A Sea of Red - Oct 2014

Judging from all the news that abound, it would seem like the market has met Dooms Day. World news would seem to back up the argument:

• Ebola virus
• ISIS in middle-east
• Ukraine crisis and a resurgent Russia
• Stagnation of Japan
• Protests in Hong Kong
• Weakening China market that continues to flex its military muscle in the Asia-Pacific region
• Drop in oil prices
• Softening commodities negatively affecting Australia
• Possible accounting issues at Tesco impacting Berkshire Hathaway
• US companies running away from its home soil to avoid tax

The list goes on and on. Yet, has the market corrected beyond 10%? Apparently not, or maybe just not yet. 

The talking heads will probably be either (a) spreading the gloom and doom story, or (b) "Opportunities will again present itself in this time of fear. Time to find good stock to invest in. But patience may be needed."

Basically, they don't know any better. After all, why would they? They are not clairvoyant and don't have any all-seeing eye either. But where fear and doom abound, there are always opportunities. 

Companies are still selling their products and continue to make money. I will certainly still need the toothpaste, shampoo, medicine, food, use my mobile, surf the net, watch my cable TV, shop at the malls, etc. Life goes on. 

A REIT Time, a Dividend Future - ARA

The recent MAS consultation on changes to REIT management has spurred various reactions on its future impact. Most seem to suggest that it would be positive for all parties concerned. 

One area of concern has been the impact on companies that manage REITs, especially ARA. Its management has expressed that while it may result in lower earnings, it could lead to the expansion of its asset under management and would balance off in the long run.

(05/11/2013)	1.940
52 Week Low (SGD) (04/02/2014)	1.635
52 Week Return (%)	-2.010
Average Volume ('mil)	0.2852
Beta	0.85

Financial strength
Current Ratio	1.84
Quick Ratio	-
Long Term Debt to Equity (%)	0.05
Total Debt to Equity (%)	10.98
Interest Coverage Ratio (TTM)	-
Free Cash Flow to Firm (TTM) (SGD 'mln)	68.32

Margin
Gross Margin (TTM) (%)	-
Operating Profit Margin (TTM) (%)	61.88
Net Profit Margin (TTM) (%)	55.66

Dividend §
Annual Dividend per share (SGD)	0.0500
Dividend Yield (TTM) (%)	2.93
Dividend Yield (Annual) (%)	2.93
Payout Ratio (TTM) (%)	28.24
3-Year Growth Rate (%)	4.64

Valuation
Historical P/E Ratio	19.41
P/E Ratio (TTM)	17.83
P/BV (latest interim)	4.93
BVPS (latest interim) (SGD)	0.3462
EPS TTM (SGD)	0.0956

[Source: POEMS, dated 13 Oct 2014]

Its financials appear to be in fairly good shape thus far. Question is, will it be able to absorb the effects of this upcoming change?

Its Distribution Per Share (DPS) grew steadily from 0.0397 to 0.05 (2.93% yield) between FY09 to FY13. A steady dividend payout history is an encouraging sign. Yet, its payout has kept below 30% despite this. Over the same period, its Earnings Per Share (EPS) has grown from 0.0572 to 0.0879. That means that its DPS has stayed below its EPS. I view these as positive and prudent.

Suppose its earnings were to collapse down to its FY09 level of 0.0572, would it still be able to sustain the dividend payout at 0.05 (FY13)? It would likely face increased pressure to reduce its dividends, or face an expansion of its payout ratio. But this is just one scenario.

I have a small holding in this company and will keep things unchanged for now. Happy to continue to collect its dividends meanwhile.

AirBnB - Sharing a Home for Rental Income

The Internet of Things has enabled in recent times this trend of "sharing". In reality, it is actually not a recent thing as the trend had started many years ago, but perhaps becoming more viable as a business concern in recent times. Transportation (Uber), accommodation (AirBnB), you name it. The Internet makes it easy for such businesses to thrive.

Interestingly, those who advertise Singapore properties on AirBnB are likely in violation of the law as short term rentals for anything less than 6 months is apparently not allowed. That hasn't stopped many from trying though. They are really risking it. Considering that properties are expensive like heck in Singapore, that's putting a lot at risk. You could lose your house! It probably doesn't take a lot for your neighbours to get upset with you and make a report.

I suppose the government would be reviewing its policy on this in due course. Given Prime Minister's speech at the National Day Rally on monetising the home for retirement (Post National Day Rally 2014 - Education, CPF and Infrastructure), perhaps such short term rentals could provide an additional option as a source of income for retirees?

