What is our attitude towards having children? 钱最重要的!

UPDATE:
Force your children to become your financial assets! 

Force them to give you a monthly allowance when they start working if they don't do it!




Listen to the Chinese aunty:


"钱是最重要的!"

This is a big difference from what the aunty at the end of the video said about emotional support being more important and that "money isn't everything". 

I so stunned like vegetable.
------------------------



Being single, I get asked "When are you getting married?" quite a bit. 

Of course, for couples who are married, the next question which gets asked is usually "When are you going to have a baby?"


Now, I have blogged about weddings and marriage before. Twice, in fact. 

In both instances, they received an overwhelming number of comments. 

So, I know it is a very sensitive topic and, maybe, I should avoid blogging about it in future.

I have also blogged about how it is important to involve children in financial issues and how achieving financial freedom should be a family affair. 

Now, this topic was very well received. 

Not as explosive and it is something I should consider blogging more of in future, perhaps.





However, I have never blogged about how some people think that children are assets which they can depend on in their old age or have I? 

Well, I don't remember.

When a reader told me on FB that one of his friends, who is given to admonishing him for being single and for giving in too easily to his wanderlust, told him that kids will, in future, be a source of monthly allowance, paid holidays and free medical care, for examples, my jaw dropped (and for readers who follow me on FB, you know which emoticon I would use).




I always say that kids are very expensive to bring up in Singapore. 

An estimate which I did almost 20 years ago showed me that it would cost some $250,000 per child from birth to graduation day at a local university. 

I am sure that this figure is much higher today.

Now, I have said before that a wedding is a consumption item. 

Expensive photo shoots, bridal gown, diamond ring, honeymoon, apartment, furniture, electronics and renovation are all consumption items. 

Expensive wedding banquet is a consumption item. So, if we cannot afford all these, then, scale back or, indeed, delay gratification. Have the wedding at a later date. 

In fact, ask whether a wedding is necessary at all.




Of course, some might say that we could make money from the red packets at the wedding banquet. 

Now, that is bringing a speculative element into a wedding and I don't think we should even go there. 

I mean if we have to even think about how we have to depend on money we get in red packets to pay for wedding expenses, we must be really scraping the bottom of the bin.

Anyway, before my head gets chopped off, I should move on to talk about children.

I always say that marriage is to give children legitimacy. Our modern day society requires this. It cannot be avoided. 

If two adults love each other but do not wish to have children, they don't need to get married. 

That marriage certificate is just a piece of paper. 

Love each other forever and stay together.




OK, in Singapore, we have this consideration called a HDB flat. 

So, if a couple want to buy a BTO HDB flat, they must be married. 

Well, there is always the option of buying a resale HDB flat if both are 35 years or older, right? 

Yikes! Who threw a shoe at me? 

OK, ok, I get the hint.

Coming back to the topic of children. 

Now that we agree that a wedding is a consumption item, what about children? 

They spend so much money! 

They must be consumption items! 




Talk to parents and you will hear them telling you how much money they spend on their children.

Scary stuff, children.

Of course, if we think that children will take care of us in our old age, will give us pocket money, will bring us on paid holidays and will pay for our hospital visits, for examples, then, children could be an investment for our golden years. 

Yes, children could be investments too!

Now, we are in a fix. 

Consumption or investment?

Well, I think that this falls in the realm of speculation. 

Children might grow up to be very accomplished and filial or they might not. 

There is no guarantee that the "investment" would turn out the way we want it.





So, I feel that it is only prudent that people who want to have children treat them as consumption items. 

Think of spending money on children like we would spend money on a hobby or a household pet. 

They will provide enjoyment, I hope, anyway, but unlike a hobby, we cannot give up on them and unlike a household pet, children have far longer lifespans, I assume. 

As with all consumption items, we do not expect any financial rewards.

Well, some readers told me that I should think of my CPF savings as a bonus if I should see the money in my old age because the government could change the rules again. I feel that couples who think of children as "investments" should adopt this mind-set towards their CPF savings and their children. Don't you think so?




Frankly, to think that children are assets we can rely upon financially in our old age, we could be setting ourselves up for disappointment.

If I had a choice, my bet is on my CPF savings.

Related posts:
1. Financially prepared to be married?
2. Not enough money to be married.
3. Financial Freedom is a family affair.
4. Warren Buffett Illustrated.
5. Little Book that Beats the Market.
"It is written for the non-financial professional, but all could learn from this simple, but powerful concept."

