Free "e-book": Achieving level one financial security for Singaporeans.

When I mused on how I should perhaps start grouping blog posts together to produce "e-books", I was really kidding because it sounds like work and I am too lazy to want to have more work. However, readers responded so well to my first "e-book" that I thought maybe I should try my hand at another one.

This time, I am inspired by a conversation with a friend over dinner last night. He was complaining about the CPF and how it should be abolished. I told him that it is extremely unlikely that the CPF would be abolished and since it is here to stay, we should learn to play the game and play it well.






In a way, I told him, the CPF is like his mother-in-law. If he is not prepared to divorce his wife, he must accept his mother-in-law. Similarly, if he is not prepared to renounce his citizenship, he must accept the CPF. He laughed and asked me how to play the game and play it well?

OK, before I start, I think that I have played the game pretty well but I am almost certain that it could be played even better.

What does this show? 
Would you like to make a guess?

We must first understand that the CPF is a tool that is primarily meant to help us meet our retirement needs. So, if we can make use of the tool to help us towards this purpose, why not?

Chapter One: Do you want 2.5% to 5% risk free rates?
Often, we hear people saying that we can achieve a higher return if we invest our CPF money. Well, how many of us are savvy enough to achieve 2.5% to 5% compounded annual returns? If we are that good at investing our own money, we should have more success stories than sob stories with the CPF-IS. Unfortunately, the opposite is true. Investing in the stock market is never free of risk while the CPF's rates are risk free. Leaving money in fixed deposits to earn 1%  return a year is, in fact, a higher risk proposition for any amount above $50,000.
See: Securing risk free returns early for our retirement.
See also:
How to upsize $100K to $225K?





Chapter Two: Do you want to pay less taxes?
While saving towards retirement, we could also pay less taxes. Sounds good, does it not? We could also help our parents become financially more secure and to pay less taxes. Again, how could this be a bad thing? If our parents are financially more secure, so are we. So, how do we do this? We do this by voluntarily contributing funds to our CPF-SA (MSTU. Now known as RSTU.) and CPF-MA.
See: Build a bigger retirement fund with CPF-SA and Voluntary contributions to CPF.
See also:
Know how to grow our CPF savings.






Chapter Three: Do you want to buy an apartment?
Realise that when we use our CPF money for housing, we are giving up on pretty attractive risk free returns. So, when we want to buy as pricey an apartment as possible with our CPF money, think again. It is an opportunity cost. For people who buy BTO HDB flats, I think that it is a safer use of their CPF money because these flats are subsidised. However, for people who use their CPF money to buy resale flats or private housing, there is a higher risk of losing money on their purchases. We should not take too much risk with our CPF money.
See: Buying an apartment: Considerations.





Chapter Four: Do you want free medical insurance?
One of the biggest worries many of us have must surely be the rising cost of healthcare in Singapore. I am certain that by the time I am a senior citizen, healthcare costs would have become even higher. So, what do we do? Buy the best H&S policy we can find. Pay 10% of our hospitalisation bills and the insurance company pays the rest? Sounds good. Of course, this does not come free. There is always a catch. Insurance premium must be paid. However, we could help the government pay this for us. Huh? Clue: The CPF-MA pays 4% in risk free rate per annum!
See: How to get free medical insurance in Singapore?





Chapter Five: Do you want more money at retirement?
Having said all this, the money we have in our CPF will never be enough to provide for our retirement. So, make use of the SRS which will help us pay less income tax as well and be more pro-active in growing our wealth towards having a financially secure retirement. Towards this end, we need to learn how to invest our money too.
See: SRS: A brief analysis and Young working Singaporeans, you are OK?
See also:
Made $1M investing for income.






Chapter Six: Do you want to invest with your CPF money?
Do not invest for the sake of investing. Be educated and do your homework. Money in the CPF is almost sacrosanct to me. I will not utilise it unless the benefits are almost guaranteed. I will not utilise it unless I could get a much higher return. There will always be people who will make guarantees and try to make us part with our money. If you are ever in doubt, stay out. It is better not to make money than to lose money, especially our CPF money.
See: Nobody cares more about our money than we do.





