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Find out also how they use technology to give them a competitive edge.

This could just inspire you to take that first step.
Read: Own an online shop!

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Sabana REIT: Convertible Sukuk.

Some time back, I wrote about how perpetual bonds could be a good thing for REITs if they could use the funds raised to acquire yield accretive properties. Imagine borrowing at a lower interest rate to invest in a property with a NPI yield higher than the cost of debt. This is good news for existing unitholders.

Sabana REIT has announced a Convertible Sukuk which will raise S$80m. What is Sukuk? The easiest way to understand it is to think of it as an Islamic Bond. So, a Convertible Sukuk is a Convertible Bond.

The Sukuk will carry a profit rate of 4.5% and are due in September 2012. If the conversion to new units takes place, there will be 67,040,979 new units issued (about 10.5% of all units currently in issue).

Read announcement: here.

Sukuk holders could exercise the option to convert to new units after 9 November 2012. The initial conversion price is $1.1933 per unit. This is some 5.6% higher than the closing price of $1.13 in the last session.

If my understanding is correct, Sukuk differ from conventional bonds in that they do not take interest payment but, instead, they will take partial ownership of the business or assets. This is why the coupon of 4.5% is referred to as profit rate. Interesting.

Read announcement: here.

Property to be purchased:
23 Serangoon North Avenue 5.

Remaining land lease: 44.2 years

Purchase price: S$61.0m

Read about the property to be acquired: here.

I feel that the cost of debt at 4.5% per annum is somewhat pricey but Sabana REIT is a smallish outfit and the higher profit rate is to compensate for perceived higher risk, I suppose. It is similar to what Saizen REIT pays for some of its bank loans, for example. So, no big issue here.

I am not able to find information on the NPI which 23 Serangoon North Avenue 5 will generate for the REIT but I am assuming that it is yield accretive as announced by the manager. So, the NPI yield should be much higher than the cost of debt of 4.5% as the REIT's current portfolio has an average NPI yield of 7.3%. The purchase should be DPU accretive as well.

If the Convertible Sukuk are all converted to new units in the REIT, there will be a dilutive effect as they represent some 10.5% of the total units in issue now. However, the benefit is that they become equity in the REIT and not debt. This will, then, have a benign effect on gearing.

Do we stay invested and take the good with the bad or do we take our money elsewhere?

Related post:
Sabana REIT: 2Q 2012 DPU 2.27c.

First REIT: Acquisitions in Manado and Makasar. (Amended)

First REIT is acquiring two properties from its sponsor, PT Lippo Karawaci Tbk.

The two are Siloam Hospitals Manado & Hotel Aryaduta Manado at S$83.6 million, and Siloam Hospitals Makassar at S$59.3 million. The prices are at a discount of 10.78% and 9.81% to valuations, respectively.

The purchases will be funded through debt and a private placement.

Some pro forma numbers:

Total asset size:
S$782.2m or an increase of 26.4%.

NAV/unit: 84c.

Annual DPU: 7.45c. 6.77c.

Read press release: here.

What really interests me is the DPU here. An annual value of 7.45c 6.77c will approximate 1.86c 1.692c per quarter.

Regular readers will remember that I said a safer way to value First REIT was to use a quarterly DPU of 1.6c as it would remove the special distributions resulting from the sale of the REIT's Adam Road property. This is especially so if the management should be tardy in moving to improve the REIT's income.

Well, the special distributions have run out but the proposed acquisitions will take in S$14.1m in annual net rental income which is equivalent to a quarter of the REIT's annual revenue from its current portfolio. Therefore, the proposed acquisitions will keep the REIT's DPU more or less unchanged which would, in turn, lend support to its much higher unit price today. Now, I wonder if this is enough to lend support to its much higher unit price today.

At last session's closing price of $1.03 a unit, we will be looking at a pro forma distribution yield of 7.233% 6.573%. This is probably still attractive enough for many in the current low interest rate environment.