Fire up your Sunday with SAO and Log Horizon!

Sharing some music from a couple of really fantastic anime I watched recently!

Sword Art Online (SAO)


(Unfortunately, Log Horizon's soundtrack was removed.)

Hope you like them as much as I do. Enjoy your Sunday!

More music:
1. Fairy Tail.
2. Hunter X Hunter 2011.
3. Full Metal Alchemist.
4. Groove Adventure Rave.

Portfolio review: Unexpectedly eventful.

At the end of last year, I shared the results of my efforts in the stock market and also my strategy to grow wealth and augment income in the new year. Quite a few things have happened since then. So, I decided to do a review of how things have moved.

In the S-REITs department, the biggest change this year to my portfolio has to be the major divestment in Sabana REIT. My current long position in the REIT is just a bit more than 10% of my investment at its largest. Whatever I have left is free of cost and will continue to generate passive income although on a much smaller scale.

Also in the S-REITs department, I took part in AIMS AMP Capital Industrial REIT's rights issue and tried to get more excess rights but without much success. Recently, I sold a small percentage of my investment, believing that it was the right thing to do as its unit price ran up, post rights. This REIT is still my largest investment in S-REITs. Having said this, passive income received from this REIT will shrink some 15% this year, given the dilution from the recent rights issue.

In the Business Trusts department, I decided to divest completely my investment in Perennial China Retail Trust after receiving another round of income distribution which I concluded was unsustainable. This was before the takeover offer by St. James.

Also in the Business Trusts department, in late January, I more than doubled my investment in Croesus Retail Trust, believing that, trading at a discount to valuation and offering an attractive income distribution, it is a more dependable passive income generator than Perennial China Retail Trust. Although its relatively high level of gearing is a concern for some, there is unlikely to be any nasty surprises in the area of financing over the next few years.

In other stocks, I added to my long positions in Yongnam and Hock Lian Seng. Yongnam hit a rough patch, as expected. However, things are likely to improve later this year and probably the next. It is a leader in what it does and it has a very good track record. Last year's performance was exceptionally bad and probably would not be repeated. I like how Yongnam started to pay meaningful dividends in recent years and this is likely to continue, conditions permitting.

Hock Lian Seng, like Yongnam, is in the construction sector and also like Yongnam, I expect it to be a beneficiary of increased spending on infrastructure projects in the country. Already, Hock Lian Seng won two major projects which have bumped up its order book and will provide earnings visibility for some time to come. There will probably be more order wins in future. Of course, Hock Lian Seng also pays meaningful dividends which I like.

One stock which I have been waiting for an opportunity to accumulate was CapitaMalls Asia. Well, it is a pity that it will be taken private by its parent, CapitaLand, which offered $2.22 a share. I feel that it is a fair enough price which, perhaps, suggests that the price at IPO was unfair but I will let readers draw their own conclusions in this contentious issue. My acceptance form has been sent out.

A stock which I have turned more cautious on is Marco Polo Marine. Recent developments mean that the business is now somewhat different from what I envisioned it to be in my initial investment thesis. Not giving enough consideration to how the tugs and barges could be a drag on overall performance before, I decided to trim my exposure to the stock. Things could improve in future but, for now, the level of clarity has lowered.

The first few months of the year have turned out to be a bit more eventful than expected on the investment front. My war chest is now fuller through some divestments as well as dividends received. I do not have any immediate plans for the funds and I will probably just hold on to them for now. After all, I had felt that I was too much invested in the stock market and had desired a bigger cash position.

Of course, if I were to keep the status quo, I will, for sure, receive a much lower level of income from my investments in S-REITs this year. How much lower? I guess we will know by end of the year.

Having said this, my decision to increase my level of investment in SPH and NeraTel last year so that my overall portfolio is less reliant on S-REITs for passive income was pre-emptive. Enlarging investments in Hock Lian Seng and Croesus Retail Trust earlier this year has also helped to reduce reliance on S-REITs for passive income.

What next? I certainly do not know if the economy will do well or if it would suffer a decline in the next few years. However, I do know that I am staying invested as long as my investments have reasonably sturdy fundamentals and, preferably, are able to generate reasonably good income for me. They don't have to be stellar performers and I don't have a problem with getting rich slowly.

I will simply wait for Mr. Market to feel depressed enough to sell more to me at prices I cannot refuse while I collect regular dividends in the meantime.

