Personal Updates- Boss Finally Restores Part of Initial Pay Cut （咸鱼大翻身）

Earlier in March'20, I mentioned that I was made to take a "Voluntary Paycut" of 10%. After that, it got worse and at one point, my company implemented unpaid leave and pay cut of up to 30% off. Many of my relatives and friends told me that I am considered lucky to still have a job in the midst of all this COVID-19 economic lock-down which devastated many businesses. I was forced to dig into my personal savings for some daily family expenses such as insurance premiums, parent's allowances and kids' tuition. Luckily, for September 2020, good news finally came, my Boss suddenly became generous and reduced the 30% pay cut to only 10%, as our Company's business begin picking up again after the end of the Circuit Breaker.

Three Observations During This Recession:

1. Best to work for the Singapore Government- stable iron rice bowl! My wife, a government servant, only got reduction in bonuses paid out. But no reduction in monthly salary at all. She even told me that my Company sucks for reducing pay of its employees and I looked at her incredulously. I told my wife that in the commercial sector, most of the businesses implemented some form of pay cut especially for those in hospitality & airline sectors as this is one of the worst economic crisis ever faced by all in Singapore. 

2. It is recession now. But surprisingly, you will not be able to find much empty warehouse space in Singapore. My Company is having an extremely challenging time trying to get an empty warehouse for an upcoming project but most of all major players like Capitaland Ascendas, Ara Logos, Mapletree, AIMS AMP warehouse spaces are not available till end of the year. Reason being that the government agencies seems to have booked temporary storage for excess stockpiling of essential goods till year end and may extend up to at least 1st half of next year. So, seems holding on to logistics stocks is a safe option as government spending is being injected to sustain warehousing space. Also price of warehousing space apparently went up compared to 1-2 years back at this time of recession (S$1.05 psf now becomes S$1.20psf)...another weird phenomenon that has me scratching my head. 

3.  Lightning speed rate of decline in stock price for airlines and hospitality stocks. It is incredible to see SIA plunge to an all time record low price. Also, hospitality stocks were severely hit. Eagle Hospitality Trust went into bank loan default in less than  9 months after IPO. Moral of the story is to keep exposure to such stocks minimum if one cannot stomach such drastic decline, in particularly, during a pandemic induced recession. Pandemic induced recession may not be just a rare event. We already have a scary episode in 2003 SARS crisis, 2009 H1N1 which are smaller scale outbreaks but which nevertheless also caused much severe impact to economies. So once a while, there will be outbreak of such diseases in the foreseeable future.

Other Thoughts
When times are good, the boss gives only 2%-3% increment. When times are bad, the boss cut your pay 30% and even remove the expected bonus to be paid out from previous profitable year in the name of conserving cash-flow. Therefore, one should ultimately depend on one own self and strive to achieve financial independence as soon as possible. Game it and then forget about the rules entrapping one at work.        

Whole-life Critical Illness Insurance Plan Is A Heavy Boulder to Shoulder

What happened to the talented Chadwick Boseman can happen to anyone. Chadwick, the Black Panther superhero, died of colon cancer at the young age of 43 after fighting it for 4 years. I was sadden at the passing of Chadwick who is still so young and has many more to offer to the World. The growing rate of this terrible disease in young people is alarming. Critical illness policies are thus important and essential for protecting yourself and also your loved ones while one is still in the prime of one's live. During my last posting on my struggle with whole-life insurance policies in March 2012, I have briefly mentioned the 3 whole-life critical illness policies, namely, (i) NTUC Income, (ii) Aviva and (iii) Tokio Marine Life, that I have been holding. I like the NTUC Income Living Policy series as it generates good cash value over the many years that I have been holding. However, this is a traditional whole life policy that one is required to pay until age 85 years old unlike limited payment products that is the norm these days. I simply cannot envision myself paying S$1,500 per year up till 85 years old. 

Whole-life CI is necessary but very expensive and a constant struggle to maintain

I was extremely happy when my Aviva critical illness coverage policy became fully paid up in 2017. It feels as if a big stone was taken off my shoulder. However, the bad news is that the agent which sold me the Aviva policy convinced me to sign up for a new AXA plan with coverage of another S$100K for early critical illness coverage and this was another limited payment plan of 15 years at S$2,484.90 per annum.

