— rare attractions of Cambodia shops

1. 10Y rental guarantee, hassle-free, but credit risk
   • reducing (not eliminating) non-deterministic “GC” distraction when I’m under stress at work at at home
2. shops or Grade-A office — precious but location may not take off. Many China buildings are competitors.
3. quantum is much smaller than even a residential unit
4. currency — rare in affordable countries
5. reputable mgmt agency

–in early 2019, I told Susan Lee my 3 main concerns about a 4th unit — OPM reserve depletion; infatuation + concentration risk; leftover units

• 🙁 liquidity — This investment is not same as NY savings products that you can exit at any time.
• 🙁 left-over units, same price but lower value than other units
• 🙁 5.5% is much lower than 7% in BridgeRetail, but need to consider U.S. haircut
• 🙁 too high concentration? Total USD 350k, still lower than a single unit in Bayonne or SG
• 🙁 infatuation — Am currently swept off my feet by 10Y guarantee + CapitalLand + Shangri-La brands. Remember my overzealous investments into Unifund and commodities (1997) and high-yield bond (2013). It’s better to cool down for a few weeks, discuss with Jack or another fellow investor in depth and explore both the positive an negative.
• In contrast, I feel the 3rd shop unit (first PeakRetail) was a fairly aggressive decision, given the cash position I have, using wife’s 70k and grandpa’s 26k.

— funding strain –> Need to rebuild OPM reserve NOT another shop

• + I have 25k + 10k + 10k across U.S. banks. Negligible loss if withdrawn now
• + I can cash out the 2.5k from Chip
• + I can cash out the 6 GS shares
• + I have USD 9900 from grandpa but I have already borrowed 16k from grandpa — a sign of infatuation and overzealous investor.
• – I already borrowed and invested 70k from wife and 16k from grandpa — a sign of infatuation
• – I already exhausted the warehouse fund from Jay Hu — sign of infatuation
• – BGC ? may need to borrow from wife — a sign of infatuation
• – tight schedule — half the payment is due by 30 Jun 2019, the other half at TOP possibly end of 2019.
• Conclusion — Without OtherPeople’sMoney (like grandpa’s and wife’s), I really can’t afford such a shop unit.

 

Flatiron, AsiaProperties and Energy12 are high yield bonds that could default like Majestic Village.

Credit risk is the main risk, bigger than location risk, country risk etc. In fact, if you were to analyze Flatiron as a high-yield bond (with a 95% put option), then location [1] doesn’t matter in theory.

If we investors have confidence/experience in or deep knowledge on MIH, then Flatiron would be a hot bargain for all of us, to be snatched up within hours. That’s basically what I did with PeakRetail. Perhaps some of the CASA/Skylar investors snatched up the Flatiron small units likewise.

Credibility translates to higher demand and lower “discount” in the form of GRR. If MIH were a prestigious builder operating in the U.S. or Europe, offering their assets as a REIT, the GRR would be much lower, due to stronger credibility.

[1] location risk, maturity levels, asset country risk, retail/Grade-A sector risk, or supply/demand ,,, don’t matter in that theory. However, in reality, location matters at a fundamental level as location underlies credit risk, MIH cash-flow and and appreciation potential.

— history and credibility

• Skylar 5Y GRR paid since 2018
• CASA 5Y GRR paid since 2017
• Ascott partnership since 2017, approved within a month
• non-zero credibility in textile industry

–Compared to the other PP investment “choices”:
🙁 lesser known developer than Oxley
🙂 Ascott lending credibility on the residential portion. Unlike all other “choices”
🙁 high quantum
🙁 location — higher uncertainty, more raw
🙁 location — if no take-off within 10Y, then I would rely on developer to rent out my unit. They may not have my best interest.
🙁 location — may be hard to sell
🙂 location — hedge against the bkk1 district. capture the potential for both

— 10Y GRR 82% (after-tax) over 10 years.
before tax it is 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% = 95%
10Y GRR is quarterly bank deposit
current office space rental yield is 7-8%, lower than shops
— psf
PeakRetail is around SGD 1k psf
Flatiron is SGD 766 psf
— put option : exercising it has a cost — one-time transaction cost (taxes + legal etc) borne by investor. Estimated at 5%
However, after talking to Stephanie of Oxley, I feel this put option is a big insurance, backed by the credit of MIH.
— ask about debt level — no borrowing in Cambodia.
— read the contract on-site. Not too long
— tax payment procedure: Can ask PropNex local people to pay on my behalf
— ask why the GRR is different for hotel
hotel rental yield is less stable, up and down through the year.. But I think it’s due to lower credibility and lower discount; also Ascott takes a big cut. She didn’t object.

— shops are robust, thriving assets in congested cities. Shop units are still precious in many congested cities. Online retail requires delivery through traffic.

— many affluent or older buyers prefer seeing the real thing.

— Different countries have very different competitive landscapes. Singapore cinemas are doing fine but U.S. cinemas are closing.

— When television became widespread, print media were doomed, but look at now.

–Stella said for luxury goods, physical shops offer an experience

I think it’s similar to the cinema experience.

–email to Susan Lee 28 Jan

I now realize water–point provides some protection against the growing destructive competition from online shopping.

When you and Stella first pointed out the significance of water point I wasn’t convinced. Now I realize most retail business models are under increasing threat from online shopping. Units with water points can often become a retail business that’s less threatened, such as F&B, clinic, hair saloon, or food business….

Luckily, my two BridgeRetail units both have water points.

— CBD — appears to be the most mature commercial center.

I don’t know the exact location of the CBD, but PPCC seems to be next to the crowded CBD.

— bkk1 — district is mature as a shopping/retail district, esp. anchored by Aeon and Nagaworld. My 3 shop units are in the right location.

Orchard has office demands too.

— Diamond island — has some maturity as commercial location but i feel the location has limited potential as a 2nd CBD

Much more developed than PPCC.

— PPCC — most raw, most uncertain, but with the highest potential as a commercial office location.

However, Flatiron psf price is too high if without GRR.