In his youth, Albert Saychuan Cheok was egoistic enough to think he could beat the markets and rule the world. But the 1997/98 Asian financial crisis changed everything.

“In my early years, I was like all the other young people with a degree — we thought we were smart, we liked to challenge the market and believed that we could beat it,” recalls the experienced banker who is now chairman of Bowsprit Capital Corp Ltd, the manager of Singapore-listed First Real Estate Investment Trust (REIT).

“In fact, I suspect that it is quite normal to be egoistic when we are young. In those years, I tried to beat the market and things went pretty well until it crashed in 1997. My fingers got burnt.”

The financial crisis shook him to the bones and he learnt a lesson he would not easily forget — never try to beat the market.

“At the time, the stock market only went up or down by 10% to 15%, so the likelihood of being issued a margin call by the bank was slim. I bought shares worth RM20 million and borrowed RM10 million from the bank,” says Cheok.

But when the stock market crashed, the value of his shares plunged to RM8 million. He had to top up his account to RM20 million or the bank would force sell his shares. His banker also told him that the bank could only lend him RM4 million.

“I survived the crisis, but spent a large part of the post-1997 years paying off my debt. The experience taught me to be quite prudent. I have become very debt-sensitive. Now, I am basically debt-free. From this investment lesson, I also learnt that there is no such thing as ‘safe margining’,” he says.

Cheok acknowledges that he has become more humble and cautious when it comes to investing because of his experience. “It made me realise that Warren Buffett was probably correct. We should take a long-term view and buy things that are fundamentally good. Buffett does not buy something and hold it for just three months,” he points out.

Today, Cheok holds a diversified portfolio — 30% in liquid investments, 30% in equities, 30% in real estate and 10% in speculative investments. He says he is not recommending this portfolio as everyone has a different risk profile.

His portfolio, however, indicates that he wants some certainty in his investments. Sometimes, the allocation changes slightly. But most of the time, he sticks to these figures.

“When it comes to equities, I have some investments in First REIT. Our investors would feel that my interests are aligned with theirs and this is good,” says Cheok.

“The rest of the equities are quite well spread out in banking, real estate and good industrial stocks in Hong Kong and Singapore. Also, I am slowly acquiring digital-oriented or tech-related stocks as they have done quite well.”

Cheok’s real estate holdings are mostly small, affordable residential properties in Hong Kong and

Singapore, where land is scarce. His liquid investments are in cash, cash equivalents and short-dated bonds.

When it comes to speculative investments, he puts his money in start-ups as an angel investor. So far, he has mostly invested in technology and logistics-related companies.

Cheok expects logistics to be the most important business as the economy grows. “Whether it is Amazon.com or Alibaba.com, you need logistics to distribute goods. Logistics means adequate transport and warehousing, as well as fast delivery. I think this presents a good chance for start-ups in the technology and logistics sectors,” he says.

When it comes to technology stocks, he prefers those that are related to payment systems. “I think this is more of a personal inclination because I am from the banking industry and its core business is payments. Everyone is looking for the perfect payment system. It requires security and certainty.”

Humble beginnings

Cheok comes from humble beginnings. His father was a mechanic-cum-panel beater and the family lived hand to mouth in Kuala Lumpur’s Chow Kit Road.

Cheok attended Batu Road Primary School. As the top performer in the Standard Six examination, he was selected for the prestigious Victoria Institution (VI).

He says his years at VI has a profound impact on his life. “The school was all about character building and leadership. Students were required to excel in studies, sports and social interaction. VI provided me with a well-rounded education and I am grateful to have studied there.”

English was Cheok’s favourite subject in school and he still remembers verses from William Shakespeare’s Merchant of Venice, which he studied in Form Three. “Shakespeare was very interesting to me. I always wondered how, at his young age, he could have purportedly written so well different types of literature. How could someone put all those words together so nicely?”

Two lines from the Merchant of Venice struck a chord with him, particularly the scene where heiress Portia pleads with moneylender Shylock to show mercy to his debtor Antonio instead of claiming his life. When Shylock asks Portia why he should, she says: “The quality of mercy is not strained; it is twice blest — it blesseth him that gives and him that takes”.

“These quotes have significant meaning to me. I think businessmen should be caring, forgiving and give back to society. A truly good businessman respects all stakeholders, shareholders, management, staff, customers and investors. Hence, one must understand mercy and twice blest to be a truly good businessman,” says Cheok.

