Make an altruistic investment in Singapore's future.

When I blogged about making a donation to NUS' university wide bursary program, a reader asked me, "What about NTU?"


As I make regular donations to NUS and I tell people about it when I have a chance, that was not the first time I was asked that question.


Well, honestly, I have more affinity towards NUS because I spent four years there. However, I do understand that there are needy students in NTU too.


So, in September, I decided to make a donation to NTU's bursary program to help needy Singaporean students there as well.

This is taken from NTU's website:


"The NTU, MOE, Donated and CDC/CCC University Bursary is open to Singaporean students."  Source: NTU.


Some readers might remember a rather disturbing episode that happened on my FB wall when I encouraged donations to NUS' university wide bursary program. 

By sharing the above statement from NTU, I have taken out the guesswork as to the beneficiaries of the program.

If we have the ability to be so, we should really consider being charitable and helping those in need.

Although there are exceptions, I do believe that most Singaporeans are charitable people.


There are many ways to make a donation to NTU. See options here.


There is also an option for making a donation online using a credit card: here.

AK made a $500.00 donation online.

Don't be shy to make a small donation as even $10 would go some distance to helping the needy.


In this instance, we would also be making an altruistic investment in Singapore's future.


Related post:
Making a donation to help needy students.

REITs: Leasehold properties revisited.

This is a brief reply to a comment from a reader on a topic which was rather hotly debated before: here.


Hi kh,

Investing in REITs, we have to understand something very basic and that is REITs distribute income. REITs don't distribute earnings. So, they do not account for depreciation or amortisation.

When we look at REITs, we mustn't look at them like how we would look at stocks where we look at earnings per share (which takes into account depreciation and amortisation).

When we buy properties, if they are not freehold, then, there is a lifespan. 

So, if we buy a HDB flat, theoretically, at the end of its 99 years lease, we have to to return it to HDB and the value of the flat becomes zero. So, on average, theoretically, it depreciates by slightly more than 1% per year.

To make investing in a property which has a 99 years lease sensible, theoretically, the yield should be 1% higher than a freehold property. This is to make it equally attractive. 

Whether that happens or not depends on many things and one of the things is that real estate, unlike other assets, are tied to locations.

I am using the word "theoretically" quite a bit in this blog post.

So, we are not wrong to ask wouldn't REITs with only leasehold properties end up with nothing one day if they keep paying out their income fully? Again, theoretically, yes.

However, real estate is unlike other forms of assets like machines, inventories or even cash. In an economy that does well, older properties could be worth much more too. Their values could, in fact, appreciate. 

REITs with leasehold properties could do quite well too by actively managing their portfolios. 

For example, a REIT could sell off older properties when the real estate market is strong and the values of their properties go up. Buy newer properties when the real estate market is weak and properties are cheaper. 

So, to me, the management's competence and motivation are more important considerations.

I think you understand the theory that if a REIT with only leasehold properties pays out 100% of its distributable income, it is not putting aside anything for depreciation. This is the way REITs work. 

REITs are allowed to hold back as much as 10% of their distributable income and I believe that it is a matter of time before S-REITs with mostly or exclusively leasehold properties do this to help address the issue of shorter remaining leases (i.e. depreciation).

In closing, I would say that whether to invest in REITs or not, there are many considerations. It would be a mistake, I believe, to be fixated with the issue of land leases.

Related post:
REITs: Leasehold properties.

NeraTel: Aggressive selling as 3Q disappoints.

Attention grabbing headline in the news for NeraTel:

"...earnings of $2 million for 3QFY2015, down 43.3% from earnings of $3.5 million in 3QFY2014."

This news led to some rather aggressive selling of the stock and I wondered if it was justifiable?

I made the observation before that NeraTel's revenue recognition can be lumpy because it is a project based business. It would be a mistake to place too much emphasis on any one quarter's results.

Could we see 4QFY2015 doing better which might give the full year results a boost? Of course, I don't know but looking at the first nine months' results, year on year, things don't look so bad.

The numbers are not pretty, for sure, but they don't look as bad as the headlines in the news which is about 3QFY15.

