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Weekly Thoughts: Of Monk, Warriors & BDSM, OUE Commercial REIT Rights Issue and Re-Arranging the Time Spent

If there is one thing that I learn from the cult of Warren Buffett, it is that to be a good investor you have to read a lot. Well, I think we should read mainly on financial statements, and knowledge revolving the business that we are prospecting.

However, we do not know what are the kind of companies that landed on our lap. They could seem like attractively priced companies but we are not familiar with it. The solution to this, is to read more in different areas so that, when they land on your lap, it might be something you encounter before. Reading, is also investing in your human capital.

Penning your thoughts, is a mental practice of reflection, and also a proven way to remember things better.

Weekly thoughts is my meditation. And if you are interested, my thoughts on certain wealth topics that I came across in the week, or interesting topics I came across. You will also find me explaining, or answering readers, ranting about stuff that gets me riled up.

I try to be as unfiltered as possible.

In Praise of the Monks, Warriors and Peasants

In the past week the financial blog sphere was lit up when one of Dr Wealth’s newest recruit wrote a piece on why we should not focus on cutting things like Starbucks but instead focus on earning more. There was a lot of back and forth especially on BIGS World where people question Marcus’s argument, which seems to be tilting so that he showed saving on Starbucks in a year does not save you much, but instead focus on investing will net you much more.

So the bunch of them pushed Dr Wealth into a corner and his boss came out with his Zanpakuto and immediately go Bankai on us with this piece on are financial bloggers suffering? Alvin does not write enough. But if you push him into a corner then you might lived to regret coming after his guys.

Then Thomas at 15HWW, took us to the land of Sophistia, where Lord Lee reminisce with Reverend Ren about what if Reverend was more ambitious as a person instead of being a monk.

Chris then question whether our perception of suffering is really, indeed suffering, with a cute BDSM analogy:

I would instead argue that high octane entrepreneurs, super-FIRErs and BDSM enthusiasts have one thing in common : They belong to deviant subcultures that are misunderstood by members of the public.

Sub-cultures engage in conflict because of difference in what french sociologist Pierre Bourdieu would call a habitus. 

The habitus of a FIREr is that they dress and eat simply. A lot of their social capital is tied to the books they read and whatever investing strategies they have. Books FIREr’s read include Your Money or Your Life by Vicki Robin.

Kate @ minimalist in the city writes about her path being a farmer. Tried to take up arms and be a warrior. Failed miserably and decide to return being a farmer instead.

What is next for her? Nunship beckons.

Truth to be told, at this point I don’t care if financial bloggers are suffering, our perception of suffering or whether we should try to take more risk.

I am just glad that very good writers take this opportunity to express themselves, putting their point across in a creative and civil manner. Folks like Thomas from 15HWW, Thomas from Bully the Bear, Jon from Dr Wealth, Lionel from Cheerful Egg and Alison can really tell stories if they want to.

Too often, this space in personal finance, writing about investment gets too stale.

It is either us talking about net worth, our budget, what is in our portfolio, the impact on the latest government financial policies, buy this credit card, sign up for these course.

We didn’t get a chance to express ourselves as a community, provide a perspective of how we see an opinion about a common subject we feel strongly about.

Sometimes it goes back to what Alvin say about knowing your boldness, your ambition and be willing to push the envelope. Walk out the door into a world with more uncertainty. You do not know how readers would react, and often times it might not turned out very well, but over time you will definitely grow as a writer.

Finally, as financial blogger who invest, I would say we have tested our ambition somewhat.

We are not just people saving money in our bank accounts, looking for areas to cut. We started not knowing how to invest but take tiny steps to start figuring out how to invest. This is so that we can accumulate wealth faster.

It might be a small step but that does show some boldness.

OUE Commercial Rights Issue and the OUE Ltd, Lippo Side Show

OUE Commercial REIT announced that they will be proposing the acquisition of OUE Downtown. The property has a net property income yield of 5%, has a land lease of 48 years left, a WALE of about 2.1 years. However, this acquisition comes with income support. Taking out the income support and this property would yield 4%.

The income support has some justification in that, the WALE is rather short, and the rental rates was signed during the last few years where office faced much oversupply. The 5% NPI yield is based on a reversion to current market rent levels.

OUE Commercial will be funding the S$908 mil purchase with a combination of S$361 mil in debt and S$587 mil in rights issue.

The rights issue is deeply discounted at 83 rights for every 100 rights at a price of S$0.456.

One day after the announcement, OUE Commercial REIT share price plunge from 68 cents to 61 cents. This reduces the TERP or theoretical ex rights price.

I see there are some discussion about whether OUE Com should be issuing below their book value but to me just look at whether it is DPU accretive in the first place. Prior to this OUE Commercial have a rather high level of debt so the only way that they could acquire is a near 50% equity 50% debt. The problem is that their share price have been weak so their cost of equity is pretty expensive.

The eventual capital financing equation needs to beat like 6.7% yield and now 7.5% yield (see my Dividend Stock Tracker) and with a 5% NPI yield with equal weight financing this is not going to work out.

