CapitaLand Restructuring: Is it good or bad?

March 23, 2021

by Chengkok with 5 Comments Investment Accumulation Property Investment Retirement SRS

CapitaLand shares was halted on Monday morning (22nd March 2021). Along with it, Ascott Residence Trust, Capitaland Integrated Commercial Trust, Ascendas Reit, CapitaLand China Trust and Ascendas India Trust, was also halted pending a released of an announcement.

On the same day, we got an answer. CapitaLand Limited (SGX: C31)is going to be restructured. In this article, we are going to figure out what is happening and also what is the good or bad about this restructuring. Should it be part of our wealth management journey or in our SRS portfolio?

Disclaimer: This is not a buy/sell recommendation. I do not hold any SGX:C31 shares.

Brief Information About CapitaLand Limited

CapitaLand owns 1090 properties in 242 cities spanning over 35 countries (as of 23 March 2021). It is the 3rd largest listed global REIM and Asia’s largest REIM.

They own a stable collection of REITs and business trusts comprising of CapitaLand Integrated Commercial Trust, Ascendas Real Estate Investment Trust, Ascott Residence Trust, CapitaLand China Trust, Ascendas India Trust and CapitaLand Malaysia Mall Trust.

CapitaLand Restructuring Top Real Estate Investment Managers

That being said, the share price trend has been extremely disappointing over the long horizon. Most investors probably bought into CapitaLand for it’s dividend yields.

CapitaLand Restructuring Share Prices History

Summary of Restructuring: The Development Arm is going to be Privatized

CapitaLand Restructuring Development Arm Privatized

Shareholders will now see the development part of the business privatized. They will be “compensated” with a combination of $0.951 cash, 1x CLIM (CapitaLand Investment Management) shares and also 0.155x CICT (CapitaLand Integrated Commercial Trust) shares. It does sounds like a very good deal.

(The assumption here is that CLIM trades at a fair value of 1x NAV. I’m trying to find data to share how CapitaLand has traded on NAV over the years. Do let me know if you can find the source for this.)

According to the Chairman of CLA Real Estate Holding response in the news release, the privatization will provide flexibility for the development business to pursue longer gestation and capital-intensive projects.

This is where I felt a bit uncomfortable with the restructuring which I will explain below.

The Good Part About The Restructuring

Firstly, I believe that the restructuring is excellent if you think about the conglomerate discount that CapitaLand may be facing. Conglomerates often trade at a discount versus companies that are more focused on their core products and services.

Mr Lee Chee Koon, Group CEO of CapitaLand Group says the same thing but in another way. As listed REIMs generally trade at a premium to their NAVs in the capital markets, we are confident that CLIM will be able to drive returns for our shareholders given its scale, capabilities and a strong ecosystem.” (Developers are usually traded at a discount).

Secondly, for those that feel that the development part of the business is hard to analyze or “risky”, this new structure becomes a “cleaner” and easier to analyze. There is more certainty in CLIM and probably that’s what local investors want. They will be paid a mixture of cash and CICT stocks for the development part of the business.

The Not So Good Part About The Restructuring

The growth driver of the company (CLIM) is now gone and the price CLA is paying is cheap (in my own opinion). I personally feel that the $1.279 (cash + CICT shares) are a cheap price to pay for the development arm of CapitaLand. Effectively, if CapitaLand were to grow in future, they have to then acquire new development property from (guess who) the CLA. I have no figures to back any statement down below so treat the following opinion with caution.

At this moment, the price for the development arm is not priced in or in fact, unknown to a retail investor.

I’m certain in the distant future that CLA will sell and offload some of the properties that they are developing now back to CapitaLand. According to FY2020 CapitaLand results, the development arm is pivoting towards ‘new economy’ asset classes. S$3.4 billion of new investments were made in business park, logistics etc. There are mentions of investing in Japan’s logistics sector (completing in 4Q 2022), Korea Data Centre Fund 1 (invest in an offmarket data centre development project near Seoul in South Korea), Two Class A tech office properties in San Francisco, etc. I believe these are interesting developments which may be sold back to CapitaLand in future.

Since the development arm is privatised, we will no longer have a visuals or information on properties/land that are developed. It might be difficult to see if the cost are justifiable or not.