Understandably, these have to be balanced against having tons of strangers thronging around our residences, creating concerns of insecurity. It is perhaps less of an issue if the owner actually stays in the home. But another thing altogether when fully rented out.

When renting homes overseas, though not from AirBnB, I've come across rental homes residing in nice, quiet neighbourhoods. I never once met the owners. I was given the numeric lock numbers over e-mail to gain access to the lock at the entrance of the house. The lock box provided the keys to the house. And on leaving, I only had to lock up the place and lock up the keys. Pretty much an "unmanned" experience. This happened at both Phillip Island and Fremantle in Australia. Must say that both were most positive experiences for my family. The houses were fully functional and well stocked.

Related:
Post National Day Rally 2014 - Education, CPF and Infrastructure
Cashflow - A Tale of Stable Income
Property - An Asset, Liability or Cashflow?

Who Digs Me? From Russia with Love

Was browsing through the data on the audience that hit my blogs and found it fascinating. Based on the total data from "all time", expectedly, Singapore is the top origin. And as would be reasonably expected, the US and UK would feature among the top few given that my posts are in English after all.

In some months, page views from UK, France and Germany actually outstrips Singapore! I wonder what's the cause of the attraction?

But I thought it was strange to see among the Top 10 coming from Russia, Latvia, Poland and Ukraine as well. Either there are many web hosting services actually located in those countries, or they are some kind of bots that are hitting on my blogs for some purposes that I have yet to comprehend. I'm sure the topical musings in my posts couldn't be of such tremendous interest to attract readers from these countries. Or do they?

I checked out some of the Russian origin URLs (*.ru) indicated in my Blogspot data. They seem to be selling various kinds of paraphernalia - e.g. knife shaped credit cards, dog repellant devices and sleeping masks with a "memory". Fascinating products! But I still couldn't fathom why these were sources of referrals to my blog. I certainly didn't see any links. Wonder why?

It's such a fascinating world we live in!

Rental or Ownership - Which Makes Sense for a Home?

Since eons, it seemed to be a given that we should strive towards owning that roof over our head that we call our home. It was imbued in our psych that this is a necessary step to ensure our well being, carrying us into our retirement. With such an asset firmly in our hands, we then need only to worry about other expenses for a healthy living and retirement.

It has also often been explained that between renting versus owning a property, the earlier leaves one with nothing, while the later produces an asset at the end of the day.

I've been thinking though, do the maths really work out right today? I own my condo, apparently valued at about $1m today. Or maybe a bit less, given the softening property market. What would it cost to rent?

Suppose I were 65 years today (or should I be thinking 67 now!?), and assuming I have 30 years to go, paying a monthly rental instead of $3,000 a month - that works out to be $1.08m in total, without accounting for the time value of money. Seems logical to own my property rather than rent, since I would have paid the equivalent sum over time?

But let's consider an alternate future. Suppose I monetise the $1m by selling off my property and then investing that $1m, generating a 4% real return on the investment, giving me $40,000 a year. That would actually be more than the $36,000 a year in rental.

Does this look a real proposition to ponder? Will the rental rate hold, or will it increase over time? With age and time, do the equations change?

Related:
Post National Day Rally 2014 - Education, CPF and Infrastructure
Cashflow - A Tale of Stable Income
Property - An Asset Liability or Cashflow?

The Good News About Retirement - How much do we need to retire on?

Just how much do we need to retire on? Some rule of thumbs I've seen suggested 60-75% of last earned income as a reasonable estimate. Others I've seen have highlighted the need to provision more for medical expenses as one ages. In general, there is also the factor of inflation that has to be considered.

In some illustrations on investment returns, the term "real returns" is used. This refers to the return after deducting off inflation. Hence, a real return of 3% against a backdrop of 2% inflation would actually a mean an absolute return of 5%.

In a post on The Good News About Retirement by Darrow Kirkpatrick from US perspective, it was actually suggested that expenses are likely to decline with age, and highlighted health care support from ObamaCare, the enduring US Social Security system, availability of part-time work and bonus cushioning from inheritance. Darrow concluded that a prudent lifestyle and a reasonable effort to save would be pleasantly rewarded by the realities of retirement. Quite a significantly different point of view.

Taking our Singapore context, our equivalent would probably be our Medishield plans and Medisave for health care, pension contribution from CPF Life based on the CPF minimum sum contribution in CPF-RA/SA, and as a bonus, any inheritance comes tax free. We seem in pretty good shape.