Investment Moats

Why I Left

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I left my company last week.

The last 2 weeks was a bit crazy, in the amount of handover that I have to do. I probably didn’t do a good job. I probably underestimated the amount of stuff I had my hand in. It is rather different from the last time I left my previous team to come over to this work place 6 to 7 years ago.

Back then, there are enough folks that know what I have my hand in, and the second in command (as well as those below) was just damn good (and eventually proved to be better than me). It is also a testament to good team planning back then.

A year ago, I thought of the day I would throw my letter. It will have to be after 21 June.

21st June was the day I joined the company. 15 years from that day would probably be a nice time to end that chapter of my life.

I been in “the IT line” with the same company. I have to add “the IT line” after reading this piece on some great IT career advice given by Jeraldine Phneah and her friend. Whenever I meet people, I have to be extra vigilant to let people know that I am not THAT kind of power IT engineer who graduated from a local university.

I worked in a cost center all my career. If we are not doing sales, we are a cost that should be minimized, unless we can come up with some “value added initiatives”.

I am probably not fit to give career advice, much less career advice in the IT field.

Perhaps take a look at this post, and see what you should NEVER do to trash your IT career.

Last year, I have a reader in the same field who is 20 years my senior, offering me some advice:

He means well. I am grateful for readers writing in telling me where I did well. And in this case, what I could do better.

I told him I will reply to him in a post. I never did.

Well I think it is a bit late but I do think this reply does count.

Honestly, what do you want me to say?

  1. That I only looked at my area of work
  2. I did not try to work well in my role and did not sought to
  3. My experience is only the same 1 year of experience x 15 years
  4. I didn’t do ISP (information system planning) on my own life

I didn’t reply because… you want me to reply to you I messed up my career?

Probably 1 year before I went to my last project, my manager in the project pulled me aside. Long story short, she let me know how much I was under-performing her expectations.

I was pretty shocked inside, because for the most part, I thought I was doing “all the right things”. It is also pretty liberating in a strange way, to know some hard reality that you are not as good as you think you are.

My Second Project

Shortly after “that conversation”, things got pretty tight in my project. My manager let a few of us know that they might be cutting the number of people in our project, so she is giving us more senior ones some options.

Out of all the options, one of them looks…. less dangerous. It is not a software development role, which for a person that hasn’t program in 8 years, feels a little bit deadly.

The one I chose was to go and work for a former user of mine. Probably one of the most demanding out there and for others, it will be a bit suicidal to go there. But I thought, it is a bit tough but at least you know roughly what kind of tough.

Turns out it was tough. Then he left. And then life got better.

I had time to think about things. I knew my IT career was over 1 year into it. When will it be over, I have little idea. What will I do next, I have little idea as well.

And this is after I learn a lot about these financial independence, different schemes of financial independence , stages of wealth Mumbo Jumbo.

What I like about my Work

I think I was not cut out to be a man manager. There were a lot of situations where I have shown that to be the case.

I wasn’t a particularly good engineer as well. I have rather poor memory of things, can’t think critically well enough, cannot schedule things well, always let milestones slip.

What I like about engineering work was working with people. My first project team was great. We grew up from not knowing anything, to eventually leading our own teams.

At my second project, the nice moments where I was left on my own with another project team’s engineers, or users where we discuss about work, and things that are out of work.

They say that what made people stick around might not be the actual work itself, but satisfaction you get from certain “by-product” services you did.

I guess what keeps me going is being of service to others, whether it is to a co-worker, a boss, a user.

When there were too much “Why the fxxk” Moments

You know the same alone moments in the project where you were left to do your tasking without supervision?

If you have enough of those periods, and if you have enough technical problems, bureaucracy to deal with, you start going into that dark tunnels where you start mumbling to yourself:

“Kyith, why the fxxk are you doing this?”

Usually they do go away pretty fast.

Then you have another of those events, and you go down that dark tunnels again and you have more of those “Kyith, why the fxxk are you STILL doing this?” moments.

Enough of those moments and you can think of the result it will do to someone.

And honestly, if you have a little this, somehow those “why the fxxk are you doing this?” moments somehow gets magically imbued with greater bass.

Where I am off to

Late last year, my friend Chris from Providend ask if I would be interested to do some research in his Solutions team.

The idea is that since I have always been looking at some of these weird financial planning, retirement withdrawal stuff, why not do that as a job?

I thought about it, and decide what the heck, let’s see what this is about.

So this first week was honeymoon week.

I think there are enough people that say that I am finally doing something I am “passionate” about.

I think I should address that. The first thing people are assuming is that I will be going to a place to do investments. Providend does help the clients invest but not through active stock portfolios. And I am not a financial planner. I just do a support function.

Passion seemed to indicate a willingness to suffer and right now, I am not sure whether I really like to get into so much suffering.