There is also no more vested interest for CLA to give CLIM a good price for those properties. This means that properties that are acquired by CLIM moving forward may be more richly valued and CLIM may need to fund these properties using issuing of new shares.

Final Thoughts By Wealthdojo

On a business point of view, I personally feel that CLIM may not be as attractive as before.

On a share price point of view, I believe if people value CLIM differently moving forward, we may see the share price performing better.

If you do have any other views, whether it is similar or contrasting, I would love to hear from you in the comments below.

Invest safe.

Chengkok is a licensed Financial Services Consultant since 2012. He is an Investment and Critical Illness Specialist. Wealthdojo was created in 2019 to educate and debunk “free financial advice” that was given without context.

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

The views and opinions expressed in this publication are those of the author and do not reflect the official policy or position of any other agency, organisation, employer or company. Assumptions made in the analysis are not reflective of the position of any entity other than the author.

My SRS Portfolio and Thoughts [March 2021]

March 17, 2021

by Chengkok with 2 Comments Investment Accumulation Retirement SRS

After a series of SRS related articles in 2020, there are some readers from investingnote and my telegram channel that asked me to be transparent with my SRS investments. After some discussion with some of my readers, I will be doing regular updates on my thought process of investing using my SRS and the reasons why I invest in some of these funds or products.

The Standard Disclaimer: This is not and should not be taken as a buy/sell recommendation.

Before looking into using SRS to invest, these are some links you should read first before continuing.

Start Here: The $1 SRS Strategy

Basic Knowledge: 5 things you need to know about SRS when you are 40 and older

Your SRS Overseas Retirement Guide: 3 things you need to know about SRS if you plan to leave Singapore

For 40s and above: 10 SRS Investments to Consider Especially if you are 40 and older

Income Tax and SRS: How Much Is My Income Taxes [2021 Edition]

SRS Objective

To invest in sectors that are growing and balance it with reits exposure.

My Considerations

There are 3 instruments that I personally think is interesting and of investing value at this moment of time.

Lion-OCBC Securities Hang Seng TECH ETF (HST.SI)

This ETF is investing into the 30 largest TECH-themed companies listed in Hong Kong. It is diversified across 30 companies ranging from Alibaba to ZTO. While it is undeniable that there may be regulatory risk associated with this ETF, I believe that companies such as Tencent, Alibaba, JD, SMIC is going to propel China’s economy into the future. I’m not going in depth into the reason of investing in this article. Currently, I’m already vested into this ETF.

Manulife US Reits (SGX:BTOU)

Manulife US Reits is one that I have been eyeing for a look time. The reits is exposed to income-producing office real estate in key markets in the United States. I personally like the WALE by NLA and also occupancy rates of this reits.

Let me address one common question about COVID-19 affecting office real estates in USA. USA has been adopting working from home for a long time. Beyond the financials, it is important for the company to have a good working culture. The synergy fortunately is created from social interactions in office.

From the corporate presentation in March 2021, only 5% of companies mentioned that there will no longer be a need for an office. Around 70% of bosses expected employees to working from office at least 3 days a week. Similarly, around 70% of bosses expect that they would need more space due to rising headcount and also social distancing needs. Manulife reits rents to a well diversified tenant base ranging from Legal (21% of gross rental income), Finance and Insurance (18.1% of gross rental income), retail trade (13.8% of gross rental income) and so on. Personally, I’m comfortable with this even with the new norms that we might be experiencing. Currently, I’m vested into this reit.

Manulife US Reits Portfolio Work From Home

Exposure to Institutional Investors (Ballie Gifford, Blackrock, Wellington)

Currently, I’m not invested into this yet because my SRS funds are insufficient to purchase into them yet. As I’m a representative from AIA Singapore, I would not be able to write the product. Feel free to reach out to me for more details regarding this.

The reason why I think it would make an great investment thesis is because of the expertise of the 3 companies. Wellington is famous for their exposure in the value investing companies. Ballie Gifford is well known for investing in growth companies (such as Tesla). Blackrock is famous for their fixed income. Depending on your intended risk profile, the 3 funds will be allocated accordingly.

I am planning to contribute to SRS in 2021 again for tax purposes. That will be the moment of time where I will be investing into this instrument.