Related posts:
1. A strategy to grow wealth and augment income.
2. Sabana REIT: 1Q 2014 DPU 1.88c.
3. AIMS AMP Capital Industrial REIT: $1.425.
4. Perennial China Retail Trust: Fully divested.
5. Croesus Retail Trust: DPU above forecast.
6. Yongnam: DPS of 0.6c.
7. Hock Lian Seng: $221.8 million contract.
8. CapitaMalls Asia: Farewell.
9. Marco Polo Marine: Price weakness.
10. SPH: Within expectations.
11. NeraTel: A very good investment.

AIMS AMP Capital Industrial REIT: 4Q FY2014.

Without the recent rights issue, DPU would have been 2.95c. A dilution of 15%, post rights, and we have DPU at 2.51c.

I estimated that we could see an annualised distribution yield of some 9.26% based on the price of $1.08 per rights unit. At 2.51c, we have a distribution yield of almost 9.3% per rights unit. This beats my estimate.

However, we have to bear in mind that the REIT usually distributes more income in the final quarter of the year. So, everything remaining equal, DPU could dip in the next quarter.

Of course, things are not going to remain the same because:

1. The REIT's investment in Optus Centre will see its first full quarter contribution in 1Q FY2015. This will help to bump up income.

2. The redevelopment of 103 Defu Lane 10 will get its TOP in May 2014. So, expect income contribution to start sometime in 2Q FY2015.

3. We have to watch out for the increase in vacant space as two Master Leases expired in April 2014. Only 73.3% of the space in these two properties have seen leases renewed.

NAV/unit: $1.47

Gearing: 31.7%

Interest Cover: 5.2x

Based on a unit price of $1.42 and assuming an annualised DPU of 10c, we are looking at a distribution yield of 7.04% per annum. Although I expect a slight upward bias in income distribution in the next 6 months, I do not find the prospective distribution yield attractive enough to add to my long position at the current unit price. Why?

Two reasons:

1. An increasingly challenging situation with the supply of more industrial space which is outpacing growth in demand.

2. The prospect of higher interest rates (risk free rates) possibly from the middle of 2015. The REIT has $111.2 million worth of loans due in October 2015 and $175.8 million due in 2H 2016.

For anyone who is investing for income and thinking of putting down some money in this REIT now, he has to wonder if he is comfortable with the prospects and how things might turn out in the next 12 to 24 months.

See presentation slides: here.

Related posts:
1. AIMS AMP Capital Industrial REIT: Rights' value.
2. AIMS AMP Capital Industrial REIT: $1.425.

Tea with Kenji FX: Wealth destruction!

If we want to be wealthier, we must learn to create wealth. Unfortunately, many indulge in wealth destruction and Kenji FX tells us some of the things to avoid:

Bad:

1. Smoking.
2. Beer drinking.
3. Sponsor clubbers.
4. Cafe hopping.
5. Going after girls who will never be yours and from a different world from you.
6. Car modifications.
7. Credit card signing.

Worse:

1. Gambling, under or above table.
2. Liquor drinking.
3. Drugs.
4. Prostitution, infected with STD with medication fee.
5. Impregnate people's daughters.
6. Keep a mistress (whether you can afford it or not, as stated above).
7. Loan shark (Jaws).

Worst:

1. Putting yourself in a position where you have everything to lose, and when you cannot afford to lose and yet believe Lady Luck would be smiling on you because you are more than a mere mortal.

Wealth destruction could become a habit. Be careful.

“Whether you sniff it, smoke it, eat it or shove it up your ass, the result is the same: addiction.”
William S Burroughs.

It is far better to avoid trouble than to try and get out of trouble.

Money is hard to make and we should make it hard to lose.

Related post:
Be A Millionaire Next Door.

"If we are not careful, it is easy to get into debt."AND
"It might be really hard to get out of debt."
From: The secret to avoiding financial ruin.

Concentrate or diversify?

Sharing an email exchange here:

Hi AK,

 

I am a retail investor who has been investing for some time, and I've also been a long time reader of your blog. Before I go on any further, I would like to thank you for your blog as it has provided many people with valuable insights on investing and personal finance. Your contribution to the investment community is immense, I sincerely hope that you continue blogging!
 

I have a question regarding diversification vs concentration. While I am aware of the benefits of both strategy, I'd like to hear your view on this topic. Very often, I find myself identifying several undervalued companies. However, instead of buying all of them, I try to narrow it down to 1 or 2 high conviction stocks. As such, my portfolio tends to be extremely concentrated. I take into account factors such as the potential upside, catalyst, expected holding period, circle of competence etc.