Certainly you do not need passion to carve a career out of things. If I am being honest, for the past 15 years, I was never passionate about working with software, or systems. During the last year of my degree, I got so burnt studying my Information Systems degree that I went to look at what unit trust was about.

Since the start of my career, I was never 100% into it.

I think I accidentally found a liking for the customer service aspect of IT. So I actually stayed this long because:

  1. My bosses were good or OK
  2. My colleagues was good or OK
  3. My users were relatively good
  4. The compensation was fair (in my case)
  5. The organisation was not too shitty
  6. Not everyday of the work was grueling
  7. I could see a distinct wealth path outside of work

So what am I looking for? I have no idea really, but if I can find a lot of those things listed up there, I think it will be pretty OK.

Are there any changes to this Blog?

Probably not much.

I think they are understanding enough to let me continue writing. Just that, perhaps due to compliance reasons, there may be some stuff I can’t buy in the future and maybe…. I would write less about.

This is probably to let you know that despite what I would say, there will be some inherent bias as the reason I find it OK to work there is because I shared the same view points as Providend.

Every place I work, somehow I have some stories to tell. And since I now work in an industry that is similar in theme to this blog, I am sure that there are more content in this area to write about.

You will probably see some writings of mine over at Providend next time.

I do work with some partners currently that may be in competing fields and will continue to recommend their services. Those will still be recommended because well they are just good in my opinion. There is no need to change it, if they wish to continue working with me.

Thank You

To everyone involved with my first project. If you read this, you know who you are for the help in the many system deployments we did, the many DOTA we had together.

Thank you to my first 2 project managers. Both of you set the bar high enough that, while I didn’t meet the expectations, both of you taught me how team culture is built, how to survive better in this world.

To all those involved in my second project, it seems that there were always some shitty situations that I often got into, but you guys and gals always bailed me out. For that, thanks a lot.

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

Here are My Topical Resources on:

  1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free

Singapore Savings Bonds SSB August 2019 Issue Yields 2.01% for 10 Year and 1.68% for 1 Year

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Here is a higher yielding, safe way to save your money that you have no idea when you will need to use it, or your emergency fund.

The August 2019’s SSB bonds yield an interest rate of 2.01%/yr for the next 10 years. You can apply through ATM or Internet Banking via the three banks (UOB,OCBC, DBS)

However, if you only hold the SSB bonds for 1 year, with 2 semi-annual payments, your interest rate is 1.68%/yr.

$10,000 will grow to $12,021 in 10 years.

This bond is backed by the Singapore Government and its available to Singaporeans.

A single person can own not more than SG$200,000 worth of Singapore Savings Bonds. You can also use your Supplementary Retirement Scheme (SRS) account to purchase.

You can find out more information about the SSB here.

Note that every month, there will be a new issue you can subscribe to via ATM. The 1 to 10 year yield you will get will differ from this month’s ladder as shown above.

Last month’s bond yields 2.16%/yr for 10 years and 1.93%/yr for 1 year.

Here is the current historical SSB 10 Year Yield Curve with the 1 Year Yield Curve since Oct 2015 when SSB was started (Click on the chart, move over the line to see the actual yield for that month):

What is this Singapore Savings Bonds? Read my past write ups:

  1. This Singapore Savings Bonds: Liquidity, Higher Returns and Government Backing. Dream?
  2. More details of the Singapore Savings Bond. Looks like my Emergency Funds now
  3. Singapore Savings Bonds Max Holding Limit is $200,000 for now. Apply via DBS, OCBC, UOB ATM
  4. Singapore Savings Bonds’ Inflation Protection Abilities
  5. Some instructions how to apply for the Singapore Savings Bonds

Past Issues of SSB and their Rates:

Do Like Me on Facebook. I share some tidbits that is not on the blog post there often. You can also choose to subscribe to my content via email below.

Here are My Topical Resources on:

  1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free

Prime US REIT IPO Analysis – 7.6% Yielding Class A Office Portfolio

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Prime REIT. Prime REIT. Prime REIT.

If you say it fast enough, and repeat it often enough it becomes Prime Rib, Prime Rib, Prime Rib.

Not too long ago, Keppel Capital partnered with Peter M. Bren and Charles J. Schreiber, Jr’s KBS Realty Advisers to list a Grade B Office REIT called Keppel KBS in Singapore.

Keppel Capital and KBS Asia Partners (KAP) have lodged their prospectus and will go ahead to list their Grade A Office REIT called Prime US REIT.

This article will go through what I think about this REIT.

The Offer

From what we understand, there will be a Placement and public offer at a price of US$0.88.

There will be a total of 923 million units.

