Straits Trading Company

[Contrarian]

> As for its REITS, the BT article states that "the net yield could be around 3 per cent." 3% yield is a good price to sell. It is not normally a
> good price to buy, unless the current rent is depressed or there are opportunities for asset enhancement etc.

Straits building has a 999 yrs lease, right next to Raffles Place MRT. So the buyer paid a premium, but for a building with a 999 lease.

Remember that Keppel Land sold 99 yrs of Ocean to K-REIT for $2500psf...

[specuvestor]

Another case of company selling key assets, like it or not market are favouring asset-light cash rich companies these days.

I agree orangetea, if it turn out to be good it will be HPL, UIC just to name a few.. I am also looking at Haw Par (value) But if it doesnt, It may end up like Wheellock maybe lousy strategic acquisition.

If the management rationale to offload their building to counter bid UE like what GG has shared previously, then I'ill rather be in UE.

Still to early to say, what they gonna do twith their money.

In general asset-light is a flawed strategy. Just like trying to outsource everything to lowest cost producers.

There are certain assets that are strategic and has to be protected or has control over. When the lease terms are up or when technology has been transferred, it will hurt these same companies tremendously after enjoying elevated ROE.

Investors are for short term gains; business owners are for long term view... but there is also no lack of business owners taking short term view for their own purposes

[Contrarian]

> In general asset-light is a flawed strategy.

Can explain your views? Most of the developers build up the green-field developments and then offload at high price and collect fee income.

Fee income is recurring.

[DP28]

Actually I concur with specuvestor.. From an traditional investment point of view, Staying invested is key.. Afterall in Straits trading case, their building is one of their prime assets.

However, in light of rising interest rate.. Many company maybe conserving cash to deploy at the "right time".

[Contrarian]

Straits Trading wants to be an investment holding company, riding on the success of its business bets.

Khim will likely bet the $400+M into ARA to seed the ARA- Straits fund. Lay the foundation as a property fund investor.

If ARA Private funds perform, Straits will get a bumper payout in 7-8 years time.

[freedom]

asset light, in today's business environment, is mostly about traditional assets, e.g. real estate.

Assuming you are a software company, such as Microsoft, and you have a huge amount of real estate in your book. You divest your real estate to be an asset light structure. Does it impact your earning greatly? I don't think so as the assets are not what makes you the money. The intangibles and human capital etc are what make money for you.

In the case of Straits Trading, the first question to ask is whether the building is making you a great amount of money. With 3% yield, I highly doubt that it is making a ton of money for the company(I did not vest the fact, just use the figure in previous posts). I don't know how much investors or the company puts on the asset inflation. If Straits Trading, the company can invest the proceeds at a higher yield(income plus asset inflation), I would conclude that it is making a great investment choice.

If the company which buys the building gets 5% yield through its own effort and gets a higher valuation thereafter, does it mean Straits Trading, the company deserves the same valuation? Not necessarily as Straits Trading has owned it very long and did not get that valuation. The valuation surplus is created by the buyer and should be rightfully enjoyed by the buyer. It only means that the buyer has a better utilization of a previously underutilized asset.

An old saying, "you reap what you sow"

[opmi]

What kind of strategy is selling family heirloom/inheritance?

Even GLCs (Ascendas/Mapletree CAPL(Pidemco)/NOL) can do that?


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[specuvestor]

Developers' business in the first place should not be landbanking. They should package the "land product", sell and recycle their capital.

Then they have investment properties for some reason or another. REITS model actually gives them the ability to recycle their capital plus earn management fees without losing control. Asset light is inherently in their business model to mitigate heavy working capital. That's where Mr Charoen of TCC is angling with all the REITS.

I was actually talking about production companies which around 5-10 years ago was keen on all these sale and leaseback schemes. Renting and owning are very different dynamics where you loses control. IIRC even DBS tried to do this asset light thingy with their DBS Tower. I draw the parallel with production outsource to lowest cost because in the short term it sounded like a good idea, if you don't care about the future SMRT as discussed, is a great example of a future "asset light" model which we can observe real time.

And is 3% yield too low for REIT? We always have financial enginering and 35/60% leverage within the REIT structure to help improve the return. Certainly it benefits the seller but the risk of leverage will be on the buyer, as we saw in 2009 when Temasek "bailed" out the GLCs.

[Contrarian]

> Developers' business in the first place should not be landbanking. They should package the "land product", sell and recycle their capital.

This is the capitaland thinking. And where is Capland now?

[specuvestor]

Excluding higher dividends, Capitaland was about $1.10 when the first REIT- CMT was listed in 17 July 2002. City Dev was about $5.80 and Wingtai was about $0.66