Final Thoughts By Wealthdojo

I reckon my positions will not be changing much. The next change will probably be after the addition of new funds into my SRS to purchase the plan that give me exposure to the institutional investors. Wishing everyone the best in their investment journey.

Do reach out to me if you wish to explore your SRS options.

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

Enduring The Correction

March 5, 2021

by Chengkok with 3 Comments Behaviour Economics General Economy Investment Accumulation Money Mindset

The last few days was beginning to spook investors. Global investors are concerned about rising inflation, coupled with raising 10 year Treasury Yield. This send the S&P500 down with growth stocks taking the lead. You might have the same concerns seeing your portfolio dipped. There were many people that reached out to me. Enough of them for me to put out a message in my telegram channel.

For those of you who started investing in March 2020, this might be your first major correction / bear market (if it is coming). If you feel uncomfortable to see losses, rest assured this is very normal. No one likes to lost money.

Instead of sharing logical data of how each correction ends up higher, I have consolidated a few great quotes from investors I respect. In your wealth management journey, investment is both logical and also an emotional experience.

Enjoy the ride. Hope you find strength in these quotes.

“Stock prices are not business prices. The company you have invested in will not stop/pause to sell their products just because their share price dropped by a few dollars. Whether there is a correction or not, invest in quality companies/portfolios that continue to grow” – Chengkok, Founder of Wealthdojo.

“Unless you buy a stock at the exact bottom (which is next to impossible), you will be down at some point after you make every investment. Your success entirely depends on how dispassionate you are towards short term stock price fluctuations. Behavior matters.” – Joel Greenblatt, American hedge fund manager.

“I deleted my (brokerage) app from phone yesterday so (that) I don’t see again and again. I will (continue to) add money every month and wouldn’t sell a share. I have quality in my portfolio and would evaluate things in 2021 Dec whether to sell anything.” – Rajeev, Singapore Investor.

“In times like these, the best thing to do is to research companies… and then come away with optimism that “wow… so much growth yet to happen!” – Ser Jing, Portfolio Manager of Compounder Fund.

“The principles have not changed. #1 Buy great companies #2 Buy them at fair value.” – Dr Daniel Kao.

“Rotation is the lifeblood of any bull market.” – Ralph Acampora, Director of Technical Analysis at Prudential Securities.

“Market is just price movement, it is never about the whole business. Where-else the underlying asset which the company that provide the goods and services is the real deal biz to the industry.” – Singapore Investor #2.

Final thoughts by Wealthdojo

Once again, I would like to thank all who have contributed to the above quotes. Enjoy the ride.

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

Why I Sold SBS S61

February 10, 2021

by Chengkok with No Comment Investment Accumulation Money Mindset Stock Analysis

This certainly did not age well. Previously, I wrote about Potential 50% Gain Boring Company: SBS S61. I had full optimism that this overlooked company would recover back to it’s usual level by finishing 2020 with a good 2H results. I was wrong.

Below are my learning lessons and the reasons why I have sold.

I remain ground on my principle of Wealth Management and will explain the reasons of doing so.

What Happened In Oct 2020?

I read about the 1H results for SBS (S61). I felt that during 1H of the financial reporting, bus ridership was heavily. This is due to the circuit breaker which started on 7 April 2020 and ended on 1 June 2020. The circuit breaker lasted for 1 month and 3 weeks. I believed that close to 30% of the revenue was “lost” because of that circuit breaker (1 months and 3 weeks out of 6 months).

As we continue to progress after Oct 2020, more and more people are starting to leave their house to work and explore. This can be felt as I personally took the public transport. The crowd was back and it did not slow. I was somewhat excited to see the improvement of revenue in the 2H.

I believed there would be revenue recovery, share price recovery and also a short term opportunistic play.

SBS Full 2020 Financial Report

When the day finally arrived, I was terribly mistaken. Revenue for 1H is $603,225. Full year 2020 revenue is $1,230,947. This means that revenue for 2H is $627,722. Revenue for 1H and 2H is roughly the same. This would mean that even with the circuit breaker, 1H ridership for the first 4 months is roughly equals to the entire ridership for 2H. I cannot imagine how pack the MRT or buses were before the circuit breaker.

