriend "let's not get married now, considering property prices are so high. 5 years later would be a better time, and 10 years later would be even better". You can guess what would be the outcome if I said that. So, no choice, we had to look for a property. After considering each other's preferences and aspirations, we decided to look for a condo first, before looking for a HDB flat if no suitable condo came up.

The area we looked at is somewhere in between where both our parents are staying. There are a couple of condos in the area, some are more than 10 years old while others are still being built. To simplify the discussion, we will just discuss 3 condos, let me call them Condo A, which is 10 years old (as at last year when we were house hunting), Condo B, which is 5 years old, and Condo C, which is still being built. The types of units we considered are 2-room, 2+study and 3-room. All 3 condos have these units.

Thankfully, we found a 2-room unit in Condo A that we both liked. It turns out that it is also the lowest-priced condo among all the possible permutations. After we bought the condo, I checked the average price transactions for the past 1 year (Jan 2017 to Jan 2018) for the 3 condos on SRX, a portal for buying, selling and renting properties in Singapore. There is quite a large price differential between the different condos and unit types.

However, before I discuss the price differentials, there are a few things to take note. Firstly, the floor area is not the same for different condos even though they may have the same no. of rooms in the units. Based on the 3 condos being discussed, the newer condo tends to have smaller floor areas. To make the comparison more meaningfully across condos, I compare using floor area of the unit instead of how many rooms the unit has. Secondly, while the floor area of an unit is well-defined based on the information from SRX, the no. of rooms is not so certain. There is some guesswork whether the unit is a 2-room unit or 2+study unit based on the floor area. Thirdly, as Condo C is still being built and sold, there are a lot more transactions than the other 2 condos. Its prices will be more reflective of the rising investor sentiments compared to the other 2 condos. On average, Condo A has 3.1 transactions per month, Condo B has 1.6 transactions, while Condo C has 12.2 transactions.

Below is a summary of the average transaction price (not price per square foot) of the condo units, by no. of rooms and floor area respectively.

Rooms Condo A Condo B Condo C
2 $953 $1,000 $1,027
2+Study $979 $1,039 $1,091
3 $1,182 $1,277 $1,226
4 - $1,546 $1,532
5 - - $1,717

Area Condo A Condo B Condo C
701-800 - - $1,027
801-900 $953 $1,000 $1,091
901-1000 $979 - $1,226
1001-1100 - $1,039 -
1101-1200 $1,182 - $1,532
1201-1300 - $1,277 -
1301-1400 - - $1,717
1401-1500 - $1,546 -

Size Differential

As mentioned, all 3 condos have 2-room, 2+study and 3-room units. In condo A, compared to a 2-room unit, a 2+study unit is $26K more expensive on average while a 3-room unit is $229K more expensive.

Across condos, the price differential generally tends to be larger for new condos, at least for the 3 condos discussed. 

Age Differential

For a unit with a floor area of 801-900 square foot (equivalent to a 2-room unit in Condos A and B, but a 2+study unit in Condo C), compared to Condo A (10 years old), Condo B (5 years old) is $47K more expensive and Condo C (still being built) is $138K more expensive.

Similarly, the larger the floor area, the larger is the price differential across condos. For a unit with floor area of 1101-1200 square foot (equivalent to a 3-room unit in Condo A and 4-room unit in Condo C), the price difference is $350K.

Other Differentials

The above 2 factors are only 2 out of many factors that can affect the prices of the units. Some of these include whether the unit is facing a beautiful water body like river/ lake/ reservoir, height of the unit, etc.


Within the limits of affordability and loan eligibility, we did not use price as the yardstick. But by choosing an older condo, we saved $47K to $138K for an equivalent unit of 801-900 square foot and by choosing a smaller unit within the same condo, we saved $26K to $229K. In total, we saved anywhere from $26K to $324K, depending on which unit is being compared against.

There is probably another area that we save money on, but it could have been reflected in the higher prices of the condos. I prefer that the condo we buy must be within walking distance of a MRT station. This way, we save on not having to own a car. A car could easily cost $100K, not to mention the running costs. Since a car can only last for 10 years, we will probably need 2 cars to last us until we retire, so that translates to another $200K in future savings at the minimum.