The breakdown:

  1. Placement and Public Offer: 335 mil units
  2. KBS REIT III: 228 mil units
  3. Cornerstone Investors: 360 mil units
    1. AT Investments Limited: 8% of REIT
    2. KCIH: 6.8% of REIT
    3. The Schreiber Trust
    4. Credit Suisse AG, Singapore Branch
    5. DBS Bank
    6. Hiap Hoe Investment Pte Ltd
    7. SPH: 6.7% of REIT

This will give Prime US REIT a market capitalization of US$812 mil.

The sponsored wanted to list Prime US REIT sometime ago since last year but the volatility last year and all the negative USA tax situation have made listing very challenging.

From what we understand there were some changes to the configuration of the REIT listing:

  1. Mainly SPH becoming a new cornerstone investor
  2. SPH (Times Properties Limited) also took a 20% stake in the manager
  3. KBS REIT III ramp up their stake from 16% to now 24.7%
  4. The offer size (cornerstone + placement + public offering) got reduced from US$705 mil to US$612 mil
  5. Gearing going up from 35% to 37%

The challenge for a REIT that wishes to enjoy Portfolio Interest Exemption (PIR) and not pay the 30% withholding tax on dividend is that each non USA resident shareholder cannot own more than 10% of the USA REIT.

And that might be a reason why each shareholding is rather small. The sponsor won’t be a substantial shareholder.

It is interesting that Prime US REIT’s largest shareholder is the fund that it bought its asset from. I am not sure how I should conclude here. I think the sponsored originally do wish to realize more of the asset sales from KBS REIT III to this entity and not hold so much units.

However, in light of the difficulty in drumming up interests, or their anxiety of how poorly Prime US REIT will do after seeing the lukewarm response of ARA Hospitality REIT and Eagle Hospital Trust, they decide to pivot.

At this point, we should really talk about who owns the manager:

  1. KBS Asia Partners (KAP): 40%
    1. P Bren KAP I, LLC, which is owned by Linda Bren 2017 Trust – 33.3%
    2. Schreiber KAP I, LLC, which is owned by Charles J Schreiber Jr – 33.3%
    3. Rana KAP I, LLC, which is owned by Rahul Rana – 16.66%
    4. R Bren KAP I, LLC, which is owned by Richard Bran – 16.33%
  2. SPH – Times Properties Limited: 20%
  3. Keppel Capital Two Pte Ltd – 30%
  4. Experion Holdings – 10%
    1. AT Holdings, Sai Charan, own by founder Arvind Tiku

You will realize that, the majority cornerstone investors, major shareholders and the managers, are almost the same people. DBS has been actively trying to bring these oversea players to come and list on our bourse.

It is as if they listed a vehicle that is primarily owned by themselves, or their partners so that minority shareholders can ride together with them. I think more likely they were unable to find the cornerstone investors that are interested and thus KBS REIT III would have to take up more. If it is for their own khakis, they could very well let this entity be unlisted and manage themselves.

A Concurrent Listing

On 8th of Jul, after the final prospectus is announced, we got news that the placement and initial public offer will take place concurrently.

Usually, these IPO placements and initial public offering are done sequentially. It is VERY RARE that this is done together.

When an IPO and placement are carried out together, if there are weak public demand, the book makers can shift the public offer to the placement. In this way, the underwriters will not need to swallow a large chunk of the IPO shares (like what happened to Eagle Hospitality Trust where the IPO was lukewarm)

If the demand is weak for the public offer, the IPO will not be priced and the applicant’s funds will be refunded and the IPO will not take place.

This is a rare move by a listed company and usually the company doing the IPO would have pulled the plug. However, since Prime US REIT have tried a few times trying to list, they decide to take this challenging route.

My sources tell me that the placement was less well received, so perhaps that is why they are taking this route.

The Time Table

The Portfolio

Prime US REIT consist of 11 Class A Office Properties. Singapore investors should not be so unfamiliar with the office property scene in the USA as Keppel KBS was listed a few short years ago.

Its closest peer is probably another Class A Office REIT Manulife US REIT. I have written enough content on Manulife US REIT, the characteristics, the withholding tax situations, the nature of the leasing in that country.

I think if you are investing in Prime US REIT, you should at least read through what I have to say about it (especially if you are still not so sure about the tax shield stuff):

Details of Prime US REIT's Properties
Details of Prime US REIT’s Properties

One thing I realize is that majority of the portfolio are sub-urban Grade A properties. That can explain the attractive CAP rate for the portfolio.

This is not a slight on Prime US REIT. About 50% of Manulife US REIT’s offices are located in sub-urban locations. They believe that there is a trend towards moving out closer to where the employees live, so that there are more work life balance.

Class A office can be found in the CBD or sub-urban. Cushman defines Class A as the most prestigious, high quality standard, well-located buildings, typically steel and concrete construction, built or renovated after 1980 and competing for premier office users with above market rents.