While my investment record is satisfactory, I have missed many opportunities (mainly because it is impossible to predict when prices will rise) when I did not buy the other undervalued stocks.

Diversification will solve that problem. However, I might risk missing out on huge gains from my high conviction ideas just because I don't want to lose out on the others when prices rise. I hope to find an investment philosophy that would help me reconcile these two strategies and would love to hear your views on this. Thank you.

Regards,

WJ

 

 

My reply:

Hi WJ,

From your email, I get the impression that you prefer a concentration strategy. You have, however, rightly pointed out one of the weaknesses of such a strategy, especially if our funds are limited.

There is a simple solution to the problem you have. Do a lesser form of concentration. What is this?

Let us say you had identified 10 stocks which met your criteria, instead of selecting 2 stocks to put all your money into, put 50% of your money into these 2 stocks. The other 8 stocks get the rest of your money.

You could argue that this is diversification but diversification to me is 10% of your money in each of the 10 stocks. OK, if you like, my suggestion is an adulterated form of diversification. A rose by any other name smells just as sweet. ;p

Best wishes,
AK

Related posts:
1. Excuse me? Are you an investor?
2.  Luck plays a part in investing.
3. The Little Book That Beats The Market.
4. Approach to stock selection.
5. Value investing.

Marco Polo Marine: Reason for price weakness.

Yesterday, a couple of readers asked me what could be wrong with Marco Polo Marine since the share price declined. A reader also asked me where the next support could be, using technical analysis. Last night, I checked if there were any announcements from the company and found a plausible reason for the recent weakness in share price.

We know that Marco Polo Marine has an Indonesian subsidiary, PT Pelayaran National Bina Buana Raya (BBR). Well, the subsidiary has released 1Q 2014 results and the numbers are very bad. Of course, BBR is not all of Marco Polo Marine's business but it is a significant part. So, I would expect Marco Polo Marine's own quarterly results to be affected. How badly affected would depend on how other business segments perform, of course.

Now, the BBR story:

Over at BBR, revenue reduced by 11% while direct expenses increased almost 20%.

The OSV segment of the business did well as revenue improved some 57.3%. However, Tug and Barge vessels segment of the business saw a reduction in revenue by some 47.5%. (The two segments put together, OSV segment now has a 61.5% share of total revenue.)

OSVs are clearly profitable while Tug and Barge vessels are not. Why? OSVs recorded $4.8 million in revenue and incurred expenses of $2.1 million. However, Tug and Barge vessels recorded $3.18 million in revenue but incurred expenses of $4.37 million! This segment bled massively!

In the same quarter in the preceding year, the Tug and Barge vessels segment of the business turned in a revenue of $5.84 million and incurred expenses of $3.95 million. This suggests to me that the expenses incurred by this segment has been quite consistent but the revenue drop, year on year, is astounding!

If this were to continue, BBR would be better off without the Tug and Barge vessels segment of the business. Gross profit declined a massive 62.5%. Operating income declined by 73.5%. After financial charges and income tax, total comprehensive income reduced by 92.1% for the quarter, year on year!

How does this affect my investment thesis?

With the decision to gear up significantly to purchase a jack up rig which could potentially double earnings in FY2016, I was prepared to accept lower earnings in the next two years because of the much higher finance costs resulting from the MTNs although I have to admit that the jack up rig was never a part of my initial investment thesis for Marco Polo Marine.

With the jack up rig and higher finance cost thrown in for the next couple of years, I rationalised that as long as operating income improves steadily over time with more OSVs being added in the same period of time, logically, any decline in earnings due to the higher finance costs could be cushioned. This was an important assumption.

I said that to stay invested in Marco Polo Marine is to believe that:

1. Earnings will improve as more OSVs join the fleet in the next 2 years.

2. The rig delivery by end of 2015 will improve earnings massively.

If well executed, the strategy will catapult earnings upwards, possibly doubling EPS by 2016.

Now, for earnings to improve gradually over time until the jack up rig is delivered by end of 2015, I had focused on the OSV segment of the business as the growth driver. I had simply assumed that the Tug and Barge vessels segment of the business would continue plodding on and that the segment's revenue and expenses would more or less stay constant.

So, for BBR's Tug and Barge vessels segment to turn in a massive loss is a shocker and this has thrown a spanner into my thesis for having a significant investment in Marco Polo Marine.