Probably, the biggest advantage of the CPF is that we cannot take out any of the money including the interest earned until we are pretty old. Huh? This is an advantage? Yes, the magic of compounding will naturally work in such an instance.

Just ask people who are trying to save money whether they have ever been tempted to use their savings for something else? Or have they ever given themselves a break from saving money due to some reason. I am sure many are less disciplined than they believe themselves to be. CPF is a form of forced savings and probably the best form there is.

At a risk free rate of 4% per annum, money will grow 50% every 10 years without any additional funds injected. Of course, the more time there is, the greater the effect. So, if you have never looked at the CPF this way before, you might want to start now.

Time is required to make this work. The earlier we start, the better off we are going to be.

Related post:
Free "e-book": Retiring before 60 is not a dream.

Using debt to generate income.

I went for an evening walk earlier and during that one hour, I thought about many things. Well, that isn't unusual for me. I think too much, many tell me. One of the things I thought about was the issue of debt used in investments.

For example, how risky is an investment for which the debt is meant to fund? People always wonder how to measure risk properly and there are people who are paid to study and manage risks. I am not a professional in this area and I only have a very simple understanding of the matter.

One consideration which is probably universal is that of time. Time? Yup, time.

Basically, the longer a business investment makes me wait before I am rewarded, the riskier it is. The prospective returns will have to be much higher to compensate for this risk. So, if debt is used to fund an investment with a long gestation period, I would consider it risky and would require a much higher return to be interested.

If an investment would generate income very soon, then, the use of debt in such an instance could be considered to be less risky. In such an instance, I might be quite happy with a lower return on investment.

Another example of a question to ask is whether the benefits generated from the investment are sustainable. If the benefits generated from the investment are sustainable, then, the use of debt to magnify the benefits would make more sense.

Debt can be good or bad. It is too easy to say that we should avoid highly leveraged investments but we really should examine each leveraged entity closely and not generalise.

Related posts:
1. Don't think and grow rich.
2. Secret to avoiding financial ruin.
3. Get on top of your finances.
4. Snowballing towards bankruptcy.
5. Total Debt Servicing Ratio (TDSR).

Saizen REIT: A foreign talent!

This blog post is written in reply to a comment by a reader with regards to Saizen REIT. Read the reader's comment: here.

My reply:

Hi Simple Boy,

The way in which you annualised the income distribution is valid. It is always an estimate anyway and discussing whether it is accurate or not won't be very meaningful, I feel. So, I shan't be crunching numbers here.

As for comparing Saizen REIT's distribution yield against those of other S-REITs', I think it could be doing Saizen REIT an injustice to do so.

Firstly, different property types will command different yields and certain property types command higher yields. Saizen REIT owns residential real estate which, usually, are lower yielding. However, the demand for rental properties is relatively inelastic, especially in a country like Japan where the majority rent their homes. We don't have another REIT in Singapore that holds residential real estate for us to do a comparison against Saizen REIT.

Secondly, in the world of S-REITs, Saizen REIT is a rather strange animal because it doesn't have any properties in Singapore. All of its properties are in Japan. So, should we really call it an S-REIT or should we call it a J-REIT? I am inclined to think of it as a J-REIT that has a PR status in the world of S-REITs. Foreign talent, you know?

So, if we want to compare apples with apples and if we take a look at J-REITs, we would discover that it is rare to find those with distribution yields of 6% or higher.

Of course, to really compare apples with apples, we should compare Saizen REIT with J-REITs which hold residential real estate. There are quite a few J-REITs holding residential real estate but here are some numbers from 3 such J-REITs with the second last column representing the annualised distribution yields.



Click to enlarge.
Source: Tokyo Stock Exchange.

So, in the world of residential properties J-REITs, Saizen REIT would look very attractive now.

Could we see Saizen REIT's distribution yield declining to become closer to what J-REITs are offering now? I don't know. I need a working crystal ball to answer this question. My bowling ball struggles but cannot make it. However, I do know that distribution yield will decline if DPU falls or if unit price increases. 