Related post:
First REIT: 2Q 2012 DPU unchanged.

Tea with AK71: Breakfast and lunch for 96c.

What did I have for breakfast and lunch today?

Breafast: Oatmeal! My favourite!

A 1 kg pack of rolled oats costs less than S$5.00 and is enough for 20 servings or more. So, each serving costs 30c to prepare, perhaps. I would cook enough for 3 servings each time. Keep them in the fridge and bring 1 serving to work daily for the next 3 days.

Lunch: Cup noodles!

I used to eat instant noodles frequently but I have cut down on these a lot in the last few years. I bought some two nights ago when I went grocery shopping at NTUC Fairprice with my mother after taking a walk to the neighbourhood park together. Only $5.95 for 9 cups! That is 66c a cup! Cheap!

*Hot water courtesy of the office pantry.

Total cost of breakfast and lunch today: 96c.

Related post:
Inflation hits fried bee hoon.

Young working Singaporeans, you are OK. Really?

This was just in the news:

Young Singaporeans in the workforce today will have adequate savings in their Central Provident Fund (CPF) accounts by the time they retire, according to an independent study by the Ministry of Manpower.

A recent study using the Income Replacement Rate or IRR indicates that Singaporeans are adequately covered.

Pension economists measure retirement adequacy by using an IRR, which is the ratio of retirement monthly income to pre-retirement monthly earnings.

The study found that a median male earner who enters the workforce today will be able to achieve an IRR of over 70 per cent through his CPF savings.

For the female median earner, the equivalent IRR is 63 per cent.

These figures are similar to those of countries of the Organisation for Economic Co-operation and Development (OECD).

The IRR for the median OECD economies is 66 per cent. The World Bank recommends a range of between 53 and 78 per cent.

The rate is significantly higher in Singapore when it takes into account the fact that Singaporeans have their own homes when they retire.

Cash is freed for other living expenses as they do not have to pay rental fees.

With Workfare, which supplements the wages of low-income workers, the IRR is even higher -- at 93 per cent.

Read the full article: here

I find it impressive that a young Singaporean male who joins the workforce today would be able to have a retirement income equivalent to 70% of his pre-retirement earnings just by drawing on his CPF savings. I suppose this is assuming that he is gainfully employed without significant periods of unemployment till age 65.

I have always thought that it is impossible for us to retire and have a standard of living comparable to pre-retirement if we were to rely on our CPF money alone. Now, if someone is able to have an IRR of 70 to 93% at the official retirement age of 65, it comes rather close.

So, does this mean that people no longer have to make their savings work harder and learn how to invest their money to beat inflation? Ah, inflation!

I assume that upon retirement, our monthly withdrawal of our CPF money is a constant number. This is what CPF Life will do for us, if I understand it correctly. This means that our monthly "allowance" from our CPF would stay the same nominally till the day we bid farewell to this world or am I wrong? So, even though someone could have an IRR of 70%, that someone's standard of living could worsen with time due to inflation, could it not?

I would still encourage all Singaporeans to be more pro-active in managing their money and growing their wealth. It is risky to think that our CPF money will be enough, financially, to provide for our old age.

Of course, there are those who would like to retire before hitting 65 but that is another story.

Related posts:
1. SRS, CPF-OA, CPF-SA.
2. Do you want to be richer?
3. Wage slaves should be fearful.

Tea with AK71: Inflation hits fried bee hoon.

Today, I went to the "economic fried bee hoon" store near my office to buy breakfast. I like fried bee hoon a lot. It is inexpensive and tasty. However, I would try to restrict it to once a week or fortnight. It is still less expensive to bring my own food to work (e.g. oatmeal).

I would usually order fried bee hoon with a piece of tofu to make it a more nutritious meal. Price? $1.50. If I am not feeling very hungry, I would have half of it for breakfast and keep the rest for lunch. Two meals for $1.50! I like this too.