I still believe that properties are not good investments over the long run. But sometimes, you just cannot choose the timing of your purchase. And thankfully, we found a condo that we like and can afford with a loan.

Last but not least, wishing all readers a Happy and Prosperous Chinese New Year!

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Sunday, 11 February 2018

Are There Stocks That Can Withstand A Crash Better?

Stocks tanked this week. When I was mulling over whether I should move 22% of my money into 1 stock, Global Logistic Properties (GLP), in Nov 2015, I wondered what would happen if the stock market were to crash. Are there stocks that could better survive a market crash of the same magnitude as the 1997 Asian Financial Crisis or the 2007 Global Financial Crisis? In the end, I reasoned that there are 2 categories of stocks that could withstand a crash better than others: undervalued (or at least not overvalued) growth stocks and dividend stocks.

Growth stocks are stocks of companies that are growing over the long term. If a company could grow over a long period of time, it is a matter of time before the company doubles or triples its earnings and/or book value. Hence, even if a severe market crash were to happen and wipe off 50% of the stock price, the stock price at the bottom of the crash would not be too far off the price that you bought, since the earnings or book value would have doubled. As an example, GLP managed to grow its book value from USD1.33 in 2011 to USD1.78 in 2016, representing an annual growth rate of 6.0%. At this growth rate, it will double its book value in 11.9 years. If a crash were to happen 11.9 years later and cut the prevailing Price-to-Book (P/B) ratio by 50%, I still would not have lost money. Thus, it was with this thinking that I decided to take the risk of moving 22% of my money into GLP. 

Having said the above, there are a few important things to note. Firstly, the company must be growing over the long term. It is no use if the growth is limited to a few years only. The company would not be able to grow its way out of a severe stock market crash. Secondly, the holding period must be long enough. As the example above shows, it will take 11.9 years for GLP to double its book value, assuming it can maintain the growth rate at 6.0%. If the stock were to crash the day after I bought it, I would be losing a lot of money. Thirdly, the growth stock must not be overvalued in the first place. Using P/B valuation as a example, if the average historical P/B ratio is 2.0 but the stock is purchased at 3 times book value and the stock falls to half of the average historical P/B ratio (i.e. 1 times book value), it will take more than 11.9 years to grow its way out of the crash.

There are other psychological benefits of investing in a growth company in a market crash. Even though the stock price might be declining, if you know that the management is doing a good job growing the company, you will feel assured and not sell the stock in a panic during the crash. This is very important in countering the fear that most investors feel when the market crashes.

Having undervalued growth stocks is relying on the company management to get out of trouble. If you do not have a company with good management, you will need to rely on yourself. This means bargain hunting at the depth of the market crash, which requires additional capital beyond what you have already invested. This additional capital can come from either (1) your salary, (2) war chest, or (3) accumulated dividends. The first 2 methods do not need further explanation. For the third method, you just save the dividends collected from the stock during good times and re-invest them when the market crashes. For example, if the stock pays 4% dividend yield and the stock crashes to half its original price, you will need to collect and re-invest 12.5 years of dividends to maintain the value of your investment in the stock. Obviously, the higher the dividend yield, the less number of years of dividends you need to accumulate.

Similar to the growth stock approach, there are a few important factors to note. Firstly, the dividends should be fairly constant in good times and bad times. There are stocks that have high dividend payout ratios but volatile earnings. The dividends they pay are equally volatile and contribute to the volatility in stock prices. In contrast, a stock with fairly constant dividends behaves like a bond and reduces the volatility of its stock price. The lower the stock price goes, the higher is the dividend yield, which would attract other investors to buy into the stock. See What Can We Learn About Stocks From Bonds for more information. Secondly, the stock should not be overvalued in the first place. The more overvalued it is, the lower its dividend yield is, the more number of years of dividends you need to accumulate.

What about other stocks? Can they withstand a market crash equally well? Undervalued stocks will fall less, since they are already undervalued compared to other stocks. However, for an undervalued stock to rise to its intrinsic value, it will take many years and likely requires a catalyst. For cyclic stocks, in all likelihood, the industry downturn will coincide with the stock market crash and you end up with a double whammy -- low earnings, dividends and limited interest from investors.

Thus, before you invest in a stock, have a plan to decide what you would do with it in case the market crashes. It will save you from panic. Good luck!