So, what should we as income investors do? We look at how the DPU could fall, given all the information which we have. When we do this, we are actually assessing the level of sustainability of the REIT's income. There is no point in wondering how high the price could go or is there?

Of course, if someone would prefer to invest in S-REITs with higher distribution yields compared to Saizen REIT, there isn't anything wrong with that. However, making investment decisions based purely on distribution yields would be somewhat myopic.

Related post:
Saizen REIT: Rewarding patient investors.

Free "e-book": Retiring before 60 is not a dream.

AK is a lazy fellow who is always thinking about retiring and how he doesn't want to have to work for money. 

So, when AK read a recent article on how most fellow Singaporeans who want to retire before age 60 are unable to do so, the blogging bug bit him.





The article appeared in CNA and in summary:

1. 
54% of Singaporeans would like to retire before 60 years old. Only 36% believe they are able to.

2. 
48% believe that they will have less than $2,000 a month at 60 years old.

3. 
More than 90% have savings.

4. 
56% have started to save for retirement.

Read the article here:
http://www.channelnewsasia.com/news/singapore/many-s-poreans-doubt-they/1122962.html




I believe more than half of the respondents have taken the very important first step and that is to save money for retirement. 

However, nowhere in the article was the word "investment" mentioned. 

There was also no mention of how we could use tools available to us to help grow our funds for retirement. 

Give us enough information to worry us but not give us the solutions? 

Read the article and see if you can find the reason why.

Anyway, as this is a topic I have blogged about frequently, I decided to put together what could be 6 chapters in an e-book which could be useful to anyone who might be interested.

Chapter 1.
Be prudent when it comes to expenses, especially the big ticket items. 

Do we need to stay in a condominium? 

Do we need that car? 

Do we need to send our children to universities overseas? 

We could seriously boost our efforts to save for retirement by having our feet firmly planted on the ground.

Read: Why a wealthy nation cannot afford to retire?




Chapter 2.

If we are saving specifically for retirement, use the SRS. 

Many people I know still do not believe in the SRS. 

I don't understand why.

Spend less than you make; always be saving something. Put it into a tax-deferred account. Over time, it will begin to amount to something. This is such a no-brainer. Charlie Munger.

Read: A brief analysis of the SRS.






Chapter 3.
Time is required for compounding to do its magic.

I still believe that the CPF-SA is a relevant tool and that we should let time help us meet the minimum sum required. 

There are quite a few examples of people who have done this. 

It works.

Read: Securing risk free returns early for retirement.




Chapter 4.
Don't hold on to too much cash. 

We should put aside a meaningful sum of money every month as we save towards retirement but just leaving the money in a savings account is not a good idea. 

Inflation and paltry interest rates mean that our savings will shrink in real value.

Read: Have huge amount of savings and work till 70?






Chapter 5.

Get rich slowly and retire a millionaire. 

Put aside an emergency fund and invest the rest of our savings. 

Never depend on single income. Make investment to create a second source. Warren Buffett. 

Invest for income and that is what I have been doing.

Read: Retiring a millionaire is not a dream.




Chapter 6.
As we save money and build wealth for retirement, we should not forget to also protect our wealth.

Read: Millionaire or not, plan for retirement.

Unless severely disadvantaged, if we do the right things, there is no reason why we would not have enough money to retire comfortably in Singapore. 

We can do it!
--------------------------------------
You might also be interested in:
How to upsize $100K to $225K in 20 years?
(Published in August 2014)
An update on AK's CPF-SA.
(Published in January 2016)

Saizen REIT: Rewarding patient investors.

Today, a reader asked me at what price would I sell my investment in Saizen REIT. It was a difficult question for me to answer because I don't really have any intention to sell my investment in the REIT. Well, at least not now. For reasons I have shared before, I believe that this REIT is a sturdy investment for income.

A small apartment: 452 square feet in area.

Of course, I could consider selling if the valuation starts to look rich. However, with its current NAV/unit at $1.17, even at the high of 98c a unit touched today, Saizen REIT's units still look inexpensive. So, do I think that unit price will continue to go higher? I really do not know whether prices will continue to climb a wall of worries but I do know the value backing each unit.

