Kingsmen Creatives

> In the businesses I have been involved in over the years in Singapore, it was always preferable to either lease rather than buy the real estate we needed to
> conduct our business. What am I missing here?

In the past, there is NO shortage of industrial land. Now, there is huge shortage of industrial land... many companies still want to come here (hopefully so).
Companies get squeezed by the landlord on rentals.

So the companies want to be here long term will buy their own industrial land.

Hi RBM,

I would have favoured them buying and owning their own property, rather than renting a space. As Contrarian has (rightly) pointed out, when you rent you are literally at the mercy of landlords; and what with more and more industrial property being bought over by REITs, who are in the habit of doing "Asset Enhancements" and squeezing every drop of blood from tenants to feed their investors with high yields, I'd say Kingsmen would face escalating rentals in the years to come.

Owning a property necessarily entails a huge upfront cash outlay, but after the building is completed, all that hits the P&L is depreciation which is a non-cash item. If you rent, that is a very real rental expense cum cash outflow every year.

As to why they would not rely on debt to finance this, my guess is that the theme park projects they intend to bid on are capital-intensive and may tie up quite a chunk of working capital. If their potential clients see their highly levered balance sheet, it may not be good for them to capture business (a healthy balance sheet speaks volumes and gives the impression of a Company well-managed). Also, with the knowledge that FCF can remain reasonably high every year (to the tune of about $15m to $20m), there is sufficient FCF to fund both the construction of the new development as well as provide working capital for their new projects; as well as maintain at least a 4c/share annual dividend.

What I hope now is for Kingsmen to engage Boustead Projects on a Design and Build project to construct a new building, that would be "win-win" for me hahaha!

(02-03-2013, 09:20 PM)RBM Wrote: Thank you Musicwhiz,

I buy everything you say regarding Kingsmen's need for a new Singapore HQ. But do Kingsmen really need to build and own the building? Why can't they enter into a (very) long term lease? And if it really has to be a capital expenditure........ surely there are attractive financing options available to the company for this outlay (e.g. bank mortgage loan?, corporate debt raising) rather than directly off its own balance sheet?

In the businesses I have been involved in over the years in Singapore, it was always preferable to either lease rather than buy the real estate we needed to conduct our business. What am I missing here?

Vested

(03-03-2013, 03:01 PM)Musicwhiz Wrote: Hi RBM,

I would have favoured them buying and owning their own property, rather than renting a space. As Contrarian has (rightly) pointed out, when you rent you are literally at the mercy of landlords; and what with more and more industrial property being bought over by REITs, who are in the habit of doing "Asset Enhancements" and squeezing every drop of blood from tenants to feed their investors with high yields, I'd say Kingsmen would face escalating rentals in the years to come.

The current HQ is owned by Mapletree Logistics Trust as seen from http://www.mapletree.com.sg/All-Properti...tives.aspx and like MW mentioned, REITs usually maximize shareholder value by raising rentals. Thus, it will be wise for Kingsmen to purchase its own buidling. However, it must do so prudently with high property prices currently.

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During last year's AGM, Andrew, the Group GM, was joking that they would have to have next year's AGM (this year's AGM) outside at the carpark under a tentage as Kingsmen is "bursting at its seams" (as noted by MW). If this materializes this year, it can only mean that the company has really done much better than last year (other than seeing it from their latest FY results).

> What I hope now is for Kingsmen to engage Boustead Projects on a
> esign and Build project to construct a new building, that would
> be "win-win" for me hahaha!

Boustead usually go for custom-build high-tech facilities with the MNC blue chips. If Kingsmen buildings is very generic, then I think Boustead will not be keen, because the margin will not be good due to bigger competition.

(03-03-2013, 07:16 PM)Contrarian Wrote: > What I hope now is for Kingsmen to engage Boustead Projects on a
> esign and Build project to construct a new building, that would
> be "win-win" for me hahaha!