After secondary school, many of his classmates went overseas to further their studies. Fortunately, Cheok was able to get someone to sponsor his airfare to Australia, where he worked part-time to support himself. He washed dishes at two Chinese restaurants — the Silver Dragon Restaurant and Manchurian King Restaurant. Occasionally, he would pick fruits.

“I was not highly paid, but it was enough to pay for my studies. Picking strawberries was the most back-breaking job. Apricots were easier as you only needed a ladder. All these were very character building and I learnt a lot from the experience,” he says.

Cheok excelled in every subject he took in his first year and was granted a cadetship by the Commonwealth Department of Education in his second year. “A cadetship is a higher form of a scholarship — the amount given is higher. It is as though you are starting public service and are paid a basic salary. A scholarship was A$3,000 a year while a cadetship was A$7,500,” he says.

The cadetship meant that his dish-washing and fruit-picking days were over. He used the money to pay for a room and ate proper meals. However, the education department called him a few months later, with both good and bad news.

“The bad news was that I was not entitled to the cadetship because I was a foreigner. It was a mistake because to them, my name looked European. I apologised and told them I had already spent the money, but I would repay it,” Cheok recalls.

But department said he could keep the cadetship as he deserved it. It offered to rectify the situation with an Australian citizenship instead. “It could continue offering me the cadetship if I applied for Australian citizenship. How liberal and flexible the system was. So, I did,” he beams.

Cheok won many academic awards and graduated with a first-class honours degree in economics from the University of Adelaide. Although the cadetship did not require him to join the public service, he decided to work as a cadet officer at the Department of the Treasury. But soon, another offer came.

“While working for the Treasury as a Class Two officer, I was awarded a scholarship to do a doctorate at Queens College under Professor Robinson at the University of Cambridge. I told my boss, Des Moore, that I would have to leave the Treasury because I received a scholarship to study at Cambridge,” he says.

“He told me that it would be hard to survive on my Cambridge stipend. Then, he offered to upgrade me to a Class Six officer if I did not go to Cambridge.”

Cheok took the offer. With the huge promotion, he was able to buy a house and car immediately. It was the 1970s and he was only 23.

“I bought my first house because I wanted a sense of security. An adult basically has two things on his mind — getting a car and a house. I do not like the insecurity of renting a house where I could be kicked out any time if I could not pay the increase in rental,” he says.

At the time, banks were offering loans of up to 95% of the purchase price, so house buyers would only need to come up with the remaining 5% as downpayment. But Cheok decided to put down a 30% deposit and take a 70% loan instead.

“I encourage people not to be fooled by low or no deposit housing loans. When the bank offers you a 95% or 100% loan, it will be very hard to pay it off, especially if you are earning a low income. A 100% housing loan could be problematic as you will spend many years just paying off the interest. This contributed to the subprime crisis in 2008,” he says.

“It is the same with car loans [many years ago]. The conservative view is that the useful life of a car is only about six years, yet banks used to give out 10-year or even 15-year hire purchase loans. This means that after six years, car owners are paying instalments on ‘hot air’. [When I was chairman of Bangkok Bank Bhd], I never allowed them to go into this sort of car loans, where the loan tenure is much longer than the economic life of the asset. I don’t think it is morally correct.”

Cheok rose through the ranks at the Treasury to become chief finance officer at the banking and financial institutions division in the 1980s before moving to the Reserve Bank of Australia. He left the central bank as its chief manager of banking supervision (equivalent to assistant governor) in 1989 to join the Office of the Commissioner of Banking in Hong Kong as its deputy commissioner of banking.

In 1993, Cheok joined the Hong Kong Monetary Authority as executive director of banking supervision. He eventually returned to KL and was chairman of Bangkok Bank from 1995 to 2005.

“My father-in-law’s family owns Bangkok Bank. When I was still in Hong Kong, Bank Negara required the branches of foreign banks to be self-standing subsidiaries. Thus, Bangkok Bank in Malaysia needed a chairman. So, I came back to run a commercial bank. This gave me the opportunity to do commercial banking as I was previously on the other side — regulating banks,” he says.

At Bangkok Bank, Cheok was exposed to many industries through his relationships with clients. So, when he retired in 2005, he took up directorships in listed companies from a wide range of industries, including property development, food manufacturing and distribution, coal and copper mining, chicken farming, automobile and motorcycle manufacturing, aircraft leasing and real estate investment trusts (REITs).

“Of them all, I am most enthusiastic about the hospital REIT. It was the first REIT to be listed in Singapore. And last year, I won the award for top REIT fund manager in Asia, given by Fortune Times magazine,” he says.