I am also reasonably sure that the REIT will continue to do well, operationally and financially. Operationally, the REIT has a very good track record. Financially, its balance sheet is strong and with its loans being amortising in nature, everything else remaining equal, it will only become stronger.

Developments in Japan suggest that real estate in the country will do much better and Saizen REIT is a natural beneficiary. I would like to share a couple of articles here which I read in recent days:

"House prices are expected to continue rising in 2014, given that the government is expected to inject an additional stimulus package in the second half of this year. Moreover, Tokyo’s successful bid to host the 2020 Summer Olympics is expected to boost property demand and the construction sector over the next 7 years." Read article: here.

"The top five property markets in 2014 are Japan's Tokyo, China's Shanghai, Indonesia's Jakarta, Philippines' Manila and Australia's Sydney, PwC found.

"PwC said a huge spike in demand for Japanese property had propelled Tokyo to the top spot, following a five-year absence from the top rankings. The sudden increase in popularity is due to the government's radical economic stimulus plan, which has resulted in a flurry of purchases in anticipation of higher prices, PwC said.

"As well as Tokyo, secondary cities in Japan, including Osaka, Fukuoka and Sapporo are also proving popular." Read article: here.

Saizen REIT has almost 140 residential buildings in Japan. Out of these, 4 are in Tokyo, 11 are in Fukuoka and 35 are in Sapporo. Buying any of these buildings is likely to make a better investment than buying an investment property in Singapore now. However, the good news is that we do not have to raise funds to buy an entire building, we could own a share by being unit holders in Saizen REIT.

I believe that things are increasingly looking up for Saizen REIT and investors with enough patience will be rewarded in due course.

Related post:
Saizen REIT: Undervalued and possibly more so.

Saizen REIT: Undervalued and possibly more so.

On 23 March, I explained why investing in Saizen REIT at 88c a unit could be more palatable for some than investing in an apartment in Japan. Two months on, Saizen REIT is trading at a high of 93.5c a unit. It seems that Mr. Market's sentiments towards the REIT have turned positive. Sentiments? Yes, price movements are probably the result of sentiments. The value of the REIT has not changed.

A possible catalyst in the upward movement of the REIT's unit price is the announcement on options to enhance value for unit holders and this is going to happen sometime in the first half of June which is next month. My expectation is for a return of capital to happen. How much capital will be returned to unit holders, however, is harder to say.

A return of capital is going to have trade offs, not only in terms of future DPU for the REIT's unit holders but also in terms of the REIT's gearing level which will most definitely rise by a few percentage points although it is unlikely to go beyond 40%. This could be mitigated by the gradually rising prices of residential real estate in Japan which could mean a revaluation of Saizen REIT's properties is on the horizon.

When it comes to valuation, there is always a question as to whether valuations are realistic. After all, if valuations had been artificially elevated which is a form of financial engineering, then, things could go bad during crunch time. So, it is prudent to ask if Saizen REIT's properties' valuations are realistic too.

Actually, I believe that Saizen REIT's properties' valuations could be too low now.

During the global financial crisis when the REIT suffered from the CMBS' stampede for the exit, its properties were being sold very close to valuations in order to repay the CMBS for YK Shintoku (one of the REIT's many portfolios of properties) which suggested that the properties were valued realistically. More recently, however, on 19 May 2014, Saizen REIT announced the sale of one of its properties for JPY60 million. The property in question was valued in June 2013 at JPY50.4 million. This means that the property was sold at a 19% premium to valuation!

Now, imagine if the REIT's portfolio of properties were to undergo a revaluation of similar proportion. Even after a return of capital, the REIT's NAV per unit could be much higher than what it is today. This would mean that the REIT could become even more undervalued, everything else remaining equal.

For many people, the question might be whether it is a good time to buy into Saizen REIT. Honestly, I do not have an answer to this although those who did buy at 88c a unit when I last blogged about the REIT could be smiling now. Mr. Market could enter a bout of euphoria if there should be a return of capital to unit holders which exceed expectations. This could push unit price closer to current day NAV which is about $1.17 per unit. Whether it would happen or not is in the realm of speculation.