  • 4 properties are in Tier I cities – 28.7% of Net Property Income
  • 4 properties are in Tier II cities – 35.9% of NPI
  • 3 properties are in Tier III cities – 35.3% of NPI

The properties are in good state of upkeep as the current management has systematically made necessary improvements to the building systems and added or refurbished common areas as needed over the years to enhance their appeal. (for more information on Class A, Class B and Trophy, refer to my past Manulife US REIT articles)

  • Based on the listing price of US$0.88, the dividend yield in FY2020 is 7.6% and FY2019 is 7.4%
  • All 11 properties are Freehold status
  • The Weighted Average Lease Expiry (WALE) is 5.5 years.
  • The average occupancy is 96.7%
  • 10 out of 11 either are LEED Certified, Energy Star Certified, or LEED Gold, LEED Platinum, signifying their energy efficiency
  • Average 2.1% annual rental escalation
  • Management fee: 10% of Annual Distributable Income and 25% Performance fee based on the improvement in Dividend per Unit

The WALE is relatively long, the yield is attractive and the gearing is reasonable. I think some investors would like this portfolio if the managers is able to grow this portfolio.

Prime US REIT versus Manulife US REIT

Investors here have about 1 year plus to be acquainted with the manager’s capabilities in acquisition and ability to renew existing leases, leased out new leases.

Depending on how comfortable you are with KBS, your other question is how Prime US will measure up against another pure Class A portfolio.

The table below shows how Prime US and Manulife US compared against one another:

Prime US REIT looks more attractive in terms of dividend yield. What is not reflected in this comparison is that both REIT is paying 100% of their manager’s fees in units, so that is a rather fair comparison.

The property portfolio value for Manulife US REIT is lower than the latest figures because I want to gauge the property management fees and manager’s base fee as a percentage of the property value. Both REIT is paying roughly the same percentage in terms of property management fees. Manulife US REIT, surprisingly have a lower base fee as a percentage of AUM compared to Prime.

One comparison that I missed out, and I would include it in writing is that both Class A office REIT average 2.1% in annual rental escalation (if you combined organic rental escalation and mid term review)

If we were to compare the profile of properties, 75% of Manulife US REIT’s properties are in Tier I cities, while the rest are in Tier II. Whether that matters or not is another question all together.

Many businesses see Tier II and Tier III cities as desirable destinations, particularly in times of economic strength. These areas present opportunity for growth and development and allow businesses to expand and provide employment to people in growing cities. Additionally, the cost to operate in prime Tier I real estate is expensive, and companies often see underdeveloped areas as a way to expand and invest in future growth.

In contrast, businesses tend to focus more on the established markets in Tier I cities when the economy is in distress, as these areas don’t require the investment and risks associated with undeveloped areas. Though they are expensive, these cities feature the most desirable facilities and social programs.

Investopedia

While Tier I tends to be more developed, they also tend to have lower CAP rates. I tend to think that much of their value is in their perceived lower downside volatility in property value while in other Tier cities, there are more for rental yields to grow, but also more volatility in property demand and supply.

The rest is almost the same except that the weighted average debt to maturity for Prime US REIT is vastly higher.

Given the size of Prime US REIT’s portfolio, and the ownership structure, I think there might be a rights issue coming our way in the future.

The possible lack of liquidity might work against the REIT in raising non-renounceable rights issue or placements, which are typically to institutional investors, family offices.

Manulife US REIT are starting to reach the size where they can carry out acquisitions, finance by equity raising that are at slight discounts. Prime US REIT can place out as well, if they place it to some very rich individual or entity, and the current shareholders are willing to subscribe to even more of Prime US REIT’s units.

The possibility of future rights issue might put a ceiling to the share price of Prime US REIT.

Reviewing the Past Revenue and Profit Performance

Prime REIT presented some data regarding the properties’ past revenue and net property income figures.

I thought the data will at least enlighten us how well the properties have been performing.

Revenue 2016 to 2018 Analysis

In the first table, I compare the year on year performance of the revenue. There are some properties that have interesting results:

  1. Village Center Station I: despite a drop in occupancy recently, revenue growth was strong, which may indicate strong leasing
  2. Promenade I & II: despite a drop in occupancy in 2017, revenue was up
  3. 171 17th Street: This property shows some improvement in occupancy but the revenue revision is very good

I wanted to see if there are some real operating leverage for the properties.

In theory, the cost of operation should not increase proportionately as rent increase via organic escalation (in Prime US REIT’s case, it is an average of 2.1% a year increase).

Majority of the leases, I suspect are on modified gross rent. We keep seeing in the prospectus recoveries income, which is likely the expenses that the REIT was able to recover from tenants. So these leases should be something rather close to like double net leases at least.

Analyzing Rev with NPI and NPI Yield

We can analyse this by looking at the difference in growth year on year between the revenue and net property income.

It is not always a one to one relationship. For Village Center Station I, in 2017 to 2018, the revenue went up but the NPI went down. Same for Reston Square.