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Sunday, 4 February 2018

Potential Replacements for GLP

After it became clear that Global Logistic Properties (GLP) would be privatised, I have been looking for a replacement. The investment thesis for GLP is that it has a REIT manager business model, constantly developing new logistic properties and spinning them off into REITs and private equity funds. The more properties it spins off into REITs and funds, the less it owns them, and the more it resembles Uber, which owns no taxis but is considered the world's largest taxi company. See The GLP Story for more information. Thus, when I look for a replacement for GLP, I am looking at a company with a similar business model.

The easiest leads would be to look at the REITs listed on SGX and identify who are the REIT managers behind them. There are a couple of REIT families, managed by ARA, Ascendas, Capitaland, Frasers Centrepoint (FCL), Keppel Corp, Lippo/OUE and Mapletree. Among the names mentioned above, only Capitaland, FCL, Keppel Corp and OUE are listed on SGX. Keppel Corp is a conglomerate with many businesses, and the key consideration in deciding whether to invest in it is the prospects of its Offshore & Marine business, which is still in a decline. See Is A Recovery for Oil & Gas Shipbuilders Near? for more information. As for OUE, it does not appear to have many properties in the pipeline to inject into the REITs. Thus, only 2 companies from the above-mentioned list are up for consideration as replacements for GLP.

Among the 2 names, FCL is actually the most promising in terms of business model. It has REITs and Business Trusts covering all major property segments -- office, retail, hotel and industrial. Besides rolling out new REITs/ trusts and injecting properties into them, it has also been acquiring new properties with the intention of injecting into the REITs/ trusts subsequently. In addition, it also acquired stakes in like-minded companies that manage REITs. It has a 39.9% stake in Golden Land and 41.0% stake in TICON. Both companies are property developers in Thailand and manage property funds and REITs.

However, the key concern with FCL is its debt levels. As at end Sep 2017, its debt-to-equity ratio is a high 89.1%. That is not counting debts residing in joint ventures and associates, which are reported on a net asset basis instead of separate lines for assets and liabilities. I had been deliberating on FCL when it was trading at $1.66, before finally initiating a small position at $1.92. However, the high debt ratio proved to be too much of a concern and I sold at $2.07. It is a pity and I hope it would reduce its debts progressively before I consider buying again.

The other REIT manager that has fairly extensive scope but is less aggressive in terms of debts and acquisitions is Capitaland. It has REITs in office, retail and hotels but not industrial properties. Its debt-to-equity ratio is a less demanding 62.4% as at end Sep 2017. Business-wise, there is nothing to fault Capitaland. However, I remember the lessons learnt from GLP, which is to buy it cheap even though the market price is within valuation limits. See Bye Bye, GLP! for more information. I decided against buying at $3.50 even though the Net Tangible Asset value is $4.16. This stock will be on the watchlist.

Other than these 2 companies, there are 2 outsiders to the list. The first is Straits Trading. Most people probably would not associate Straits Trading with a REIT manager, but it has a 20.1% stake in ARA and a 30% stake in Far East Hospitality, the REIT manager for Far East Hospitality Trust. It also manages 2 property funds. It is not yet a big-scale REIT manager. I bought a small position at $2.38 just to keep track of its developments. However, its recent developments have been disappointing. Its latest move was to invest $106.5M into a Japanese property fund managed by some other fund managers. I am looking for a REIT manager that sells properties to other investors and manages their funds, not the other way around. I sold it last Fri at a small loss at $2.31.

The other company that I considered is Boustead Projects. Although not a REIT manager, it has been carrying out a couple of Design-Build-Lease projects. Under such projects, Boustead Projects would design, build, and upon completion, lease the buildings to clients for a long period of time. Such portfolio of properties could be spinned off into an industrial REIT. In fact, there were suggestions for such a move, but the portfolio was considered too small to be an independent REIT. Moreover, considering recent market developments of consolidation among smaller industrial REITs into larger ones, the plan to spin off a REIT might be too little, too late. I am still monitoring, through my position in Boustead, which owns 51.3% of Boustead Projects.

In conclusion, after 6 months of searching, I still have not found a good replacement for GLP. It is difficult to find a capable replacement for a good company. This is why I usually do not like privatisations, even though they might offer a good price for the company.

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