What I do know is the current value of the REIT and that at 93.5c a unit, it is still undervalued. There is also a probability that it could become even more undervalued in future.

I also know that the REIT's debts are amortising in nature and that it is reducing the total debt by a few percentage points every year.

I know that the REIT's debts are in JPY terms and this provides a natural hedge as its properties are all in Japan and valued in JPY.

I know that it has a robust interest cover ratio (i.e. NPI divided by interest expense) of 6x.

As an investment for income, Saizen REIT is likely to continue to be a consistent performer and as Abenomics gain traction, there could be positive surprises as valuations climb. Logically, we could also see rental income improving in due course.

Saizen REIT was one of my top 5 investments in S-REITs. Having reduced my exposure to LMIR and Sabana REIT, Saizen REIT is now one of my top 3 investments in S-REITs, together with AIMS AMP Capital Industrial REIT and First REIT.

Saizen REIT could turn out to be a very rewarding investment for me this year.

See Saizen REIT's presentation in May: here.
See recent announcement on divestment: here.

Related posts:
1. Apartments with rental yields of 4.95% to 7.3%.
2. Is the half yearly DPU of 3.25c sustainable?
3. Saizen REIT: Special dividend?

Invest X Congress: AK's ticket is up for grabs.

I was just informed by the organisers that I have a complimentary ticket to Invest X Congress which is happening on 14 June (Saturday) and that I could give it away to anyone I want since I won't be in the audience. I could give it away to a lucky reader too, of course.

However, I thought about it for a while and I think it won't be fair to readers who bought tickets to the event if I were to give my ticket away for free. So, to be fair, this is what I have decided to do:

Hmmmm....

The early bird offer of $79.00 a ticket to the event has ended. However, if anyone is interested in attending the event and who has yet to buy a ticket could make a bid for my ticket. Minimum bid is $79.00. Just leave a comment here in my blog with your bid. The highest bid will get the ticket. (Er, please remember that the regular price is $99.00 a ticket. Don't go overboard.)

Depending on the response, I could close the bidding process really quickly or let it run for a week.

The money from the sale of this ticket will be donated to a charity of my choice and I shall furnish proof of this donation at a later date. This is in line with one of the objectives of the event and that is to be charitable.

Thank you and I look forward to seeing you at the event. Cheong ah!

Related posts:
1. Invest X Congress 2014.
2. AK is feeling excited about 14 June 14.

Secret to losing weight and gaining wealth.

A friend once told me that to lose weight, simply eat less and exercise more. Input less, output more.

We can draw a parallel in wealth building: to become poorer, make less and spend more. Input less, output more.

So, to become richer, what do we do? Make more and spend less, of course. Input more, output less.

No matter how much we make, if we spend all of it or, heavens forbid, more than we make, we will always be poor. Easy enough to understand but why is it so hard for so many to remember?

P.S. AK decided to try harder to lose weight. Last night, AK went for a long walk. Took 2 hours. Drank 1.5 litres of water in that time to replenish lost moisture. Aiyoh, my aching body.

Related posts:
1. Buying a $500,000 watch.
2. 2 questions to build wealth.
3. Save 100% of your take home pay.
4. Becoming a millionaire next door.
5. Don't see money, won't spend money.

AK meets Richard Mille.

For those who don't follow me on Facebook:

AK  the Giamsiap fellow. LOL.

Added on 18 October 2016:

Source: HWZ

ROFL. ;p

Related post:
Buying a $500,000 watch.

Emergency and convenience cash.

I blogged about how we should always have a war chest to take advantage of opportunities in the stock market because what is worse than seeing the prices of our investments plunging? Not being able to increase the size of our investments at those lower prices (assuming, of course, that they are still good investments)!

So, I always say that there is nothing wrong with keeping a sizeable portion of our portfolio in cash. Cash isn't only the money we have in savings accounts or fixed deposits (which is my preferred way to keep my emergency fund and some of my money in my war chest). 

Money in the CPF-OA (up to a cap) and SRS account is cash that can be used for investments too.

Anyway, before I ramble on, this blog post is not going to look at cash in our portfolio. Huh?

This blog post is about emergency and convenience cash that I keep near me and I am not referring to the cash in my wallet. 