However, in a lot of cases, we see majority of the revenue increase directly passed to the bottom line (net property income):

  • A 400k rise in revenue in 2018 at Village Center I resulted in an almost 400k rise in NPI
  • A 1 mil rise in revenue in 2018 at South Hanley resulted in a 800k rise in NPI
  • A 1 mil rise in revenue in 2017 at Tower 909 resulted in a 700k rise in NPI
  • A 1.7 mil rise in revenue in 2017 at 171 17th Street resulted in a 1.4 mil rise in NPI

The conclusion is that in terms of income, it is not a 100% pass through from revenue to NPI, but baring any exceptional costs, a large portion should be passed to the income.

To the extreme right of the table above, you can see the net property income yield progression over the 3 years. They are measured against the latest valuation of each individual property that Prime US REIT’s shareholders will be acquiring it at.

Taken from Manulife US REIT's slides on areas where good acquisitions can come from
Taken from Manulife US REIT’s slides on areas where good acquisitions can come from

You can compare it against the CAP rate published by CBRE CAP Rate Survey for the second half of 2018.

I have tabulated for easy comparison:

Prime US REIT property NPI yield versus 2018 Second Half Survey
Prime US REIT property NPI yield versus 2018 Second Half Survey

Those rows market in red are the buildings where the Valuer’s CAP Rate, based on their Dec 2018 Net Operating Income, is less than what CBRE surveyed in 2H 2018.

Do note that the surveyed CAP Rate is based on properties whose income is stabilized and with a certain level of occupancy.

Emeryville occupancy was rather low which explains the low yield versus market, Village Center Station II just completed not too long ago so the data is incomplete.

If you take out Village Center Station II, 36% of the portfolio seemed to be bought below market rent. You can look at it two ways:

  1. The shareholders purchased assets that are below market performance
  2. There are opportunities that the results can be improved upon

KBS REIT III’s Profits

The properties that were sold into Prime US REIT were from an unlisted REIT KBS REIT III. KBS REIT III would still own 24.7% of Prime US REIT.

If we look at some of the presentation of KBS REIT III we can get some information such as the purchase price of these properties, how much work was put into them, and when was the purchase.

The table below presents some of these information.

KBS REIT III

I am rather puzzled why I cannot find the data on the latest valuation of these properties. It is as if the unlisted REIT did not revalue the properties.

My hunch is that to minimize taxes, the properties are treated as plant, property and equipment and are accounted at cost minus depreciation. Thus, I cannot find that information there.

I did tabulate the CAGR for some of those properties since their purchase. The Atlanta, Dallas, St Louis property have some pretty good CAGR.

However, I don’t think it is fair to say these properties are not cheap. A fairer comparison would be the appraised value of these properties in 2018 versus the price shareholders buy it at. I could not find this information.

The Growth Potential of Prime US REIT

Prime US REIT do look like it has an organic growth angle.

Prime US REIT market cycle

There is this rough office market cycle clock, which is to help the investors visualize where in the property cycle, the various markets are in.

Somehow, majority of the properties, are in cities that are in accelerating growth. Graphics like these are always subjective and should be taken with a pinch of salt.

From the residential property podcast that I have been listening to, things are getting extremely cautious over there.

The opportunity for Prime US REIT is good if the growth is really there. Prime US REIT’s lease expiry is well staggered like a bond ladder.

In this way, the risk that the leases are expiring in a year where the market is in a downturn is diversified away. On the flip side, as the expiry is well staggered, it allows the manager the opportunity to lease out or renew leases at higher rents.

This is something bonds do not have, which is the ability for your dividends to grow.

prime us reit rent versus market rent

In the illustration above, Prime US REIT average market rent is below that of the market rent.

My friend, Caveman, will say that perhaps some properties are so difficult to rent out at market rate, thus they are forever somewhere below market rate.

However, at least there are some potential of organic growth from a low base (low occupancy, low passing rent, expiring rent), compared to their competitor who have less of it.

Room to Pull Back Paying Management Fees in Units

Prime REIT presented a section where they show the sensitivity analysis, if the manager do not take their management fees in units. For a lot of the REITs, the dividend yield is attractive because they paid out all their fees in units. This increases available distributable income and thus dividend per unit.

In the case of Prime US REIT, we can see that if they do not pay any management fees in units, their dividend yield will be the same as Manulife US REIT now.

Long Average Debt Expiry

What I noticed about the debt structure is that their debt are concentrated firstly, but not too different from when Manulife US REIT start off at IPO. Overtime, these REITs should be trying to “ladder” out their loans to minimize refinancing risks.

The second thing is, man, the average debt maturity is 5.6 years. That is very long! Which is a good thing as it minimizes uncertainty there.

I think shareholders will appreciate this, especially when their debt interest is reasonable at 3.45% and 85% fixed by hedging.

Tax Structure and Risk

The following illustration shows how the REIT is set up.