“We listed at 70 Singapore cents. The stock is currently trading at about S$1.45. Our yield to shareholders has been relatively stable at 7% or more per annum. For those who entered early, we have been generating an average annual return of more than 50%, including dividends over the years and special rights issues and capital appreciation.”

Why did he move from banking to other sectors? Cheok says this stems from his desire to be involved in a range of businesses other than just banking. He realised during his time as chief manager at the Reserve Bank of Australia that a lot of people are quite singular in their career path.

“There was a lack of diversity. People only knew about their particular industry. In social settings, they would became quite uncomfortable chatting about matters outside their area of specialty. At the time, I wished I knew more than just banking,” he says.

Many people were telling him that he should consider himself lucky that he was already chief manager at the age of 35. As a very senior civil servant, he could just sit tight until retirement and get his pension.

“What seemed like good news to others was worrisome to me. I was thinking, I would be sitting here doing the same job for the next 30 years. A lot of people would like that kind of security and see it as a blessing. But I said to myself, ‘The world is so diverse, why don’t I explore the world a bit?’ So, I did,” says Cheok.

Looking back, the 66-year-old is thankful to God for what he has achieved. When asked about his retirement plans, the self-confessed workaholic says he hopes to continue contributing to society.

“I am too young to retire. I have a desire to share my accumulated skills, experience and intuition with others. I enjoy participating in board meetings. There is always an advantage to be able to say I have been through different types of cases before. Experience matters,” he says.

“In my retirement, I plan to do more social projects that benefit society. For example, I could advise orphanages on how to run their operations better, or how to run a retirement home better, or give free lectures to young people.”

Cheok also plans to speak up on issues surrounding corporate governance. As vice-president of the Malaysian Institute of Corporate Governance, he believes better corporate governance will promote greater trust and confidence in the country and lead to more investment flows into the country.

He has a long bucket list. “There is a city I have always wanted to visit — St Petersburg in Russia — because there is a painting of great biblical significance there called The Return of the Prodigal Son by Rembrandt.”

The painting, he says, represents a different aspect of what Shakespeare’s Merchant of Venice mentions about mercy. The well-organised artwork depicts a loving father embracing his son who had criticised and dishonoured him.

“Most fathers would not accept the son back, but this father hugged and accepted him. What better picture to express the quality of mercy shown by the father to his prodigal son than this painting?” asks Cheok.

‘A changeover year’

Albert Saychuan Cheok, chairman of Bowsprit Capital Corp Ltd, says this will be a changeover year. “That means what happens this year will provide direction for what is up ahead. Looking back, we know that big changes have occurred, such as Donald Trump’s election, Brexit, developments in the oil and gas and commodity sectors, and the disruptive advances in digital technology. But these are not necessarily bad things.”

As he sees it, investors are waiting. They are waiting for the issues surrounding infrastructure and the political system to be settled in the US. Instead of worrying over who is in power, investors tend to be more concerned about how the fabric of society would look like so as to build accordingly from there, he says.

“This year will be a very interesting one. It will be a year where true entrepreneurs keep awake, working out the issues, doing their sums and thinking a lot. It will not be as boring and gloomy as one might think,” says Cheok.

The next shock could come at Germany’s general election in September, he says. “If Chancellor Angela Merkel wins, we know that there will be some leadership left in Europe. A strong Europe goes well with a strong UK. It does not matter whether the UK is on its own or not.

“The final tremor is what will be the consequence of Trump leaving the Trans-Pacific Partnership. My call is that the rest of the countries will proceed without the US. China will probably take advantage of the vacuum. Life goes on.”

Cheok thinks that people have overemphasised the power of the US president. “If there is so much freedom, former president Barack Obama would have got more things done. But he did not. They were either crowded out by the Republicans in Congress or crowded out by the bureaucrats,” he points out.

“Let’s not talk about Trump like he is the dictator of El Salvador. The founding fathers of the US made sure that when they wrote the Constitution, there was separation of legislative, executive and judicial powers. Then, there is the central bank and Congress.

Ultimately, it will be what people do that matters. “It may not be a year to celebrate. But neither will it be a year to mourn. It will be a year of deliberate and tactical thinking,” says Cheok.

First REIT

First Real Estate Investment Trust (REIT) is Singapore’s first healthcare REIT. It has a diversified portfolio of assets worth S$1.27 billion. Its assets include hospitals, nursing homes and an integrated hospital and hotel, located in Singapore, Indonesia and South Korea.

