Letter to Prof

Hi Prof ****,

We had a tutorial earlier.

For the industrial REIT recommendation, I was the person who presented the table with some of the financial ratios, i.e. yields, p/bv. I was also the one who said that this recommendation may be well out of our scope. I feel that as consultants, we are supposed to do a thorough and comprehensive job, and this calls for inputs from professionals from other fields.

The detailed analysis of stocks (analyst reports) are done by brokerage houses/banks with teams of people (comprising economists, statisticians, business analysts) who do everything from data crunching (study beta, do earnings forecast, study debt profile and refinancing risks, study cash balances and the possibilities of mergers and acquisitions, study manager fee structures and whether it incentivizes the manager to flip properties, e.g. divestment fees, etc) to interviewing the respective companies' CEOs to get an insider feel of the company.

Also, there are different investment philosophies, i.e. value investor versus growth investor vs contrarian investor, etc. A value investor would be hesitant to buy any stocks that are overvalued (premium to nav is one of the considerations). A growth investor would look at capital gains potential, then REITS which are typically used as defensive investment tools and have little capital appreciation potential would not be in their consideration. A contrarian investor would just buy when everyone else is selling, and vice versa.

My point is that the answer is 'it depends'. We need to consider all the factors and 2 weeks for preparation is too short a time for a report of the comprehensiveness that you request [or appear to demand :) ]. Also, we have to cope with 4 other modules (all 4MCs too) as well.

I would like to say that I've learnt a lot from you, and hope the learning continues till the end of the semester. I enjoy hearing your business stories, especially those of your overseas escapades.

Thank you.

Regards,

Jansen Ko

Dear Jansen:

Thanks very much for your email. I am realistic and do not expect any group to give a very thorough recommendation of any particular REIT. All the factors you mentioned below are correct.

The main learnings that are to be obtained from the tutorial is not about making the "perfect" or "most correct" recommendation. Rather, it was to get all of you to use your initiative, intelligence, knowledge and resources to pull together and analyse the essential information about the chosen sector of the property market and to learn from this process. For some groups, they discovered that their reasoning, recommendation and comments of their market sector were very lacking in solid facts and logical reasoning and full of loopholes. For others who put in more effort in THINKING through and interpreting the reports and tables/charts more thoroughly, they learned how to use information and link them to the lectures and readings to give a more convincing presentation.

In real life, you would likely work with other analysts or consultants to recommend any specific REIT. But because all of you will become real estate professionals, you still need to know something about the property market (and its key sectors) before you talk about the REIT. Every REIT has a portfolio of properties so you have to know how changes in the market and the economy will affect these properties in the REIT - will they pose threats or opportunities for the REIT?

It is not true that there is only 2 weeks to prepare for this tutorial. Most groups may start preparing only 2 weeks ago but in fact I uploaded this tutorial a long while back. And it does not matter whether you have 2 weeks or 2 days to prepare for this tutorial. Because in real life, you will always have datelines and time and resources constraints. The issue is, how you manage your time and how your group shares the responsibilities in order to do a good job.

My comments were meant to be suggestions on how every group can improve on using the fact, figures and analysis to build a convincing case. Where I criticise and ask for "proof" this is to encourage all of you to get into the discipline of backing up every statement you make with facts or reasoning and avoid making erroneous conclusions and imprecise description. It is also to "train" everyone to be "thick skinned" and strong so that you don't crumble or feel defeated when under attack. Eventually, when you start your professional life, you will grow you appreciate your tough clients because they force you to learn and push you to a higher standard of performance than lenient ones who allow you to make mistakes and blunders which may damage your reputation and don't help you to learn. All the tough questions that I throw at you has been thrown at me at one time or another by tough clients and bosses of high standards - GIC Real Estate, Capitaland, Goldman Sachs, Keppel Land Board of Directors, ING Real Estate, DBS Bank etc. They gave me a tough time but I learned so much from them that I can repeat similar questions on all of you to expose you to the high standards of the professional business world.

You notice that I do not expect any fixed "model answer" for this tutorial. Fact is, there is no one fixed answer because any investor can invest in any sector of the property market depending on his investment objectives. This tutorial is about whether you and your group can apply everything that we covered in this module and also to use your THINKING, REASONING, and READINGS / RESEARCH to explain the market and to encourage you to read a variety of real estate consultant reports so that you know the manner in which they report and market and also the limitations and misleading analysis that some consultants make. It also exposes the limitations of the URA data which tend to be rather macro in nature (more useful for urban planning) and too general to be totally useful to explain any specific sector for business purposes. It does not mean URA data is useless. It means you cannot take all their figures lock, stock and barrel without understanding their basket, their definitions and what exactly they are measuring.

If you learned how you presentation can be improved, what can be emphasised and stated and what NOT to say and if, after the tutorial you had a better understanding or idea of any specific property sector and how to handle difficult questions, this tutorial would have achieved its objective.

Still, I appreciate your being motivated and perturbed enough about this tutorial to write to me. This shows you care.......far better than being indifferent or uninterested!

Best wishes,

Prof ****