If we compare to Keppel KBS and Manulife US REIT, the main difference is the lack of a Barbados intermediary company, which both of them have.

The Barbados structure is to address some of the potential tax complications brought about by the major tax change in the US in 2017 called the Tax Cuts and Jobs Act (TCJA). By having the Barbados entity, the two REITs tried to address the problem that they will be classified as a “Hybrid Entity” (the Section 267A). If they are, then they cannot use the shareholder loans, loan from the parent in Singapore to the child company in USA as a tax shield, to minimize the taxes.

Without the tax shield, this means the shareholders potentially is going to get a 10-15% cut in their dividend. That is massive.

However, since end Dec 2018, the clarification to the TCJA do not show that Manulife US REIT and Keppel KBS’s structure will be classified as a Hybrid Entity.

The final all clear is suppose to be announced some days ago, but it seems that it has been delayed.

Nevertheless, with the way Prime US REIT is structured, which is similar to how KBS and Manulife US REIT originally structured during their IPO, it more or less means that management strongly believe that there are no issues there.

This tax stuff is rather cheem, but if you are putting your money in, perhaps you are interested to read about it. You can read my two articles:

If you are a shareholder, you need to submit your W8-BEN form.

This is to firstly identify you as a non-resident USA citizen, so that you can qualify for Portfolio Interest Exemption (PIR), that your dividends will not subject to a 30% dividend withholding tax.

Secondly, it is also for the REIT to track the level of shareholdings of each shareholder to be less than 9.8%, so that they will not be in violation of the PIR.

One thing that is interesting is that, to not violate the PIR, each shareholder holding cannot be more than 9.8%.

Then how come KBS REIT III can own 24.7% of Prime US REIT?

This is answered in the Prospectus, and it was explained right at the start of the prospectus:

Fxxking wall of text.

No wonder no one reads the prospectus.

I think the general idea is that while KBS REIT III owns 24.7% of Prime US REIT, the manager have obtained an Automatic Waiver such that it will not disqualify Prime US REIT’s USA Subsidiary from qualifying as a US REIT for federal income tax purpose as long as it is advised by an independent tax adviser and let the shareholders know of the risk that this Automatic Waiver may be forfeited in the future.

This Automatic Waiver provision protects KBS REIT III from losing its US REIT status. A US REIT cannot be held by more than 50% by less than 5 or fewer individuals

Prime REIT have put in place the process of identifying substantial shareholders. The moment that a substantial shareholder crosses the threshold, the shareholder’s units will be transferred out so that the shareholder will not violate the PIR.

If you think about it, the unlisted KBS REIT III, probably are made up of shareholders that, each have smaller shares that would make up less than 9.8% of Prime US REIT if they directly own it. So this waiver probably make sense.

The risk is if this structure (as advised by an independent tax consultant) is not recognized or illegal, then the manager might be looking for at least 3 substantial shareholders!

Conclusion

I think with the recent run up in REIT prices, with the yield compressing, and the recent IPO of USA hospitality REITS ARA Hospitality and Eagle Hospitality Trust, many are thinking this is a bubble.

Sentiments wise, a sponsor will not bring a REIT to the market if they cannot get a good showing out of it. So IPO are usually released when the times are better. It will not be cheap.

However, there are REITs where it makes sense to buy at IPO because of the potential for growth. Not just that, they are recognized by the larger funds, investors as a REIT that is under good management, good growth potential, less risk (in terms of surprises), good quality assets. They will do well.

I just think that right now there are 2 REIT market, the blue chip larger capitalized ones and the smaller ones. The first market has been running, the second one, not as much.

My sensing is that due to its initial IPO size, it might be languishing for a while. Acquisitions will come in. And likely using debt and rights issue to grow it to US$ 1.2 bil. Without it being big enough, there should be limited price appreciation.

The recent lukewarm REIT IPO response certainly worked against them.

But the portfolio is not too bad. The portfolio is mainly sub-urban based Class A office, which explains the higher dividend yield, and so it looks attractive to investors. From what I see, they are all located with recreational and retail amenities.

I am still thinking about getting IPO assets with some below the market CAP Rates and what I should think about that.

There are potential for yield improvement for Prime US REIT in the future and that is where we can access the competency of the manager and their potential to organically improve the portfolio.

I also like the longer average debt expiry as this reduces some uncertainty.

I write more about REITs in Learning about REITs below:

Here are My Topical Resources on:

  1. Building Your Wealth Foundation – You know this baseline, your long term wealth should be pretty well managed
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
  4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
  5. Free Stock Portfolio Tracking Google Sheets that many love
  6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free

The Cheapest Term Life Insurance in Singapore **Updated June 2019**

by 31 Comments

Life insurance coverage against death, TPD and critical illness is necessary and most people I know do not have adequate coverage. They think it is expensive to get themselves adequately covered. However, that is not the case. Adequate life insurance can be affordable, yet leave you with good cash flow to live life.