2 months ago, I decided to terminate my NTUC Income Living Policy as I have enough of paying and paying non-stop to sustain this traditional whole-life plan that does not make sense to me since day 1. I was happy to take out the cash value that had built up and converted them into my emergency cash on hand. This also means I get to save S$1,500 every year from paying NTUC Income.

Life is full of contradiction

The strange thing is that after I cancelled the NTUC Income whole life policy, I suddenly felt a tinge of regret. I know it sounds ironic. But I then decided to sign up for another standard critical illness policy with Prudential but this time round, I opted for a 15 years term policy for S$100K of coverage for normal critical illness at a fraction of the price of whole-life for only about S$400 per annum. I guess I just want to have a peace of mind to have something extra before my kids finished their studies and are able to stand on their own feet.

Summary
For those who just started work, paying for whole life critical illness insurance is a huge burden with the low start-up salary package as one strives to work his or her way up by building expertise and on the job experiences. But guess it is an issue of having sufficient financial discipline to endure the hardship upfront and enjoying the fruits of the labour after the policy became fully paid up where  one eventually gets the protection for life. 

First REIT Stock Price Crash Disaster- Response to SGX Query

First REIT share price has crashed till S$0.535 as at 28th August 2020. While many REITs have recovered from the record low during the stock market crash in March 2020, First REIT has once again sunk to another new trough. From 2nd Jan 2020 price of S$1.00 per unit, the current price of S$0.535 per unit means a whopping 46.5% plunge in equity value of investors and is a total disaster. 

I am glad that I have bite the bullet and sold off all my First REIT units in June'20 from my margin portfolio as well as cash portfolio ever since the shocked announcement by the sponsor asking for restructuring of the entire rental leases without informing First REIT management team. In May'20, Lippo Malls Indo Retail Trust was downgraded by Maybank Kim Eng from Grade A to a Non-Marginable status. I have a bad feel that First REIT maybe added to the non-marginable list if things still do not improve for Lippo Karawaci and Siloam Hospital Group. 

SGX Query on valuation of First REIT investment properties for half year ending 30 June 2020

On 11th August 2020, First REIT responded to SGX query on valuation of its investment properties. I was disappointed to see that the issue of the rental restructuring process requested by Lippo Karawaci has no definitive conclusion. Hence First REIT's management team argument to SGX query is that since there is no certainty of new terms and conditions being reached, there is no basis for the Manager to re-assess the carrying value of the properties at this juncture. First REIT appeared to have backed down from the previous stronger stance of using contractual obligation of long term contractual commitment of the hospital properties and the soft response appears to indicate that if Lippo Karawaci financials deteriorated further, a restructuring may be inevitable  despite the majority of original lease agreements still not expiring.

Parting Thoughts:

There appears to be much undercurrent among the Lippo Karawaci group. Without more news being released on the previous request for restructuring of all the leases and also the new terms for the upcoming 5 hospitals due for renewal, it is indeed hard to place a concrete value on the net worth of each unit. The current 80% subsidies by the sponsor for the rental payments is an unsustainable commercial model and it appears that Lippo Karawaci is no longer supportive of such an arrangement and is trying to exit the long term contractual commitments in order to save itself from huge cash outflow to First REIT. 

Please also see previous postings on First REIT:

1. First REIT Share Price Crash Again- Sudden Announcement of 2 Months Rental Relief to Hospital Tenants

2. First REIT's Sponsor Plan to Default on Original Rental Support Agreements- Price Collapsed By 30% Within A Day

Singapore Press Holdings Media Segment May Be Reporting Losses

The announcement of further retrenchment of 140 staff by Singapore Press Holdings ("SPH") seems to be pointing to losses in the Media segment. This is really bad news. Hopefully, with the layoff of 140 staff, this will bring back the medium term financial results for Media to at least sustain itself on a break-even point. This is one of my key assumption. Else it means that the property segment will be subsiding a loss-making business which does not make any sense for its long term viability. 