Looking at the top line only, it will take sometime for “normality” to happen again. I have underestimated the WFH culture. (I can’t explain the packed MRT/Buses though. Does this mean it used to be worse?).

SBS is also issuing dividends for shareholders. This will happen if the motion is approved by the Shareholders at the Twenty-Eighth Annual General Meeting of the Company to be held on 29 April 2021 and will be payable on 19 May 2021. I have my questions on the dividends. Currently, SBS is “profitable” after the JSS grant. I felt that the dividend was just a transfer of grant from the government to the shareholders (no matter how low the dividends are).

Why I Sold SBS S61

I sold SBS S61 with a slight profit. I entered the position with a short term opportunistic play mindset. However, as it didn’t turn out as per expected, I exited the position.

I’m also not looking for a dividend play counter. At the current level, it is giving around 2% dividend yield which is not attractive.

There is limited growth play to this industry. With new players coming in, the position of SBS might be shaken in future.

“Normality” may happen in 2021 as more and more people start to go back to work. However, I’m not willing to wait for that to happen as I believe there are better investment opportunities out there.

Final thoughts by Wealthdojo

I think I learn is that the investment mindset. “Buy on fundamentals, sell on fundamentals”. “Buy on momentum, sell on momentum”. The problem comes when you “Buy on momentum, but then hold on fundamentals” when you start making a lost. I can never further emphases on the investment mindset that one should adopt when approaching the market.

Lastly, it is understood that this should not be taken as a buy/sell recommendation. Please do your own due diligence in your investment.

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

3 Things I learnt from the Gamestop Saga

January 30, 2021

by Chengkok with 3 Comments Behaviour Economics General Economy Investment Accumulation Money Mindset Speculation

It is 29 Jan 2021. Gamestop (GME) share price is $325. It has gone up a long way since early January when price is around $17. The battle is still on. Several brokerage companies like Robinhood has started to restrict trading on GME. So much for a company that believes that everyone should have access to the financial markets. With this, I believe there might be more interest going towards Bitcoin.

If you unsure what happen, do check out the first article How Gamestop is better “investment” than Tesla, where we explain the hype on GME.

Disclaimer: I do not have any position in GME/Bitcoin. Indeed, I have “missed” out on the huge runs of those companies but time will tell. Here at Wealthdojo, we seek to understand what has happened fundamentally. Even in the insane movement in the stock market, we aim manage our wealth in a logical and systematic way.

3 Things I Learnt About Gamestop Share Price

The Update

Things were not pretty over the last few days.

Hedge Funds had to closed their short positions taking in huge losses. Melvin Capital (the guys that have shorted GME) have not announced how much losses they suffered but Citadel and Point72 have infused close to $3 billion into Melvin Capital to shore up its finances. They have also deny going into bankruptcy but supposing have been bailed out.
Several brokerage companies started to restrict trading. On 28 Jan, they only allowed people to sell their shares of selected companies. On 29 Jan, they allowed people to buy only one share of selected companies. This came as an outrage as if you restrict people to only sell. There is only one direction the company can go.
Robinhood started to draw up to $600 million from their line of credit. They have also raised more than $1 billion from existing investors. It is to pay customers who are owed money from trades and also fulfil regulations. They probably did not manage risk properly by allowing those shorter to short too much.

From this episode that is still ongoing, I hope to share 3 important lessons that we can learn as retail investors.

Leverage

Time and again, this word comes out to haunt the financial market. If you can remember the 2008 financial crisis, lines of credit is so easily available that even a prostitute can take a dozens of mortgage loan (Unverified information from Netflix: The Big Short).

When you leverage, you are using money that you don’t have to purchase a stock.

Leverage example:

You have $100,000. You want to invest in ABC shares (assume it is $1) because you believe the share price will double for whatever reason in the next few days. You leverage by borrowing another $100,000 to invest paying an interest (we are going to ignore interest in the calculations). You buy 200,000 shares using your $200,000.

When ABC shares doubles (now $2), you would have $400,000. You pay back $100,000 and your portfolio is now $300,000.

If you didn’t leverage and borrow, your portfolio only grows to $200,000.

Your money grows “faster” when you leverage.