First and foremost, the basis of insurance is for protection.

When we purchase insurance, we sought to address a particular health risk that would create monetary challenges for ourselves or our loved ones.

Some of the most common ones are:

  1. The risk that if you passed away, your loved ones will have a difficult time getting on with their lives, servicing still outstanding debts and mortgages. We buy life insurance against death for this
  2. The risk that if you suffer from some major illness or require a major hospital stay, you do not have the money to pay for astronomical inpatient or outpatient medical bills. We buy hospital and surgical plans for this
  3. The risk that if we suffer from an advanced stage illness, we do not have an income as we have to stop work, and we readily need money for miscellaneous treatment costs and alternative treatment. We buy critical illness plans to address this

There are more health risk that insurance can hedge, and a good primer on insurance is listed out in this FREE E-Book which I talked about here. If you are not sure what kind of health risk and what kind of insurance hedges those risk, this book helps you understand.

How much protection do you need to purchase? Will buying this protection cost a bomb?

Cheapest Term Life Insurance
How much you need to spend to get a 1 mil death coverage and 500k in advanced critical illness (it is affordable!)

The above table shows how much it would cost you to get covered for death, total permanent disability and advanced stage critical illness if you purchase the term insurance when you are less than 30 years old, 35 years old, 40 years old and 45 years old.

Getting adequate coverage can be pretty affordable! It would take $170 per month to insure $1 mil death and TPD plus $500,000 in late stage critical coverage at 30 years old. 

MoneyOwl, an insurance portal that allows you to compare and purchase insurance plans of companies such as Manulife, Singapore Life, Tokio Marine, Aviva, NTUC Income, Raffles Health Insurance, has come up with a set of life insurance comparison tables.

These life insurance comparison tables lets you compare and easily see for the same coverage, how much annual premiums you will pay if you purchase from each insurer.

Let us go through each sections.

Term Life Insurance for Death and Total Permanent Disability (TPD) Protection

The first area of insurance protection, protects 2 areas:

  1. the insurance assures your dependents that if you passed away, they have $X to maintain their life for Y years
  2. the insurance assures a sum paid out if the assured suffers from permanent lost of both hands above the wrists, both feet or above the ankles, one hand or one foot, or that the assured is unable to perform 3 out of 6 “Activities of Daily Living”

For example, suppose the assured K has the following profile:

  • Earns $50,000/yr
  • Youngest child will be productive (graduated from university) in 22 years
  • Amount of outstanding debts other than mortgage is $2500
  • Cost of Education when required $180,000

The total amount of coverage that K requires, works out to be roughly $1,282,500, based on MoneyOwls death and TPD protection calculator. Roughly, the insurance will need to cover the number of years of income lost due to the death event, and the debts that K have.

The table below compares the term life insurance to age 65 for a coverage of $1 million. This is for a male, non-smoker :

Term insurance for men 2019 June
Comparison: Death, TPD for $1 mil coverage for Male at different age
** click to view larger image **

For Jun 2019, Tokio Marine have been the most competitive due to a massive 20-30 limited time discount. Update: I realize I made a mistake. Tokio Marine revised down their premiums for Term Assure (II) massively as a whole. This made their plan very competitive. Aviva also reduced their premiums for the quarter.

The annual premiums for the term life insurance plans change from time to time so do not take it that once you see it here, the figures will not change.

From time to time, some term insurance distributors will have discounts on premiums if you purchase a $1 million policy. The comparison tables have factored into the price above if MoneyOwl are aware of these discounts.

Use these tables to:

  1. find out how much it will cost you to cover the amount you need
  2. see how wide the annual premiums can be for generic coverage
  3. find out which are the cheaper ones and more expensive ones

The younger you can get yourself enrolled the lower the annual premiums to pay.

The cheapest premiums for different age bands are also different. Aviva, FWD and Singapore Life looks to be the most price competitive.

If you wish to get coverage that is not $1 mil but less or more than this, it is possible. Go through their portal or contact them here.

The follow table compares the annual premium for death & TPD coverage for female:

Term insurance for female 2019 June
Comparison: Death, TPD for $1 mil coverage for Female at different age
** click to view larger image **

Again, the annual premiums for woman is cheaper with Tokio Marine due to the promotion discount.

Term Life Insurance for Critical Illness Protection (inclusive of Death and TPD)

Critical Illness Protection covers you, on top of the death and TPD protection mention previously, 37 major critical illness as defined by the Life Insurance Association (LIA).

These are illnesses that have reached advanced stage. Readers should be aware that there is critical illness protection for illnesses that are diagnose in the early stage. This is NOT that.

Typically the assured K tries to cover 3 to 5 years of his/her income and a sum of money for alternative treatment.