We all know that inflation has come fast and furious to Singapore. For a while, I thought my favourite fried bee hoon would be spared as the price has remained the same since last year. I am mistaken. Today, I paid $1.70. So? It is only 20c more, right? It is actually an 11.76% increase in price!

Imagine how this would affect someone who does not have the habit of bringing food from home to work. If his eating out food bill is $300.00 a month, it would mean paying $35.37 more every month! That is enough for a nice dinner for me at Soup Restaurant and still have money left over for some grocery shopping.

With QE3 launched by the Mr. Ben Bernanke, inflation could get worse. Time to get cooking.

Related posts:
1. A simple meal.
2. Another budget meal.
3. A healthy, low cost meal.
4. Korean noodles for lunch.
5. A loaf of bread.

Fraud: Credit cards.

When I was in Los Angeles with my dad once many years ago, he tried to buy some chocolates at the airport but his card was declined. The cashier told him that a message appeared on the machine that he was to call the card centre. My dad was puzzled since he promptly paid his credit card bills each month.

Anyway, he called the card centre using his ICC at a public phone booth. In case you are wondering what on earth is an ICC, it was an International Calling Card issued by Singtel for people who were travelling overseas in the past. I don't think ICC exists now.

The card centre lady asked him where he was and told him his credit card was used in a petrol station in Johor just two hours ago! Wow! My dad must have had taken something faster than the Concord to travel from the USA to Johor and then back in two hours.

There are risky places to use credit cards and we have to be very careful:

Flea MarketsFlea market merchants are often transient and can be difficult to locate if there is a problem with charges. It's especially true for vendors who don't have online credit card terminals and instead make carbon copies of your credit card.

That doesn't mean those vendors are necessarily fraudulent, but it makes the transaction less secure. The credit card company might have trouble doing a charge back. If you're going to the flea market, take cash. It's also easier to negotiate that way.

Small Shops/Cafes in Foreign Countries
These smaller merchants have a significantly higher percentage of credit card fraud as reported by large banks and credit card companies. Many of these transactions end up being written off by the banks because the merchants simply can't be located. There's just a higher chance of fraud when you get outside of the mainstream, so when in doubt, use cash.

For the full article, read:
The Riskiest Places to Use Your Credit Card

China Minzhong: Emerging from a down trend.

The last time I blogged about China Minzhong, I said that the longer term downtrend was still intact. Has this changed? Yes, it broke out of this downtrend middle of August and briefly went under the trend line in early September.

Both MACD and MFI have formed higher lows. Breaking the down trend with stronger positive momentum is good news for the bulls. Now, all eyes would be on 78.5c, the recent high of 23 August as well as the declining 200d MA at 80c. If price action is able to break these resistance levels and move higher, we could see a move to test a band of resistance between 88c to 94c.

In case of further weakness, I see support at 66c, provided by the 50d MA. Stronger support is at 63c, the top of a 5 months base formation (March to August 2012). I would be accumulating on weakness.

------------------------

We expect higher operating cash flow and less Capex in FY13, thus the first positive free cash flow in three years. We cannot rule out the possibility that Minzhong will pay dividends or buy back shares in FY13. Although we have not put in any dividends payments or share buyback forecast as our base case, we believe such actions will boost the valuation if they eventuate. (Kim Eng, 28 August 2012)

Related post:
China Minzhong: Pushing higher.

Wilmar: Is the tide turning as buying pressure returns?

I bought more shares of Wilmar as its price went to a new low yesterday. Some might question why I did this. Was I not afraid of losing even more money? Well, it was a calculated risk based on certain technical signs.

As Wilmar's share price went lower, I noticed that the CMF was forming higher lows. So, share price was forming a positive divergence with the CMF. What is CMF?

CMF stands for Chaikin Money Flow. This is a money flow oscillator that measures buying and selling pressure. When the CMF is in positive territory, the bulls have the upper hand. When it is in negative territory, the bears are stronger.