 Key Highlights:

PayScale Industry Singapore Media Benchmark

• One off impairment charges of S$8Mil in Q4 FY2020 for the layoff of 140 staff from Media Solutions Division and SPH Magazines. 
• Strangely, no cost savings numbers were furnished. But let's do a simple mathematical extrapolation ourselves. Using data from PayScale SG, average salary we are looking at is +S$51,842 per annum per headcount. Hence based on 140 staff, we are looking at expected savings of +S$7.3Mil per annum from this restructuring exercise for the next financial year.

Other Highlights:

• Retail results for the year was heavily impacted by COVID-19 and economies lockdown in Singapore and Australia. But next financial year it should do a lot better once vaccine becomes available widely. We need to take a look at the longer term for the retail segment.
• The purpose built accommodation business continued to do well. Booking continued to increase and up to 83% of revenue target for Academic Year 20/21 were filled up. This is up from 75% as at 10 July 2020. 
• I was also surprised by the sales of up to 43% of units in Woodleigh Residences at an average of S$1,892psf. Not too bad for them to be able to move more of the units in this very expensive development.
• I was disappointed that SPH does not seemed to be releasing quarterly financial information anymore especially with regard to the performance of its different segment. Unable to find the Q3 FY2020 results for trending analysis.

Media is already only contributing to very minor profit out of all business segments.

Summary:

Overall, not sure how bad will the Media segment be hit. Will need to wait for the year end results to see whether the 5% reduction in Media staff is sufficient to restore this particular business back to at least break-even point so that it does not become a parasite sucking out the profits from the property segment. The revaluation losses of properties during the recession will also hit SPH badly for the final year results. There maybe more buying opportunities once the full year results is released due to knee jerk reaction from myopic short-term view.

Love And Redemption Review- 琉璃美人煞

Love and Redemption (琉璃) is the latest and hottest drama released in August 2020. This TV drama is adapted from a novel that is renowned as being in the same league as of the other two major classic of Eternal Love (三生三世十里桃花 ) and The Journey of Flower (花千骨). This fantasy drama series is so good that I am totally mesmerised by it. The beautiful backdrop and the tragic story line is just too awesome. I like this new series because the main lead in the storyline is unique and different from other adaption and for the first time, the most powerful character in the series, the God of War, is a lady!

Plot Summary:

Legends has it that one thousand years ago, the Demon Tribe rebelled against the mighty Heavenly Tribe. The Heavenly Tribe thus sent hundred of thousands of soldiers to suppress the revolt against their rule. During the battle, the Demon Tribe has a prodigy known as the Evil Star. The appearance of the Evil Star changed the tide of the battle as his power seems to be more powerful than all the gods from the Heavenly Tribe. The Demon Tribe thus managed to fight all the way to the gate of Heaven and were on the verge of taking over their place as the ruler of the three realms. However, during this final battle at Heaven itself, the great general of the Demon Tribe, the Evil Star, disappeared suddenly. In addition, a mysterious Heavenly general, the God of war appeared all of a sudden and single handedly defeated all the warriors of the Demon Tribe. It was rumored that the God of War had sealed the spirit of the Evil Star on the earth realm under 4 heavenly locks. The keys to the 4 heavenly locks were given to 4 leaders of the major sects and their future descendants in the earth realm for safe-keeping.

It is also revealed that the God of War was later punished for breaching the heavenly rules and banished onto earth. In the reincarnated form, the God of War was re-born as a girl, Chu Xuan Ji, who does not have all her basic human senses since birth. As Chu Xuan Ji has incomplete senses, she is unable to practice magical cultivation initially and also does not understand human love. Chu Xuan Ji later crossed path with an enigmatic man, Yu Si Feng who is a prodigy in terms of cultivation and martial arts. They then went through much of trial and tribulation of life together not knowing that their fate were already intertwined in all their previous lives.  

Parting Thoughts:
The story-line for Love and Redemption is no doubt a tragedy. There are quite a few major plot twist and turn especially towards the second half of this series. For the benefit of those who have not read the novel, I should not reveal too much. The special effects of the show is awesome!. The best scene I like so far is when Chu Xuan Ji accidentally found the magical Heavenly Sword (定坤神剑 ) formerly wielded by the God of War in a valley. The mystical and powerful sword has been sealed in an invincible magical suppression barrier by the Heavenly White Emperor as it had grown evil with the slaying of hundred of thousands of demons a thousand year ago.  The summoning of the mystical sword by the mortal Chu Xuan Ji to break through the invincible magical barrier to save Yu Si Feng is fantastic.