So, what is this emergency or convenience cash? It is cash that I keep at home and in my car.

I keep quite a bit of cash at home. This is handy if I have to pay for some repair that must be done by an electrician, air con technician or plumber, for examples. 

It is also handy when I order home deliveries for the family or decide to walk to the neighbourhood zhi char for dinner once in a while. Sometimes, I would ask friends (when I was staying out) or family to help me run errands and, of course, I had to pay them.

Keeping some cash at home is especially important if we do not have an ATM a stone's throw away from our home. Anyway, I really hate to queue at ATMs to withdraw money. I find it a time waster. 

OK, to be honest, it is not so much the time wasting but what I do to waste time. I don't mind watching anime for a few hours at a stretch. That is a more enjoyable way to waste time for me.

Amount of hard cash at home? Usually a couple of thousand dollars.

My money pouch at home.

Although it is quite rare but I have left home without my wallet before. The cash I keep in my car although not a lot is really handy then.

I would also make sure that the cash in the car is mostly coins and small notes. This takes into consideration how some places might not have change for bigger notes which happened often enough to leave an impression on me.

Amount of hard cash in the car? Usually not more than $50.00.

In an increasingly cashless society, I could be an odd ball, or do you do what I do too? I might lose out on some interest income but having some emergency and convenience cash works for me.

Related posts:
1. A special chest for emergency funds.
2. Why a meaningful emergency fund is important.
3. Emergency fund: How much is enough?

Good food at great discounts!

I like visiting the supermarkets towards closing time because I get to buy good food at big discounts!

Mackerel onigiri. Original price: $2.50.

Tastes even better at half price!

This is something I would do during my free and easy vacations in Hong Kong and Japan too. Stay near a supermarket and go shopping for dinner at 8.30pm.

The yum yum tastes yummier when the prices are marked down! I like!

Related post:
7 money habits of AK71's.

AK is feeling excited about 14 June 2014.

This is a quick reminder about the early bird offer for the event at which AK will be appearing as a guest speaker. Honestly, this is going to be my first public appearance and I am feeling a bit excited.

Anyway, I was just informed that 2 more speakers, both with backgrounds as analysts, will also be at the event. There will either be Q&A sessions after each segment or one at the end of the day. Of course, Q&A sessions are always good opportunities to pick some brains.

A priceless gift from a reader's niece.

The organisers have also confirmed that the charity which the event will be supporting is the one I have suggested, Singapore Children's Society. That makes me happy.

A big "thank you" to everyone who has bought tickets or who will be buying tickets to attend the event. Thank you and see you on 14 June 2014.

The last day to buy tickets at the early bird price is this Tuesday.

Buy your tickets: here.

Related post:
AK's first public appearance.

Double your income but not double your income tax.

This new blog post has an old theme and that is how we can pay less income tax even as we increase our income.

I have received my income tax notice of assessment. 

Tax payable: 

$1,606.02.




This is much more than what I paid last year which was $1,133.23. 

About 41.7% more, in fact! 

Why is this so? 

It has to do with the missing generous income tax rebate which was given in the year before.






Well, considering that my income in 2013 was almost twice as much as my income in 2012, $1,606.02 is not too much to pay, I suppose.

How is such a low income tax possible? 

After all, someone who makes $250,000 per annum would very likely have to pay an income tax of more than $20,000, wouldn't he?




OK, regular readers can skip the following pointers but if you are new to my blog, here are a few things you can consider doing:

1. Invest to receive non-taxable income. 

(For those who have the temperament and the know-how, trading could make some good money too.)




2. Start a Supplementary Retirement Scheme (SRS) account and make annual contributions to reduce taxable earned income. 

(For those who have yet to max out their CPF-SA, consider voluntary contributions up to a maximum of $7,000 a year. To avoid confusion, this is called a Minimum Sum Top Up or MSTU.)
 



3. Donate more to charitable organisations recognised by the government and enjoy 2.5x tax deduction, if we can afford to do so.

Mystery is solved.

The tools to help us build our wealth are out there and if we are able to help the less fortunate in the process, we should do it.