Albert Saychuan Cheok, chairman of Bowsprit Capital Corp Ltd, which manages the REIT, says it is important to provide investors with certainty in all economic cycles. And First REIT is in a prime position to deliver as its portfolio is driven by the healthcare sector, which is cyclically neutral.

“Certainty and stability are clearly demanded by investors. So, we should provide them with that,” he says.

First REIT has a growth model that will provide stable returns for the next 10 years. Cheok says it only invests in healthcare or healthcare-related properties that are yield-accretive. The REIT has also adopted an investment strategy that is expected to produce steady returns for investors.

“The pressure is on me to keep finding better hospitals in the sense that they will protect the yield. We will not invest in a property that will bring down the overall yield,” he says.

“There are some first-class hospitals in Australia. I like them, but they only yield 2%. Therefore, I cannot invest in these hospitals. Yield-accretive is our first promise.”

Cheok points out that the healthcare REIT is not directly involved in running the hospitals. “The manager just has to ensure that it has a good hospital operator that is able to generate good income. In short, the business is about collecting rental income that will grow steadily over the years.

“The base rent of leases for Indonesian properties are pegged to the Singapore dollar, while the leases for South Korean properties are denominated in the US dollar. These measures are to protect the REIT’s profits from being heavily affected by currency volatility.”

The way for a REIT to grow financially is organically and by acquisition, says Cheok. So, the management must find a way to grow its rental income. Another way to do this is to have more properties in the portfolio.

“The problem is, where do we buy? It is not buying for buying’s sake. We have 25 hospitals under the Lippo Group, our sponsor in Indonesia. It plans to have 50 hospitals in three years’ time. We are eyeing these properties and have the right of first refusal,” he says.

Lippo is Indonesia’s largest listed property developer by market capitalisation, assets and revenue. It operates private hospital group Siloam Hospitals Group.

Cheok says a REIT manager should remember that shareholders do not want the trust to grow at the expense of having their shares diluted. Capital management is an important part of this, he points out. The REIT needs to borrow the right amount at the right time.

“We believe there is an appropriate capital mix. The law allows us to borrow up to 45%, but our internal limit is only 35% to 40%. The reason being, if we are overly geared, the bank cannot lend us anymore. Be mindful to always keep some space for more borrowings in the future,” he says.

“The timing of the borrowing is essential. First REIT never borrows until it seals an acquisition. Of course, we will start talking to the banks. But we will not borrow from the bank until we have the acquisition ready. This ensures that we do not pay interest for nothing. We do not want to have a ‘negative carry’.”

Cheok says he has a particular interest in the private healthcare sector because he noticed early in life that public hospitals could not deliver what the people wanted. Incidentally, his father-in-law started the first private hospital in Thailand — the Bumrungrad Hospital.

As chairman of First REIT, Cheok looked at the models of Bumrungrad Hospital and Lippo and preferred the latter’s as it enjoys economies of scale while allowing internal and continuous growth. “The Lippo model is not just about running a hospital. It stems from the belief that the hospital will grow with the economy,” he says.

“As the economy grows, the need for healthcare will grow. This presents the opportunity to have many hospitals. So, you can experiment with different combinations of specialist hospitals, general hospitals and medical centres.”

Cheok believes that First REIT is in the right sector. “Compared with industrial, office or shopping mall REITs, the healthcare REIT is cyclically neutral,” he says.

“If you need to see a doctor, it does not matter if the country is in a recession. But if you go into a cyclically oriented business, you have to wait for the boom to come.”

Moreover, the REIT’s portfolio hospitals are operating in high-yielding economies. And consumption in these countries are mainly driven by a growing middle class.

“In the old days, the wealthy in developing countries would go overseas to seek medical treatment. But as the economies develop, the growing middle class can afford to get quality medical treatment locally,” says Cheok.

“Today, I would say 35% of Indonesia is in the middle class. Once it reaches 45%, it has a self-generating economy. That is why I believe First REIT is in the right place at the right time.”

First REIT’s future looks bright. In its latest financial report, it says the opportunities for further yield-accretive acquisitions in the healthcare sector remain strong with its right of first refusal to Lippo’s growing pipeline of hospitals.

On Jan 17, the REIT announced a distribution per unit of 8.47 Singapore cents for last year — the highest annual distribution since its listing in 2006. This was 2% higher from its distribution for 2015.

According to Bloomberg, First REIT had a one-year return of 17.59% as at Jan 25. Its price-earnings ratio stood at 24.57 times.

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