Highly recommended show for all.

Unauthorised US$2Mil Loan Taken Out By Sponsor of Eagle Hospitality Trust

On 14th August 2020 (Friday), Eagle Hospitality Trust ("EHT") made another shocking announcement. It appeared that the Sponsor (Urban Commons) of Eagle Hospitality Trust is treating it as a personal ATM machine. Even though Taylor Woods has resigned as director of EHT after the queries by SGX on conflict of interest issue, the ex-director apparently still went on to apply for a US$2Mil worth of loan using the entity name of EHT when he has absolutely no authority to represent EHT.  Strangely, the money borrowed effectively went to the bank account of the Master Lessee held by Urban Commons instead of going to EHT but the liability and legal borrower becomes EHT. Upon the ruse being discovered by the professional consultants of EHT, they sent a legal demand letter to Urban Commons. Urban Commons quickly responded that this incident is an administrative oversight and have informed the lender.

1. Start of a new war of words- Sponsor's side of the story on 12th August 2020 (Wed)

On 12th August 2020, Urban Commons suddenly put out a press release stating that the sponsor has a re-financing plan in place to help EHT. It then went on further to accuse the current management and professional advisors of EHT of acting in an adversarial manner and not willing to hear its rescue plan.  

2. EHT hits back at the allegation of Sponsor with the shocking revelation of the unauthorised loan application by Taylor Woods on 14th August 2020 (Fri).

EHT's response was very interesting and worth a mention here. Instead of playing defensive and trying to react to the accusation that it has not been willing to accept the proposal of Urban Commons and wasting money on engaging financial consultants for the restructuring, EHT brilliantly responded with a counter attack on the integrity and management style of the management of Urban Commons by revealing the unauthorised loan application made by Taylor Woods on behalf of EHT even when he is no longer a director of EHT- some-more, loan money goes to Urban Commons but EHT picked up the tag for repayment.  It was indeed an ingenious response by the current senior management of EHT and its advisors.

3. Why has Urban Commons, only after so many months, now suddenly assert that they have a viable financing plan for EHT?

My own personal thoughts on why Urban Commons only now appear to assert that they have a concrete financing plan in place is simply because of the recent announcement made by various leading COVID-19 vaccine developers on the significant progress being made. There is now a high likelihood that a safe and effective COVID-19 vaccine will become available to the general public of US as early as end of this year or early next year. Once COVID-19 is under-control, the hospitality sector in US will begin its recovery. 

Howard and Taylor are true businessmen. When the banks ask for recall of bank loan, they went into hiding and are unable to provide any solid recuse plan. Bear in mind that despite the press release of Urban Commons on 12th August 2020, Howard and Taylor raised up many points but failed to answer why they chose to enter into a non-disturbance agreement to transfer and assume financial liabilities worth US$50.7Mil  from the master lessees held by Urban Commons onto the shareholders of EHT. They have remained silent on this critical point.  

With the current muddy outlook becomes clearer, they now wanted to take control back of the hotel businesses as they want to make big money again from running the business. I strongly believe that Howard and Taylor are unwilling to let go of the hotel operations which they have painstakingly built up now that green shoots started appearing. But of course, when times are bad and uncertain, they chose to hide behind their master lessee shell companies and dump substantial liabilities onto the shareholders of EHT. When times are better, they want a piece of the pie again. Perfect timing from my own personal perspective. 

4.   Isn't it better as per what Howard Wu and Taylor Woods had said to let Urban Commons takeover the hotel operations again instead of wasting critical time looking at proposals from other hoteliers and wasting money on consultants?

(a) Again, from my personal perspective, I disagree with the way Howard and Taylor are running their business as I find them unable to differentiate clearly between the interest of EHT and Urban Commons. When times are bad, they transferred liabilities of US$50.7Mil to EHT from their Urban Commons operations via the non-disturbance agreements setup. The recent case of another US$2Mil unauthorized loan application for working capital of Urban Commons but using the name of EHT reinforces my view of their principles in life. The business decisions on the aforesaid points, in my personal opinion, are detrimental and at the expense of the unit-holders of EHT. 