Does it mean I no longer believe that Marco Polo Marine is on the right track? No. In fact, if not for the decision to focus on growing its fleet of OSVs, BBR would have turned in a loss making quarter instead of one with much lower earnings.
 
Unfortunately, to be realistic, FY 2014's numbers could turn out to be disappointing, everything else remaining equal. This is even if the Tug and Barge vessels segment of BBR's business should see revenue improving and expenses reducing in the next two quarters to what should be the mean.

Lower utilisation of the Tug and Barge vessels in the preceding quarter was put down to seasonal factors (i.e. monsoon period). Expectations of a reversion to the mean did not happen. Is this weakness in the segment temporary or is it going to be more enduring? I am inclined to believe that it is temporary but if a reversion to the mean does not happen in the following quarter, then, the risk of being invested in Marco Polo Marine could be much higher than initially thought.

I am staying invested as I still believe in the growth story but I should move Marco Polo Marine higher up in the pyramid (see related post no. 1 below) from an investment that is for growth and some income to just being an investment for growth. Without the income component, my approach will demand that I trim the size of my investment in the business.

See BBR's 1Q 2014 results: here.

Related posts:
1. Motivations and methods in investing.
2. Marco Polo Marine: Drilling for higher income.

LMIR: 1Q 2014 DPU 0.68c.

There isn't much to say about LMIR's results but this is a quick blog post in response to a guest blogger's request. (Hey, you know who you are and I am still waiting for your next guest blog, ok? LOL.)

In my last blog post on LMIR, I said that:

"... we are likely to see DPU in S$ terms recovering in the next quarter as financial expenses normalise and I have estimated that a DPU of 0.66c is realistic."

Well, LMIR has done a bit better and declared a DPU of 0.68c for the quarter. Making the assumption that all things remain equal, at 41c a unit, we are looking at a distribution yield of 6.63%.

Now, I would ask the question that with the issues which investors in LMIR have to accept, is 6.63% attractive enough?

Issues? What issues?

I am going to be lazy. If you cannot remember, you might want to read this blog post again:
LMIR: Gearing ratio and margin of safety.

As an investment for income, I feel that LMIR can only become attractive again if the Rupiah appreciates meaningfully. When is that going to happen? Your guess is as good as mine.

In the meantime, if I were to put more of my money in LMIR, I will have to demand a much higher distribution yield than 6.63%.

See 1Q 2014 presentation slides: here.

If my car is a luxury... (Buying a $500,000 watch after 3 years of work.)

AK is catching up with the times. 

These days, I get plenty of news and perspectives from what I read on Facebook. 

Of course, there will be things we agree with and things which we don't. 





However, as Rumpole of the Bailey would say, 

"I might not agree with what you say but I will defend to the end your right to say it." 

Well, something to that effect. 

My memory is a bit patchy.






Recently, I read on Facebook about a young person who aims to be the owner of a $500,000 watch 3 years from now. 

The person who posted this on Facebook believes that this young man will be able to achieve it and will prove a crowd of disbelievers wrong. 

I certainly agree that it is important to believe in ourselves, believe that we can make our dreams a reality.

Price tag: $500K.

I admire the fighting spirit that this young man has and he reminds me of someone very dear to me. 

He worked hard to make lots of money and bought luxury watches, cars, shoes etc. 

A picture of success but, till today, he still has to work hard for a living. 

The day he stops working, his income stream will dry up.





I quite understand that every person is different but I hope that this young person will meet someone who will impress upon him why he should not buy that $500,000 watch once he is able to afford it. 

Of course, that said, it is his life and the choice is clearly his.





Not many people, fresh out of school, are able to save $500,000 in 3 years. 

I would assume that for someone to be able to save $500,000 in 3 years, he would have an earned income which is much more than that. 

That is some pretty amazing earning power.





However, it would be a mistake to spend all that money on a watch if that was all the money he had put aside after three years of work. 

It would be a bigger mistake to think that nothing could ever put a stop to this amazing earning power.





"Live within your income and save so that you can invest. Learn what you need to learn... Like Warren, I had a considerable passion to get rich, not because I wanted Ferraris – I wanted the independence." 
Charlie Munger.


Related posts:
1. To be a happy peasant.
2. If we are not rich, don't act rich.
3. From rich to broke?

Asia Invest Symposium by ShareInvestor.

Are you free on the 31st of May (Saturday) from 9am to 1.30pm? If you are, you might want to go listen to Mr. Roger Montgomery, a famous value investor, who will speak for 2 hours at an event organised by ShareInvestor.