Boustead usually go for custom-build high-tech facilities with the MNC blue chips. If Kingsmen buildings is very generic, then I think Boustead will not be keen, because the margin will not be good due to bigger competition.

just kinda noticed the announcement did not once mentioned the investigation, nor did the financial statements reflect any impairments.
They only restated the financial statements for the past 2 years.
Was hoping they would have shred more light on the matter.

(04-03-2013, 09:16 AM)l0nEr Wrote: just kinda noticed the announcement did not once mentioned the investigation, nor did the financial statements reflect any impairments.
They only restated the financial statements for the past 2 years.
Was hoping they would have shred more light on the matter.

Under CAD investigation.... cannot say too much.

(03-03-2013, 03:20 PM)FFNow Wrote: The current HQ is owned by Mapletree Logistics Trust as seen from http://www.mapletree.com.sg/All-Properti...tives.aspx and like MW mentioned, REITs usually maximize shareholder value by raising rentals. Thus, it will be wise for Kingsmen to purchase its own buidling. However, it must do so prudently with high property prices currently.

The interesting thing is,

1. MLT acquired the building from Kingsmen International on 1-Feb-07 for $13.9Mil <see item 31, pg 50 of MLT AR2007>

2. Kingsmen International is an Interested Party <pg 31, AR2007> and must have been their landlord prior to (1)

3. Latest Valuation = $17Mil <dated 15-Mar-12, item 30> ; Likely higher valuations in coming annual exercise

Sidenote: Kingsmen's co-founders were featured in the Straits Times' Lifestyle section today. Nice writeup. Some positive publicity.

Thank you for sharing this interesting information regarding the recent history of Kingsmen's Singapore HQ KopiKat,

It appears that Kingsmen's Management have not been particularly consistent vis-a-vis their strategy towards ownership/leasing decisions regarding their HQ Office. I wonder why they decided to sell & lease back their fully owned HQ office in early 2007?

I am still perplexed why Kingsmen don't at least take out a mortgage for their new HQ facility. Any way, it appears like I'm in a minority of one on this subject so I'll shut up now.

Vested

(04-03-2013, 10:01 AM)KopiKat Wrote: The interesting thing is,

1. MLT acquired the building from Kingsmen International on 1-Feb-07 for $13.9Mil <see item 31, pg 50 of MLT AR2007>

2. Kingsmen International is an Interested Party <pg 31, AR2007> and must have been their landlord prior to (1)

3. Latest Valuation = $17Mil <dated 15-Mar-12, item 30> ; Likely higher valuations in coming annual exercise

(04-03-2013, 11:40 AM)RBM Wrote: It appears that Kingsmen's Management have not been particularly consistent vis-a-vis their strategy towards ownership/leasing decisions regarding their HQ Office. I wonder why they decided to sell & lease back their fully owned HQ office in early 2007?

I was also wondering earlier and suspected that Kingsmen International is not a Related Party (to Kingsmen Creatives - the listed entity) as I couldn't find any mention of the former in the list of Subsidiaries or Associates in AR2007. Neither was there any financial item on Gain / Loss of Disposal (to Mapletree Log) for the said HQ asset.

I finally found a mention of Kingsmen International in AR2006 <pg 91>,


3. CATEGORIES OF INTERESTED PERSONS

The Controlling Shareholders and executive Directors, Mr Benedict Soh and Mr Simon Ong, are directors and shareholders of the entired issued and paid-up share capital of Kingsmen International Pte Ltd (“Kingsmen International”), each holding 50.0% of its equity interest. Ms Vera Ong Lim Guek Noi, the wife of Mr Simon Ong, and Ms Png Geok Choo Rose, the wife of Mr Benedict Soh, are also directors of Kingsmen International.

Kingsmen International is an investment holding company incorporated in Singapore with an issued and paid-up share capital of $3,600,000, and has equity interest in several Kingsmen Affiliates set out below. Accordingly, Kingsmen Affiliates are interested persons under Chapter 9 of the Listing Manual.