(b) The request for proposals by EHT is open to all. If Urban Commons is still interested in running the hotels, then they need to submit a business plan and convince the directors of EHT that they now have the financial resources for a real come-back. But I reckon this will be tough in view of competition from other hoteliers. I am seriously doubtful of the sudden financing solutions claimed by Urban Commons. They have already failed to turn around EHT with their previous exclusive award of proposal to Far East Consortium International Limited ("FECIL"). Seeking external party help (FECIL) just a few months back and now suddenly claimed that Urban Commons itself has a viable financing strategy to resume operations is contradictory.  

(c)  As I have mentioned in my previous post, it is better for EHT to evaluate what the competitors have to offer in their proposals rather than just looking at 1 proposal.

5. Will the Eagle Hospitality Trust saga end soon?

This is highly unlikely. Urban Commons has initiated a counter legal claim against EHT. They want to force EHT to return the rights to lease the hotels to continue business operations so that Urban Commons can survive. 

I am also rather surprised to see Urban Commons argue on "Force Majeure" as a contractual clause to stop paying fixed rental to EHT and stating as if this is their rights. From what I observed, many hotel REITs sponsor/lessee are financially stronger and still paying any fixed rental component during this pandemic. There is no doubt that Urban Commons financial position is very weak relative to other hospitality trust.

Final Thoughts:

I guess it is lucky that both Howard Wu and Taylor Woods hold less than 15% of the units in EHT. I sense that a fight at an EGM is coming up soon.  My personal thoughts are to stay far far away from any recuse package offered by Urban Commons as they are treating EHT as their own personal play toys and there is a blatant lack of respect for other unit-holders.  I actually prefer to do a sales of all hotel assets under EHT rather than letting Urban Commons back into the fold. The best solution would be to work with other external hoteliers- preferably allowing a private placement of units to align the new business partner as well as to speedily re-capitalise the Trust in such a manner. 

(P.S: I noted discrepancies between 2 SGX announcements from EHT. On 14th August 2020, EHT stated that upon the Loan Application date of 18th May 2020, Taylor Woods is no longer an officer of EHT. However, the official resignation announced on 26th May 2020 states that the resignation of Taylor Woods is on 26th May 2020. If so, it means that the loan taken out is legally binding on EHT. I have sent out an email to EHT's Investor Relations Manager for clarification on this key point.)

Please also see my previous posts:

1. Will Eagle Hospitality Trust Survive Upcoming Bankruptcy Threat? (Part 1 of 2)

2. Will Eagle Hospitality Trust Survive Upcoming Bankruptcy Threat? (Part 2 of 2)

3. White Knight Appears for Eagle Hospitality Trust And MAS & Singapore Police Force Commenced Joint Investigation

4. Eagle Hospitality Trust- No Deal Reached With Far East Consortium And Open Up Request For Proposal From Interested Parties

Fu Yu Corporation Closes Down Its China Chongqing Factory - Optimisation and Rightsizing

Fu Yu Corporation senior management has been doing a wonderful job of streamlining their manufacturing operations to rein in excess capacity and cost. On 7th August 2020 (after SGX closed for the week), Fu Yu made the announcement for the closure of factory in Chongqing, China. This is on the back of the Shanghai factory closure in previous FY2019. 

Financial impacts:

There will be a one off restructuring cost of S$1Mil for the 1st half of the financial year due to the closure of Fu Yu Chongqing. Other than that, this closure does not have a significant impact to the profitability of the group. While the revenue contribution is around 10% to the Group, the net profit contribution makes up only  1% for profit before tax numbers. 

I view this as a good time to right size the China operations of Fu Yu Corporation to reduce fixed overheads. The Group's balance sheet remain strong with a huge cash position to weather through this COVID-19 pandemic with not a single cent of bank borrowings. Hence do not think its share price will be adversely affected by the closure once trading resumes on Tuesday (11th August 2020).

(Please see my previous post: Fu Yu Corporation- Super Hero Cash Cow New Growth Path- To Expand Operations Capability in Singapore)