He will share his knowledge and experience and cover topics like the following:

- Strategies to Spot High Quality Businesses to Improve your Returns on Stocks.

- How to Buy the Best Stocks for Less Than they're worth?

I know for a fact that it is not cheap to bring in big names like him. So, when I was approached to help spread the word about the event, I was surprised that tickets are priced at only $9.90 for one and $14.80 for a pair.

For those who also do some trading, you will also be interested to know that there is another speaker at the event, Mr. Stuart McPhee.

He will cover topics like the following:

- Trading Strategies in the Stock Indices & Commodities Market.

- How To Identify High Probability Patterns when Trading Forex?

With tickets priced at $9.90 each, I was somewhat worried but I have been assured by the organiser that "there will be no selling or backend products throughout the event."

However, Oanda will be promoting their platform during the event and if you should open an account with them, you will get a book by either Stuart or Roger for free!

I love getting value for money and, in my opinion, this is a value for money event! If you would like to find out more or buy tickets, follow this link: Asia Invest Symposium.

Wishing everyone a happy Sunday!

CapitaMalls Asia: Farewell.

I have filled the form in acceptance of the voluntary conditional cash offer for CapitaMalls Asia.

Although there are arguments that the offer price is unfair and although I can understand the arguments, I feel that there is a great degree of subjectivity too. Much is relative.

Just like how we compare an investment with another to see how it could be undervalued or overvalued, we could also compare an investment with itself in the past to see how its value has changed over time.

CapitaLand’s offer works out to about 1.2x CapitaMalls Asia’s book value now which is cheaper than the 1.5x book value when it listed in 2009. If we want 1.5x book value today, the price is closer to $2.70 a share.

So, for someone who bought into CapitaMalls Asia at the IPO price of $2.12 a share, obviously, the voluntary conditional cash offer of $2.22 a share leaves a bad taste in the mouth. However, for someone who bought at under $1.20 a share during the lows in late 2011 which was at a 20% discount to the NAV/share back then, $2.22 is probably a sweet enough exit price.

I think it is a fair enough offer and I explained why in an earlier blog post:

"The NAV/share is $1.84. So, this offer is a 20% premium to book value. NAV grew 10% year on year. So, being paid $2.22 a share, it is like getting paid in advance for growth that is likely to happen in the next couple of years."

We might want to remember what Warren Buffett thinks of IPOs. If you cannot remember, go to the earlier blog post I mentioned above: CapitaMalls Asia: Being offered $2.22 a share.

Better to wait for a price that is so attractive that even a mediocre sale gives good results.

The Amazing Spider-Man 2!

My broker has done it again!





Also, I got a free dinner, a free tub of pop corn and a bottle of Pepsi! Happy!

Two thumbs up!

Related post:
A movie treat from my stock broker.

First REIT: Reply from the management.

A reader, Gregg, first shared his concerns regarding Sarang Hospital in First REIT's portfolio here in the comments section: Gregg's comment.

Sarang Hospital

Another reader wrote in with a list of questions for the REIT's management and shared these with me in an email. Here is the email with the replies from the management in red.

1. Noted that there is impairment provided in subsidiary of S$8,136,000 in the statement of total return. Could you advise me the reason of this impairment being provided and which subsidiary? Understand usually DCF was prepared to determine whether impairment is necessary. Since the impairment is being provided, does that means that the present value of the future cash flow is lower than the carrying amount of the investment?

 

We have made some provisions for impairment to our investment in South Korea, Sarang Hospital.

This S$8.1m is the impairment provided at Trust level for Kalmore Investments Pte Ltd, the holding company of Kalmore (Korea) Limited which owned Sarang Hospital. 

 

2. Under note 9 of the financial statements, there is deferred tax income recognised relating to changes in fair value of investment properties of S$11,667,000 despite the fact that there is increase in fair value of investment properties of S$61,334,000 (net) under note 12. Could you advise which property does the S$11m relating to? 

 

The write back of the deferred tax relates to the Indonesia properties mainly due to lower building reinstatement values as provided by the independent valuers, as compared to the net book value of the properties.

 

3. In note 14 of the financial statements, an impairment allowance is provided of S$2.165 million. Please advise which property it is related to and what are the Trust's action to recover this debt. Noted that there was also provision made in prior year of S$547k, is it relating to the same debtor? 

 

The impairment allowance of S$2.165 million was made for Sarang Hospital.  We have taken legal actions in the past two years to recover the debt from the vendor.