So this deal is bad for existing shareholders. Institutional investors would not bite on placement or renounce-able rights issue, so the only way to fund it is through a heavy discount rights.

Management tried to justify that the property is attractively value compared to the land lease of recent commercial transactions and their per square foot price.

I think even at 4% NPI yield it does not look expensive. If you read my article on Manulife US REIT, you would realize that the grade A local properties have lower cap rates. However, their land lease is much longer.

If you buy a short land lease property, your yield is higher, and part of your return should be a return of your capital instead of a return on capital.

This whole deal looks forced.

And if you put it together to OUE Ltd, and OUE Healthcare’s purchase of First REIT’s manager and stake in First REIT, it really show that this whole elaborate corporate actions is a bail out of Lippo Group.

They must be really short of money.

Now OUE Commercial Shareholders have to bear the brunt of this.

I think at the end of the day these rights issue, if you do not subscribe you will lose money, but if you wish to actually you could have gotten out on the first day. However, if you did not get out on the first day, you have to either bite the bullet for the lost, or go ahead and take more excess rights.

I am not sure whether there will be a lot of excess rights, but like what my friend B from Forever Financial Freedom said, once it goes XD, the rights might trade at an discount.

Thus there are people buying 1 lot of OUE Commercial with the goal of applying for a lot of excess rights. When you do that and you get a big allocation, you win because it allows you to buy at a share price that is heavily discounted.

NTUC Enterprise Buys over Kopitiam

We also got the news that NTUC Enterprise will buy over private food centre operator Kopitiam. Kopitiam as we all know operates a lot of food centres in Singapore.

NTUC operates FoodFare.

If I remember well, NTUC Enterprise has a fundamental objective to ensure that certain goods and services are available to the masses and at an affordable price.

In the last 2 years, I do remember watching TV and they were contrasting the cost of food stall rental between privately owned food centres and that of FoodFare. FoodFare to the hawkers, are far cheaper and perhaps it is not that they are cheap, but the private ones can be rather expensive.

I can remember that when my local Kopitiam opened in the town centre a few years ago, within a few months a lot of the stalls closed down. The cost was reputed to be very expensive.

These days my place have 2 Kopitiams and I believe I haven’t saw any empty stalls for some time.

I have a feeling that the government really wish to control a core spending item and prevent uncontrolled inflation.

Transport, Housing and Dining Out are big expenses. The last one was usually taken care of by private entities. Of course if you are richer, you can afford Shopping Center’s restaurants.

However, NTUC Enterprise’s role is to control the food cost of lower and middle income, and that starts from controlling the stall rental cost, and how much meals will cost.

Food cost is more definitely versus 5 years ago but they are still manageable in my books. However, I can see the lower income not having much choices and having to spend a large part of their income in this area.

On Semi-Retirement and Fulfillment – Der Shing’s Sharing

Former Jobs Central boss Lim Der Shing updated his blog on how his retirement is like.

I wouldn’t classify him as retired and as you can read from this post, he shares with us what he found unmanageable in the past and how he rectify his situation.

  • 40% angel investing or AngelCentral work
  • 10% Advisory roles with 2 venture type funds
  • 10% Volunteer work with ITE, PEP, SWCDC, ACE forums etc.
  • 5% Portfolio management
First 2 are all to do with tech and startup ecosystem.  So it becomes a nice meaty role where my wife and i are focused on investing and helping early stage startups and investors. Right now we have done almost 30 startup investments and early stage funds. By having significant skin in the game, it aligns things for us. On paper looks good, but i am reminded even Series B or C startups can fail and end up returning pennies on the dollar.
So we are careful with rest of portfolio. To free up time and bandwidth, I tweaked portfolio approach to trade a lot less and build a core equity in ACWI index instead and have a decent amount of fixed income.

To an extend, I can relate that when you have multiple roles (work, family, managing your personal portfolio, Investment Moats, BIGScribe, friends), you sometimes feel really uncomfortable because you didn’t get the right balance.

The right thing… is perhaps to draw better boundaries and be more focus and mindful when dealing in each role. Multi-tasking doesn’t work so well.

I think another take away about focus is the way he also tweak his portfolio to be geared to less effort in certain areas. The returns might be lower, but effort adjusted, it might suit your lifestyle more.

Here are My Topical Resources on:

  1. Building Your Wealth Foundation – It is imperative you know these stuff as early as possible, because this is the most important stuff
  2. Active Investing – For the active stock investors. My deeper thoughts from my stock investing experience
  3. Learning about REITs – The Deeper stuff on REIT investing
  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

Past Weekly Thoughts:

  • Financial Bloggers focus on saving money, Benchmarking Your Income, and Quality of Life, Developing Safe Channels and S-VACC | Link
  • Money as a Prison or Freedom, Promoting Financial Calculators, Doctor Shaming, Risk Seeking in Crypto | Link 




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Wednesday 26th of September 2018

Still waiting for your thoughts on first reit. Insider trading? Can leeport?


Thursday 27th of September 2018

who is doing the insider trading?


Wednesday 26th of September 2018

A bankai indeed. And yet, it is not something I didn't already know about myself.

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