So, if we look at Wilmar's chart, selling pressure was reducing even as its share price drifted lower.  We can see the selling pressure letting up with the CMF forming higher lows. It is a process.

When the CMF forms a bullish divergence while still in negative territory, it is saying that selling pressure is reducing. When the CMF crosses over to positive territory, it is saying that smart money has moved back in and selling pressure has given in to buying pressure. So, the smart money are buying as weaker long holders or late short sellers continue to sell at lower prices. Yes, price could continue to move lower even as buying pressure returned and it did.

Those who short sold as share price retested and broke the low of $3.04 just a few sessions ago probably contributed to the heavy buying today as they scurried to close their short positions.

If we double check with the MACD which is a pure price oscillator, we notice that it did not form new lows even as share price moved lower. If we check the MFI, a favourite of mine as it takes in price and volume and more effectively measures demand, we see it forming a higher low as price formed a lower low. Another positive divergence.

With central banks around the world easing monetary supply, expectations are for commodities and other cyclicals to do much better in future. Wilmar seems like a logical beneficiary.

I would pay attention to the declining 50dMA. At $3.32, it is just 8c away from today's closing price of $3.24. If it should be overcome on high volume, it would attract more buyers and force more shortists to close their positions. Then, we could see price going higher to test the support turned resistance at $3.52.

--------------------------

Wilmar said on Thursday it had repurchased 7.4 million shares from the open market, representing 0.115% of outstanding shares, at $3.00 each.

“The buyback is because Wilmar is good value at these prices. It also reflects the confidence that the Wilmar board has in the long term fundamentals and growth prospects of the group,” Wilmar’s spokeswoman said in an email.

REUTERS

Religare Health Trust: 8.5 to 9% yield.

A new business trust to be listed soon in Singapore, it seems.

Religare Health Trust, which will own assets managed by Indian hospital group Fortis, is offering an indicative yield of 8.5% to 9% for its initial public offering that could raise as much as $500 million. The units offered will comprise about 70% of the total, the source added.

The listing is planned in the third week of October, sources said.

Religare Health Trust has a mandate to invest in medical and healthcare assets and services in Asia, Australasia and emerging markets, Fortis Healthcare has said previously.

Source: REUTERS

Fortis Healthcare is controlled by billionaire brothers
Malvinder and Shivinder Mohan Singh.

The distribution yield is tempting, for sure. However, I wonder what is the debt level going to be like. After all, it was reported in August that Fortis Healthcare, the sponsor of the trust, has a very heavy debt burden.

Religare Health Trust is set to launch an up to US$400 million ($498 million) initial public offering in Singapore, a source said, in a move that will allow the backer of the trust, Indian hospitals group Fortis Healthcare, to cut its substantial debt level.

Fortis is India’s No. 2 hospitals operator after Apollo Hospitals Enterprise. It had consolidated net debt of 62.37 billion Indian rupees ($1.39 billion) as of end-June.

Source: REUTERS

Details are lacking at the moment. What is the gearing level going to be like, pro forma? What is the NAV/unit? Apart from hospitals in India, where and what are the other assets to be held by the trust? Are the assets of good quality?

Apart from watching some documentaries and news coverage on the country, India is a country I barely know. This is also only the second listing in Singapore by an Indian company. Some of us might remember that in 2009, there was Indiabulls Properties Investment Trust.

To trust or not to trust? I will need more information.

Tea with AK71: Tonkatsu, Saizen REIT, Mazda cars.

Many things happened in my life lately. Some good and some bad. Well, mostly bad, I feel. Anyway, all I can do is to soldier on and roll with the punches. Take the good with the bad.

Today, after going out in the morning for an extended family gathering, I detoured to Orchard Road to take in the sights and have lunch at a tonkatsu place in the basement of Ion Orchard which my sister brought me to once before. It is called Ginza Bairin. Very good and cheaper than Tonkichi. The generous portion really filled me up too.