So if the assured K:

  1. Earns $50,000/yr
  2. Plans to have $100,000 for alternative treatment and out of pocket treatment

To be assured, K should be looking for a coverage of $250,000 to $350,000.

The following table shows the coverage for male for a sum assured of $500,000 to age 65:

advance stage critical illness Term insurance for male 2019 June
Comparison: Advanced Stage Critical Illness for $500,000 coverage for Male at different age
** click to view larger image **

For the quarter, FWD, Singapore Life and Tokio Marine are the most price competitive.

The coverage amount is less than a pure death & TPD, but the premiums is more expensive than death & TPD primarily due to the cost of the critical illness portion.

The following table compares the coverage for the female in terms of critical illness:

Comparison: Advanced Stage Critical Illness for $500,000 coverage for Female at different age
** click to view larger image **

Again, the annual premiums for woman is cheaper with FWD, Aviva, Tokio Marine and Singapore Life being the cheapest.

Compare, Get your Quote and Purchase Direct Today

You can look up, compare, then purchase the following term insurance direct from MoneyOwl:

  1. Aviva
  2. Manulife
  3. Tokio Marine
  4. Singapore Life
  5. NTUC Income
  6. Raffles Health Insurance

Get a quotation from MoneyOwl straight, and then the good folks at MoneyOwl will guide you through the process of purchasing:

Get MoneyOwl Term Insurance Direct >>

Note: If you are not so well verse in insurance protection, unsure whether the amount, or the kind of protection is what you need, yet you go to MoneyOwl because you think they will not hard sell you, you can talk to them.

While the process is DIY, they will be able to explain some of the nuances specific to the insurance protection segment you are asking. This will help you make the best protection decision.

You are in control all the way.

To purchase FWD Insurance, you can purchase the term insurance directly from them on their web portal here.

For Term Insurance of Smaller Amounts – Direct Purchase Insurance (DPI)

While the illustration shows term death and critical illness coverage of $1 mil and $500,000 respectively, you can vary the coverage based on your needs.

It does not mean the coverage is fixed.

However, MoneyOwl have shared that for term life insurance (death and TPD coverage only) that is less than $400,000, it would be more value for money if you purchase it directly from the insurers under the Direct Purchase Insurance (DPI).

The DPI is the government’s execution of one of the recommendation, to create an avenue for consumers like you and me to purchase term life and whole life insurance from the insurance company direct, and not have to go through agents.

All 12 insurers in Singapore have direct means for you to purchase, though they may be hard to find.

If the amount is $400,000 or more, or if you require critical illness coverage, then the term life insurance premium comparison table above is valid.

Explaining the Credit Rating of Insurance Companies

An insurance company credit rating is the opinion of an independent agency regarding the financial strength of an insurance company. An insurance company’s credit rating indicates its ability to pay policyholders’ claims.

The following table enables you to gauge the credit rating of insurance companies:

This article is a collaboration between Investment Moats and MoneyOwl. The views are of InvestmentMoats.com alone. I am an existing customer of MoneyOwl and recommend MoneyOwl due to the quality of the product, the service and the integrity of the people behind it.

Here are the Price comparison across the insurers during the Last Quarter in 2019 Mar

This is so that you have an idea of the price changes since last quarter.

Term Life Insurance – $1 million Coverage for Male and Female

Term Life Insurance with Critical Illness – $500k Coverage for Male and Female

Logs

2017 December Changes

HSBC Prices came down in the quarter. The prices were at least 17% higher last time around. We see some reduction in prices.

Prudential have reduce prices for Term with Critical Illness coverage in the quarter. Prices was at least 7% cheaper for life insurance with critical coverage. The plans without critical illness coverage stayed the same.

AIA comparison was taken out of the table. AIA secure Term Plus (II) Plan only provides fixed coverage duration for 5, 10, 20 or 30 years. In DIY Insurance’s comparison the terms are 25, 30, 35, 40 years.

Technically only the 30 years can be shown.

Also, since their plan do not includes total permanent disability (TPD), they were taken out of the comparison since it would not be apples to apples comparison.

Singapore Life is included. A new insurer is in town. Like FWD, in terms of their credit rating is low, all life insurers in Singapore are under the Policy Owners’ Protection Scheme, which protects up to a $500,000 cap on aggregated guaranteed sum assured.

Their prices are shown to be very price competitive.

2018 March Changes

AXA have reduced their premiums overall by 5.3% since last quarter across the various age band.

FWD insurance reduced their premiums for male term life insurance purchased when the male is 30 years old and below.

Singapore Life raised their premiums across all categories by 3.6%.

2018 June Changes

FWD insurance reduced their premiums for male term life insurance purchased when the male is 30 years old and below.

Singapore Life raised their premiums across all categories.

2018 Oct Changes

Aviva insurance premiums have went up since last quarter.

So has Manulife‘s premiums.

Both AXA and Singapore Life‘s Premiums have went down.

2018 Dec Changes