 

There is no provision of S$547K make in the prior year however the provision of S$567K was made for amount due (intercompany balance) from Kalmore Investment Pte Ltd (Subsidiary of First REIT) at Trust Level in FY2013.

 

4. Noted that the fair value of Sarang Hospital decreased to S$6.3m compared to purchase price of S$13m. Please advise the reason of 50% decrease in fair value. 

 

·         As the Vendor and Guarantor for the Master Lease Agreement encountered unforeseen financial difficulties, he was unable to fulfill his contracted rental obligation.

 

·         Hence, through the Valuer’s (CBRE) independent assessment and judgement, it was more appropriate to value Sarang Hospital on a “market rental basis”, ignoring the contracted rental in the Master Lease Agreement which was guaranteed by the Vendor.

 

·         Due to the lack of similar comparables in the market, the Valuer has adopted a “proxy approach” to determine the market rent. Apart from the Valuer’s investigations into rentals achieved with comparable properties and within the broader market, the Valuer has relied on anecdotal evidence which include their discussions with active brokers, investment and fund managers as well as fund investors.

 

·         They have also considered the relativity of asset class pricing. This includes the relativity of the healthcare real estate sector against other comparable markets, and the relativity of the healthcare real estate sector against other asset classes within the relevant market.

I suppose that the curious decision of buying a lone property in South Korea has turned out to be a bad one. Fortunately, it should not have a big negative impact on the REIT as a whole.

Related post:
First REIT: Purchase in South Korea.
(Dated 9 July 2011.)

Buying an apartment: Considerations for first timers (UPDATED).

A reader recently asked me if I would blog about buying an apartment for first timers in Singapore. 

I thought of this before but decided that I am not a good candidate for this topic because for most people in Singapore, their first apartment would be from HDB and I don't have any experience in this area.

However, I have blogged about buying real estate in Singapore before and quite a few times too. 





So, in case you are thinking of buying an apartment either for self stay or for investment, you might want to consider the following points:

1. To rent or to buy?

In some countries, there is a strong culture of renting. 

This is usually when buying a home is considered too expensive. 

This is the case in places like Japan, Taipei and Hong Kong, for examples. In a report, it was stated that more young people in London prefer to be renters in recent years.

Does renting make more sense in Singapore now as well with sky high prices? 


Well, according to the "Rule of 15", it could make sense anywhere in the world. 

In a nutshell,

"Rule of 15" says that if we could buy a home at a price that is 15 times or less the annual rent a similar property would fetch in the area, it makes more sense to buy than to rent.


Personally, I prefer to own the apartment I stay in but I can see how renting could make sense especially if prices of homes are sky high. 




2. HDB flats

Of course, as Singaporeans, we are lucky because we have good quality public housing. 

It is reasonable to assume that for most Singaporeans, their first apartment will be from the HDB. 

Of course, there has been and will always be debate on whether HDB flats are priced fairly but unless we want to move to Johor, we have to accept that HDB flats are the most affordable housing choice for most Singaporeans. 

Using the "Rule of 15" will help us stay grounded and avoid the atas DBSS which were going for as much as $888,000 at one time, for example. 

(Thank goodness, DBSS has been thrown out together with MBT.)

Although we could choose a housing loan with a duration that terminates at age 65 and I am assuming that most people need a loan to buy their first apartment, I think we should aim to keep the cost of borrowing down. 

This should become a more important consideration in an environment where interest rates are more likely to increase. 

3. Condominiums

Of course, there will always be people who would prefer to stay in private housing and anecdotal evidence shows that the numbers are probably larger than what we might think. 

If we think that HDB flats are expensive real estate, then, condominiums in Singapore are simply too extravagant. 

A new 5 room HDB flat in CCK costs about $300.00 per square foot. 

An executive condominium in CCK will cost at least 2.5x that amount while a 99 years leasehold private condominium in CCK will cost at least 4x that amount.

So, for those who want condo living and if they qualify, buying a new executive condominium seems to provide a margin of safety compared to buying a new 99 years leasehold private condominium.

After 10 years of occupation, executive condominiums will attain full private condominium status.







Remember, condo living is not a need. It is a want.

Consider carefully whether we can really afford it, which is an objective exercise, and consider carefully if it provides value for money, which of course can be quite subjective. 

It would be utter misery if we were to become a slave to our home as we sweat to service the loan instead of enjoying our home with peace of mind.

"If to stay in a condominium, we are forced to live like paupers, the price is too high."