Fillet Katsu Set. $16.90. 3 pieces of fillet katsu which I prefer to loin katsu as it has less fats.
Served with rice, miso soup, pickle, salad, a really generous slice of fresh lemon (not the dried up type) and two sauces for the salad and tonkatsu.

Then, I bought the latest issue of The EDGE and went to Scotts Square's UOB to rest my feet. Only my second time there after I discovered that they serve a very fragrant Osmanthus green tea a couple of months ago. I asked for the same tea again today.

The least expensive apartment at Scotts Square is 600+ sq ft in size and has a price tag of $2.2m. As much as I like the place, it is unlikely that I would ever be able to buy a unit there. So, I can only enjoy the view from UOB on the third floor. Hahaha...

The EDGE has a few interesting articles in this issue. For anyone interested in Saizen REIT, luxury condominiums or shoebox apartments in Singapore, go pick up a copy.

Saizen REIT's unit price has shown strength lately and it is revealed that the REIT is attracting buying interest from wealthy investors in Singapore. Mr. Raymond Wong, executive director and major shareholder of the REIT's manager, declines to identify them but says that they are "entrepreneurs the locals would have heard of".

Intriguing. I wonder who they are...

According to NRA Research, units in the REIT are trading at a much steeper discount to its book value than its peers listed in Japan, which are trading at 0.75x book value.

Saizen REIT's NAV/unit is about 30c. So, 0.75x book value would translate to 22.5c. Saizen REIT is currently trading at about 16c per unit. I wonder...

I also flipped through the many magazines at UOB and one of them was an auto magazine. The back of the magazine has the latest prices of all the major makes sold in Singapore. I took a photo of the price list for Mazda cars in Singapore.

Wow! Would you pay S$128,988 for a Mazda 2?

I have to go out in a while. Family dinner. Hope the weekend is a good one for everyone. :)

Related posts:
1. Saizen REIT: 2H FY2012.
2. Quick, buy a new car cheaper now!
3. Hainanese pork chop rice.

60 years leasehold condominium in Singapore.

When I was told many years ago that residential properties in Hong Kong generally come with a 50 years lease, I was amazed. 

So, if someone in his 30s were to buy a condo in Hong Kong and if he should live to be 90 years old, he could be kicked out of the property as there is no guarantee that the lease would be extended?

To someone from Hong Kong, a 99 years leasehold property in Singapore is probably a steal! The lease is twice as long as back home and the prices are probably lower too, like for like. However, what I have read in the papers today could change things in Singapore for the next generation.

A 1.02 ha residential site in Jurong Kechil comes with an unusual 60 years leasehold term.  This is believed to be the first time a private housing site is being sold on such short tenure under the GLS.

Developers have options for a 30, 45 or 60 year lease period for the plot, URA said. The development conditions for the site cap the maximum number of units at 203 units and can be built up to part 5 storeys and part 8 storeys. The tender will be launched in about two weeks.

Industry experts are expecting a top bid of between $200 to $250 psf ppr and a sale price of $550 to $600 psf. This compares with freehold developments in the area going for about $1,000 psf.

(Source: The Business Times, 6 September 2012)

The government did mention some time ago that it would explore offering residential sites with shorter leases to bring down the cost of home ownership in Singapore.

Possibly, I am out of touch with the reality on the ground. Foreigners, new citizens and younger Singaporeans are probably less concerned with shorter land leases. 

They might just want a home in their living years or to reap as much rental returns as possible in the same years. A project that is freehold or 999 years leasehold and selling at a premium might only be attractive to older Singaporeans over time.

Now, in my 40s, maybe, I would consider buying a new private residential property with a 60 years lease if I could save 40 to 50% compared to buying a similar property which is freehold or has a longer lease. This is for self stay only as the property could be hard to resell as its lease gets progressively shorter. 

Just pray I do not live to be a hundred.

However, for someone in his 20s or 30s, would he buy a new private residential property that comes with a 60 years lease? By the time the project gets its TOP, the property would only have 55 years left to the lease...