CASE STUDY ON MRS. Xi

Background Information

Singapore has, over the years, drawing the attention of many businessmen and investors from overseas based on its tremendous and continuous growth record as well as economic success. Mrs Xi, who is one such foreign investor, came across various media reports since the beginning of the year that an increasing number of foreigners have already invested or are showing keen interest in the Singapore real estate sector mainly for growth potential, ‘safety’
purposes and/or for diversification from their home country. This is in spite of the harsh economic downturn and setbacks due to the uncertainties caused by the recent onset of the COVID-19 pandemic worldwide.

As an ultra-high net worth individual (UHNWI) investor herself with an equivalent of at least SGD 750 million in net investible assets, Mrs. Xi has now decided to allocate SGD 15 million in cash to invest in the Singapore real estate sector. However, she is clueless as to the wide range of choices available in the property sector and related real estate investment opportunities here.

In your study of this course, you have covered topics that are directly relevant for Mrs Xi in her deliberations. Therefore, your role here is to advise her on what and how to invest the funds being set aside by her.

Investment Choices

As there is a wide array of choices in the real estate sector that Mrs Xi is particularly keen in, she has finally decided to narrow down her choice to cover ONLY the following 6 investment options:

I. Property stocks listed on SGX comprising Township Property Ltd. (TPL) and
Villa Real Estates Ltd. (VRE)

II. REITs listed on SGX comprising Pepper Real Estate Investment Trust (PREIT) and Salt Real Estate Investment Trust (S-REIT).

III. Real property investments comprising 2 separate properties: a leasehold
upmarket residential condominium of 1,800 sq. ft. in the upcoming Bugis / Beach

Road vicinity and a freehold commercial office unit of 1,800 sq. ft. in the Telok
Ayer / Boon Tat Street vicinity.

Both properties have been just recently completed and are available for immediate occupation. The leasehold property has a balance of some 96 years remaining

The salient features of the above investment choices are summarized in the table provided. (Note: ‘n.g.’ means data not provided and ‘not given’ but can be calculated separately; ‘mn’ stands for ‘million’)

Additional information on the above securities that Mrs. Xi can obtain is as follows:

1. TPL – An up-and-coming mid-sized developer with mainly residential projects in Singapore, although it has diversified aggressively into Indonesia, Cambodia, Vietnam, Australia and the UK over the last 5 years. Its portfolio includes prime office and hotel assets, some of which it has recently identified as non-core assets to be sold to pare down debts.

2. VRE – A large-cap Singapore-based MNC with global hotel operations and mixed property development projects. It has substantial local real estate operations, won numerous awards for its various development projects. Having recently bought a majority stake at substantial discount to book value in a China-based real estate developer in spite of the COVID-19 crisis, it was forced to write off almost the entire investment of SGD 1.5 billion. It is believed to be on the path to recovery from this episode

3. P-REIT – Its assets consist of mainly industrial factories and warehouses, purpose-built storage and data centres, logistics hubs and purpose-built distribution centres and facilities, with the latter having received positive industry and peer reviews.

4. S-REIT – Its portfolio comprises mainly retail malls, and some Grade A office and commercial space in prime CBD areas. Prior to the onslaught of the COVIC pandemic, the assets held under this REIT were thought to consist of some of the most “prized” real estate holdings in Singapore.

Assignment

Based on your understanding of the investment products and instruments that you have studied thus far, especially those relating to equity, REITs and property investments, discuss, compare, appraise and identify how you can use these tools and concepts in your recommendations to Mrs Xi. Illustrate how and why Mrs Xi. should or should not invest or allocate her funds, taking into account the full set of information and data provided above, the current state of the local economy, the prevailing sentiments in the stock and property market (including its various sub-sectors), and any other information that is readily available and accessible to you.

You are expected to provide an analysis of the relative merits, demerits and risks involved, and the potential outcomes of the specific securities or assets if Mrs Xi were to take up your recommendations.

For the purpose of this TMA 02 assignment, you can assume an annual inflation rate of 2.0 %, local bank fixed deposit rate of near 0.5 % p.a. and a property mortgage rate of 1.5 % p.a. for BOTH residential and commercial properties.

Additional Guidance Notes for Students

You should demonstrate your understanding of the investment products – especially those relating to equity, REITs and real estate investing that you have learned (please refer to your course Study Guide) – in the course of preparing your recommendation(s) with sound reasons and explanations.

As additional guidance, please consider the following:

1. List the assumptions being used, for example, liquidity, risk, expected returns and yields if applicable, and any other relevant factors (including the use of leverage or bank loans to fund property acquisition(s) if so desired) as well as risk factors used in making your recommendation(s).

2. In presenting your recommendations, you are to ignore the following expenses, fees and charges, government measures etc.:

a. Payment of commissions, stamp duties, brokerages or transaction costs, taxes (relating to property, income, and capital gains), legal, insurance or maintenance costs and charges relating to property ownership, and inheritance issues relating to Mrs Xi as a foreign investor.

b. Any government measures (whether termed as ‘cooling’ or not) or schemes imposed or amended or to be replaced such as Additional Buyers’ Stamp Duty (ABSD) or Sellers’ Stamp Duty (SSD).

c. Bank lending restrictions (such as Total Debt Servicing Ratios (TDSR)) would not be applicable for Mrs Xi considering her substantial means and creditworthiness.

3. Please remember to state the relevant steps involved in arriving at such a conclusion(s) including providing details of your assumptions and analysis and how your recommendation(s) meet these criteria.

4. As Mrs Xi is NOT an ordinary investor but is considered to be a UHNWI investor, any assumptions about her age or stage of life cycle investing may not be meaningful.

However, do consider carefully what you think should constitute her investor profile, especially her needs, risk appetite and very importantly her objectives, as these will help you determine the suitability of the various investment choices in terms of asset allocation or diversification where applicable.

a. Be sure to examine the various investment and product choices. State the reasons for your preferences (including those, if any, rejected by you) and show Mrs Xi what your actual recommendations are. Besides giving your recommendations, you will need to demonstrate to Mrs Xi the possible results and consequences if she were to take up your suggestions and follow through with your plan.

b. Be reminded that in real life investing, investors often have to rely on the analysis of various factors, both internal and external, as well as uncertainties that affect decision making, all the more given the current global economic situation. The case study on Mrs. Xi is no different as the information provided is limited. As such, you may have