Don't say we don't have enough money or are not wealthy enough to help the poor. 

If we have some spare money to invest in the stock market, we are more fortunate than many out there. 

Even a $50.00 donation can do wonders. 

Not a big sum to most of us but it could mean a lot to the needy. 





If you don't know where to start, here is a suggestion: Singapore Children's Society.

Everyone's life should be better. 

If we do the right things, everyone's life could turn out better. 

Paying less income tax even as we increase our income will certainly help.

Reference: IRAS income tax rates.




Related posts:
1. Make more money, do good, pay less tax.
2. Ways to reduce income tax.
3. Voluntary contributions to CPF.
4. SRS- A brief analysis.
5. Build a bigger retirement fund: CPF-SA.

Croesus Retail Trust: What is the forward yield?

Not feeling 100% tonight. So, I am just going to zoom in on what bothers people most and skip the rest of the stuff which look OK anyway.

So, what bothers people most? The latest quarterly DPU of 1.76c.

If we were to simply annualise 1.76c, we would get 7.04c and based on a unit price of 93c, that is a distribution yield of only 7.57%. This definitely falls short of the IPO forecast of an 8% distribution yield.

An 8% distribution yield based on 93c would mean a DPU of some 7.44c per annum or 1.86c per quarter. Yikes! With only 1.76c, we have a shortfall of some 0.1c and this is after purchasing 2 more properties in the last quarter too!

There is a simple explanation. There are costs involved in the purchase of those 2 malls and they only contributed to income in the month of March. Of course, we can say something about the Japanese Yen being weak but currency hedge has already been put in place by the management.

In the quarter April to June 2014, the 2 newly acquired malls will contribute a full quarter of income. This will bump up quarterly DPU. Annualising that DPU will more accurately reflect the annual DPU and hence the distribution yield of the Trust.

The monthly NPI for the 2 newly acquired malls is estimated to be JPY 72.2 million. Refer to page 14 of the slides presentation.

With distribution income for January to March 2014 at JPY 619.78 million which gives us a DPU of 1.76c, an additional NPI of JPY 144.4 million (JPY 72.2 million x 2) will have some positive impact on DPU for the quarter April to June 2014. Even assuming that costs go up by some JPY 50 million (additional management fees and financial costs), we would still be looking at some additional JPY 94 million which can be distributed to unit holders. This is an increase of about 15%. So, we are looking at a DPU of possibly 2.024c.

Annualising 2.024c gives us 8.096c or a yield of 8.7% based on a unit price of 93c.  This is some 8.75% higher than the 8% distribution yield dangled during the Trust's IPO.

Having said this, I won't buy more at 93c a unit. It could be that I have anchored myself at 87c and 87.5c, my entry prices, but I feel that 93c is not all that compelling.

Wait a minute, wasn't the distribution yield estimated at 8.5% when I initiated my first long position at 87c last November? Why do I now say that an 8.7% yield is not compelling? Well, back in November, the gearing level was about 42%. Now, at 53.5%, to a simple minded person like me, getting another 0.2% in yield just doesn't cut it.

For a Trust that has a gearing level of 53.5%, I need a much higher distribution yield to be able to sleep better at night. Everything else remaining equal, a 9.5% distribution yield could, perhaps, entice me to add to my long position.

See presentation slides: here.

Related posts:
1. Croesus Retail Trust: 87c.
2. Luz Omori and Niz Wave I.

Buying a property: Affordability and Value For Money.

Following my blog post on considerations in buying a property for first timers, a reader mentioned how it is all about location and that if we can afford it, always buy a property in a better location.

"You may baulk at the high price for properties in a good locations. But if you have the budget, go for good locations because when you sell in future, you can also sell for a good price. If you buy a property because it is cheap, it is likely to be poorly located with little amenities and poor connectively. When you sell in future, potential buyer may also "hiam" the place.

"Always buy where there are future potential development (for examples, Paya Lebar, Jurong East and Woodlands have been designated as regional centres under the Masterplan)."

Of course, I think that location is important too. 

However, to me, it is never about "affordability", it is always about "value for money".





"Value for money" is a concept that is location neutral when it comes to real estate. 