MAS has a good page on "Buying a Home":
http://www.mas.gov.sg/moneysense/life-events/buying-a-home.aspx

If you are going to buy your first apartment soon, you might want to bear these in mind as you think of the options available. 

You might also want to read the related posts below which this blog draws from.

Buying an apartment is probably the single biggest financial transaction for most people. 

Don't be swept away by emotions.

Staying grounded will help people to keep their finances healthy and, also, their homes.




Related posts:
1. To rent or to buy: Rule of 15.
2. Slaving to stay in a condominium.

QAF Limited: Rising 5c to 93c a share.

I have had a long position in QAF for a while now and I have received a few rounds of dividends. Based on my entry prices, the dividend yield is more than 7%.

I like to think that the dividends received help to pay for some of my groceries like Gardenia wholemeal bread, Cowhead organic rolled oats and the occasional box of Farmland hash browns.

Today, QAF's share price rose by 5c. The counter is still trading CD for a DPS of 4c. I believe the counter will go XD in the first few days of May which is soon.

Technically, could share price go higher to close the gap at 95c or test the highs of 12 months ago at $1.05? It could, of course. There is almost no accounting for prices and my bowling ball agrees with me on this one.

Fundamentally, going through the annual report, although revenue improved year on year by some 4%, costs and expenses went up by 5%. EPS actually fell a bigger 15.2% from 6.6c to 5.6c, year on year. A big part of this was because of provision made for an unrealised forex loss of $5.4 million due to a much weaker A$ against the S$. Otherwise, EPS would have fallen by a smaller magnitude to 6.3c.

The other reason for a lower EPS is that the number of shares in issue increased by some 4.2%. Most of the new shares are from the QAF Scrip Dividend Scheme (SDS) while 6% of the new shares were share options exercised by employees at $0.536 per share.

There are 3,975,000 more options yet to be exercised by employees but these remaining options if exercised now will form less than 1% of the total shares in issue. So, any further dilution because of this is likely to be negligible. Whether there will be more shares issued because of SDS is harder to say.

Quite obviously, to a big degree, whether EPS will improve or not will depend on the strength of the A$. Assuming that the weak A$ persists this year and everything else remains equal, with a full year dividend payout of 5c per share and an EPS of 5.6c, it means that QAF now has a dividend payout ratio of about 92.9% which leaves very little by way of retained earnings.

As a reflection of difficult conditions that QAF faced, NAV per share also fell, year on year, from 74.8c to 72.6c at the end of 2013.

Buying at 93c a share means buying at a PE ratio of 16.6x and a 28% premium to NAV. Unless the A$ strengthens once more, QAF's earnings will have to improve quite dramatically through other means to justify a share price of 93c.

A few days ago, QAF reported stronger 1Q 2014 results. Now, are these numbers what we need to justify a share price of 93c?

1Q EPS improved from 2.2c to 2.3c while NAV/share improved from 72.6c to 75.6c, year on year. Although sales improved in Australia and Malaysia, their currencies' relative weakness means that results aren't as spectacular in S$ terms. Will the stronger results be repeated in the next three quarters of 2014?

If the stronger 1Q 2014 results are replicable for the whole year, then, we could be looking at a full year EPS of 9.2c and a NAV/share of 84.6c. This would make 93c a share inexpensive.

To buy or not to buy? Well, call me kiasu but if I believe that the NAV/share could be 84.6c by end of 2014, I would want to buy closer to that price, give or take a couple of bids. I rather wait to buy at a price I am more comfortable with than to chase after a rising share price.

See: 1Q 2014 results.

Relates post:
Supporting my companies and getting paid.

Yummy yum yum ($0.30) lunch made with love!

Last night, I went shopping with my mom. In NTUC Fairprice's dried goods section, I saw a pack of green beans. Very nice looking beans too. Price: $2.25.

I said to my mom that it has been a while since I had green bean soup that she makes. So, she offered to cook for me and I could bring it to work for lunch today.

That packet of green beans made 10 bowls of green bean soup. Each bowl is about 450 ml in volume. So, my lunch today costs $0.30, maybe. Why a few cents more? Must include cost of sugar and gas, I guess. LOL.

My mom would usually add glutinous rice and Gula Melaka but I have a preference for plainer staples in the last few years. Imagine I actually find plain porridge yummy. So, this is just green bean, water and very little sugar.

Thanks, mom!

Related post:
Yummy yum yum ($1.10) lunch.