However, if ABC shares drops to 0. Your original $100,000 is now 0. However, you now owe $100,000.

If you didn’t leverage and borrow, your portfolio just suffers the maximum lost of $100,000 but you do not owe people’s money.

The above is a 1:1 leverage. It is possible for you to have a 50:1 leverage in the financial market. Imagine how scary it is if the trade don’t go according to plan. That’s 50x of $100,000.

Investing with margin or leverage is the fastest way to lose all your money. We won’t deny the fact that it is also the fastest way to make more money. Ideally, you should only invest with the money you already have. I believe we will see how this spans out in the days ahead especially if there are big hedge funds using leverage in their GME positions.

Prisoners Dilemma

I never thought I would see this happening after my university days. Readers of Wealthdojo will probably know I’m a behavioral economics fan. Seeing prisoners dilemma play out in real life is somewhat very fulfilling.

Let’s set the context first. When the brokerage stopped people from buying. All you could do was to sell the stocks. Hence, it became a situation of sell or don’t sell among the retail investors.

3 Things I Learnt About Gamestop Prisoners Dilemma

I have created a payout table to facilitate the discussion on the prisoners dilemma.

3 Things I Learnt About Gamestop Prisoners Dilemma Part 1

Shareholder #2 best response is to sell. This is because if Shareholder #1 were to sell, Shareholder #2 is better off selling than not selling (2 > 1). If you sell but other investors don’t sell, you win but other investors lose. If Shareholder #1 were to not sell, Shareholder #2 is better off selling than not selling (5 > 4).

3 Things I Learnt About Gamestop Prisoners Dilemma Part 2

Similarly, Shareholder #1 best response is to sell. This is because if Shareholder #2 were to sell, Shareholder #1 is better off selling than not selling (2 > 1). If Shareholder #2 were to not sell, Shareholder #1 is better off selling than not selling (5 > 4).

3 Things I Learnt About Gamestop Prisoners Dilemma Nash Equilibrium

The Nash Equilibrium for this game is for both of them to sell getting a payoff of (2,2). Logically, both shareholders will sell.

Although (4,4) is the most ideal for them, it requires all the GME investors to coordinate and don’t back out on the deal. It will certainly play on the motivation on the GME investors to stick on with don’t sell.

Motivation

I have learnt that in investing, different people will have different motivation. I find it bizarre for people to randomly ask someone on their opinion and whether to invest in the stock market at this moment of time.

If you ask a trader, he will say yes because the S&P is upward trending.

If you ask a value investor, he will say no because valuations are crazily rich.

If you ask a growth investor, he will say yes because there is still growth.

If you ask Warren Buffett, he will just buy back his own shares.

If you ask Elon Musk, he will tweet Gamestonks!

If you ask me, I will sit at the sidelines and continue to collect excellent companies and a sensible price.

For the people at Wall Street Bets, they are there to send a message.

If you decide to follow any of them, make sure they have the same motivation as you. Otherwise, you might find yourself in an awkward position.

Final Thoughts By Wealthdojo

When you thought 2020 was an epic year, 2021 came as another surprise. This episode definitely hasn’t closed yet. Who knows this might be a trigger for another financial crisis. If it comes, the question is “are you ready?”.

Feel Free To Reach Out To Share Your Thoughts.

Contact: 94316449 (Whatsapp) chengkokoh@gmail.com (Email)
Telegram: Wealthdojo [Continuous Learning Channel]
Reviews: About Me

Wealthdojo

Brief Information About CapitaLand Limited

Summary of Restructuring: The Development Arm is going to be Privatized

The Good Part About The Restructuring

The Not So Good Part About The Restructuring

Final Thoughts By Wealthdojo

SRS Objective

My Considerations

Lion-OCBC Securities Hang Seng TECH ETF (HST.SI)

Manulife US Reits (SGX:BTOU)

Exposure to Institutional Investors (Ballie Gifford, Blackrock, Wellington)

Final Thoughts By Wealthdojo

Final thoughts by Wealthdojo

What Happened In Oct 2020?

SBS Full 2020 Financial Report

Why I Sold SBS S61

Final thoughts by Wealthdojo

The Update

Leverage

Leverage example:

Prisoners Dilemma

Motivation

Final Thoughts By Wealthdojo

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