Quite obviously, revenue is down and expenses are up. 

A very competitive environment is old news, of course. In such an environment, remarkably, more or less, NeraTel has been able to maintain their gross profit margin. This is encouraging.

The question is whether am I going to stay invested?

I first invested in NeraTel at 40.5c a share and later added to my long position significantly in the middle of 2013 at prices from 60c to 63c a share. Given my rather large investment, the question of whether to stay invested or to partially divest is not one to be taken lightly.

As I invest primarily for income, I am mainly concerned whether NeraTel is still able to pay a meaningful dividend. I am also concerned if the balance sheet is still strong, naturally.

NeraTel is still a profitable business although it is not doing as well as before. 

To be honest, I would be pleasantly surprised if NeraTel is able to report a full year EPS of 4c which would mean having to report an EPS of 1.51c in 4Q2015, equivalent to 60% of earnings achieved in the first 9 months of 2015.

However, it would be equally surprising to me if NeraTel is unable to achieve at least a full year EPS of 3c which would suggest 4Q2015 coming in worse than 3Q2015.

Barring a bombshell of a 4Q, assuming that NeraTel should pay out most of its earnings as dividends, I believe a 3c dividend per share (DPS) is reasonable.

NeraTel's balance sheet is still strong. Operating cash flow has also remained positive.

I see challenging conditions for NeraTel but I do not see NeraTel going the way of the Dodo in the near future.

So, I will stay invested but, at this juncture, I won't add to my investment although I believe that NeraTel should be comfortable paying an annual dividend of 3c a share. 

I want to remember that given the stiff competition that NeraTel faces, earnings could continue to come under pressure.

If a DPS of 3c is a more realistic expectation based on a 100% payout of earnings, then, I would need a higher dividend yield for me to add to my investment.

Related posts:
1. NeraTel: 1QFY15.
2. NeraTel: 2QFY15.

Saizen REIT: A lesson on the right prices and luck.

A reader, Felix Leong, left me a comment on how Saizen REIT's shareholders are just lucky to get a good offer.

As I was replying to his comment, I decided that there is a lesson in this and that I should blog my response instead.

Felix Leong's comment:

Hi Felix,

Indeed, luck has a role to play in this and we should not think that this development at Saizen REIT has nothing to do with luck.

Whenever anyone tells me that he doesn't believe in luck, I would wish him luck.

When people buy any REIT that is trading at a discount to NAV, I would ask them why?

If they are hoping for the value to be unlocked, then, I would wish them luck. They would need it.

Why?

It might or might not happen.

When we buy into a REIT, to me, the main motivation should be for income.

This is a reason why although some are waving flags around for Sabana REIT now, shouting that it represents good value for money because of the huge discount to NAV, I am not convinced. 

I am not saying I am right and they are wrong. I am just saying that I am not convinced that they are right. I have shared my thoughts in a couple of blog posts on why I feel this way too.

I do feel sorry for those who got into Saizen REIT at its IPO so many years ago at $1 a share. We should all take it as a good learning experience and hopefully become wiser investors.

I rarely get anything at IPOs and when Saizen REIT had its IPO, I told friends and family that it wasn't worth the asking price. It just wasn't attractive. That was during my pre-blogging days, of course.

An important thing I try to remind myself all the time (although sometimes I forget) is that all investments are good at the right price.

So, I make an effort to keep an open mind about opportunities. Those stocks which are unloved and neglected could turn out to quite rewarding.

As investors, it is important to know what we want from an investment and if it is able to bring home the bacon.

If what we want an investment to deliver depends on luck, then, it is more speculation than investment.

When I got into Saizen REIT when I did, I was looking at an estimated distribution yield of almost 10%. Of course, there were many other considerations which, to me, made it a great investment for income at the price Mr. Market was offering.

The investment was a good fit for my motivation.

Saizen REIT has been a good investment for me and now Lady Luck has decided to smile on me.

I just hope that she would continue smiling until the sale is completed.

Yes, we still need luck on our side as it is not over until it is over.


Related posts:

1. Saizen REIT: Deeply undervalued but is it a buy for you?

2. Sabana REIT: What is the right price to pay?