It can be quite subjective, for sure, but there is also a high degree of objectivity. 

So, when we have a discussion on this, it is important to stay clear minded about what we are talking about.

Example 1:

If someone had bought a resale 5 room flat in a mature estate for, say, almost $800,000 because he liked the location for some reason while a sale of balance flats exercise could yield a 5 room flat in a non-mature estate which could be had for half the price, should we say that he was not getting value for money?

Well, for some of us, it could be really hard to rationalise away the extra $400,000 that had been paid for convenience and familiarity, perhaps. 





However, to the buyer, the location could be priceless. 

Whenever there is a strong emotive element, objectivity is suppressed. 

Don't discuss because it could disgust.





Example 2:

If someone had bought a BTO 2 room flat in a mature estate for a quarter of a million dollars instead of a BTO 4 room flat in a non-mature estate for the same amount of money with an eye on becoming a landlord, would the better location in a mature estate help? 

With the BTO 2 room flat, he could not rent it out until 5 years later while with the BTO 4 room flat, he could rent out 2 rooms and immediately, it would be cash flow positive. 





Of course, we are talking about doing things legally here.

However, if the thought that the BTO 2 room flat in question could appreciate by much more in price and was, hence, a better buy, then, we would have entered the realms of speculation. 

Don't discuss because no one is the wiser.

Example 3:

If person A had bought a condominium that was a 2 minutes walk from a MRT station at $1,700 per square foot, would he be better off than person B who had bought a condominium of a similar size that was a 15 minutes walk from the same MRT station at $1,200 per square foot? 

Assuming a floor area of 500 square feet, we would be looking at a cool $250,000 difference in price. 





Was the proximity to the MRT station worth that much?

If person A decided to rent out the condominium at $3,000 a month, person B could ask for $2,400 and would still end up with a higher rental yield, everything else remaining equal. 

For a monthly savings of $600 (or $7,200 a year), potential tenants could be more than willing to take a stroll to the MRT station and this is a realistic scenario especially when smaller apartments are more likely to appeal to younger renters.





Example 4:

If someone had found a condominium in a good location but it was asking for a significant (say 15%) premium to the latest transacted prices of surrounding properties (and a 15% premium is pretty normal with new launches most of the time), how would that provide value for money? 

Now, if someone had found a condominium in a not as good location but it was offering a nice discount (say 15%) to the latest transacted prices of surrounding properties, wouldn't that be a value buy?


Think a property in a less convenient location is harder to rent out? Try lowering the rental. 

If there was a comfortable margin of safety in the purchase price of the property, there would be plenty of room to lower prices and it would still give a satisfactory result.

Something I like to remember all the time (but sometimes forget):

"Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results." Warren Buffett.





And I said this on my FB wall:

"I would like to play the Devil's Advocate here. A rising tide lifts all boats. I know friends who bought properties in not so good location who saw their properties' values going up by 100% too in the last few years. My properties which were in more prime locations also went up by 100% up to the point I sold 2 years ago.

"I believe that keeping an eye on value is more important and that location is, often, a reason bandied around by vested interests to push up prices. If we could buy an undervalued property in a less prime location, from a value for money perspective, why would we want to buy a property that has priced in future value?

"I am not an expert on property investments. I have just used some old concepts about price and value for money here."

Buying a piece of real estate anywhere is a big commitment and the decision making process is complex although making a decision is easy. 

Considering whether a piece of property is "value for money" should be a part of the decision making process although it is not the only consideration.





However, if all else have been taken into consideration, we should remember that it is not about "affordability", it should always be about "value for money".

Note: All examples provided in this blog post are real life examples that I know of.




Related posts:
1. Buying an apartment: Considerations.
2. Buying a property as an owner-occupier?

My travel blog:
Value for money in a box of Mikans?

Yummy Yum Yum (60c) breakfast!

This is another way we can have the spring onion pancake I blogged about not too long ago:

Frozen pancake in a frying pan.

Flipped!



Flipped again and include a slice of low fat cheese.

Fold it like a burrito.



I spent too much time taking photos. Messy but super yummy!

If AK can cook, so can you!

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