Wednesday 30 December 2020

Results of EGM Of Eagle Hospitality Trust- Disastrous EGM and Back To Square One

Well, this is a complete waste of time and efforts for all stakeholders of Eagle Hospitality Trust ("EHT"). All resolutions were defeated by the stapled security holders as Resolution 1 to Resolution 4 are inter-dependent. Stapled security holders neither wanted a new REIT Manager & their rescue plan nor wanted to liquidate the Trust which is already running out of working capital. 88.39% do not want to liquidate the Trust even thought they rejected the rescue plan. However, this brought the Trust closer to creditors' winding up due to funding issue.

On closer examination, resolution 2 on proposed REIT Manager base fee, which required an extraordinary support of 75%, caused the downfall of the entire EGM to appoint the new manager. My thoughts are that unit-holders are not being rational here. EHT is a trust in distress and there is no painless business solution to get out of this mess.  Results of the EGM as below:

Resolution 1 (Ordinary): To approve the proposed appointment of SCCPRE Hospitality REIT Management Pte. Ltd. as the new manager of EH-REIT (Conditional upon Resolution 2, Resolution 3 and Resolution 4)
For-56.64%; Against-43.36%
Results: Carried but since resolution 2 failed, proposed new REIT Manager will not be appointed.

Resolution 2 (Extraordinary-need 75% to pass): To approve the Proposed Base Fee Supplement (EH-REIT) to reflect the proposed base fee structure of the New REIT Manager as an Interested Person Transaction (Conditional upon Resolution 1, Resolution 3 and Resolution 4).
For-56.25%; Against- 43.75%
Results: Defeated as unable to get 75% support. Proposed new REIT Manager will not be appointed

Resolution 3 (Ordinary): To approve the proposed appointment of SCCPRE Hospitality Business Trust Management Pte. Ltd. as the new trustee manager of EH-BT and waiver of the 14-days’ notice period required under Regulation 14(3)(b) of the BTR (Conditional upon Resolution 1, Resolution 2 and Resolution 4).
For-56.63%; Against- 43.37%
Results: Carried but since resolution 2 failed, proposed new REIT Manager will not be appointed.

Resolution 4 (Ordinary):  To approve the proposed authority for the issuance of up to 140,000,000 new Stapled Securities at the Issue Price per Stapled Security for payment of the New Managers’ Base Fees for the financial years ending 31 December 2021 and 2022 (Conditional upon Resolution 1, Resolution 2 and Resolution 3).
For-56.21%; Against- 43.79%
Results: Carried but since resolution 2 failed, proposed new REIT Manager will not be appointed.

Resolution 5 (Extraordinary-need 75% to pass): To approve the proposed (a) voluntary delisting of EHT, (b) voluntary termination and winding-up of EH-REIT, and (c) voluntary winding-up of EH-BT, in the event that any of Resolution 1, Resolution 2, Resolution 3 and Resolution 4 is not passed and/or carried.
For-11.61%; Against-88.39%
Results: Defeated

Parting Thoughts:
Stapled security owners are just digging their own grave by delaying the appointment of a new REIT manager to open up the hotels for business. A forced liquidation by the bankers may well be on the table soon despite a massive 88.39% of stapled security holders who want EHT to continue operations instead of choosing a voluntary winding up. The saga continues for now.....

Monday 28 December 2020

First REIT Twisted The Knife Further Into The Heart Of All Unitholders- Nightmare of Nightmares Right Issues Announced At More Than 50% Discount Off Last Market Price.

Unitholders still holding on to First REIT got hit with a double whammy shock today (28 Dec 2020) when the REIT Manager announced a rights issue on top of the previous released of rental restructuring of all hospital contracts news the previous month (29 Nov 2020). The sponsors of First REIT wasted no time to twist the knife further into the hearts of all retail unitholders by announcing a rights issue at more than 50% discount off the last traded price of S$ 0.405 per unit on 24 Dec 2020. The price of S$0.20 per unit is also 60% off the projected NAV of S$0.51 per unit after the rental restructuring. Investors who do not subscribe to the rights issue will be severely diluted by this latest move, which to me personally, is a massive destruction of value for all unit-holders. Right after this latest announcement (even before the EGM approval), the price of First REIT went down by a whopping 33% to trade between S$0.26 to S$0.27 per unit.

Potential Consequences of a Sponsor Default

S$140Mil from the 20cents Rights Issue To Repay Loan Facilities 

Financial Effects Of Proposed Corporate Actions

There are 3 main questions that both the Sponsors (Lippo Karawaci and OUE Healthcare) and their REIT manager need to answer:

1. Why is the potential breach of bank covenants not previously highlighted prominently in the rental restructuring agreement with Lippo Karawaci on 29 Nov 2020?
My own thoughts on this is that the management is taking way too long to announce this. They should have analyzed and released such pertinent financial information on 29 Nov 2020 during the rental restructuring agreement and organized a townhall with all unitholders to brainstorm instead of adopting such high handed manner in the short time frame to the upcoming EGM. 

In addition, using proceeds of rights issue to repay part of expiring bank loans means that the REIT is unable to leverage on the lower cost of borrowings to finance itself. This is detrimental to the entire business and investors and I am surprised that this vital information is not released earlier in the announced rental restructuring proposal as well as the potential rights issue which would have reduced the NAV further from S$0.51 per unit to S$0.36 per unit.

2. Why is the rights issue not priced at 25% or 30% discount instead to last 45 days trading average and the sponsors & REIT manager took such a drastic haircut of 50% for additional rights issue?
The projected NAV is S$0.51 per unit after the rental restructuring agreement. The rights issue represents a 60% discount to projected NAV and a 50% discount to last traded market price. This seems like hitting retail investors below the belt to buy-over unsubscribed rights issuance units  at a massive discount and is extremely prejudicial to retail investors who either do not have cash on hand to subscribe for it or who do not want to undertake additional risk in their investments into First REIT.

3. Why not sell some of the hospital properties back to Lippo Karawaci or other potential buyers to raise proceed for loan repayment instead of proposing such dilutive rights issue corporate action? 
My personal thought is that Lippo Karawaci should be the one to do a rights issue to fund their own operations instead of downloading all cashflow problems to the investors of First REIT. If they refused to buy their own hospitals based on the latest fair valuation report, then First REIT should sell it off to rival competitors by launching a public tender or asking Siloam hospitals to get ready to exit their operations. As alluded to point 2 above, the heavily discounted rights issue is a heavy handed way to deal with retail investors.

Parting thoughts
Personally, I think that this is an exploitation of retail investors. This seems like a deal that is more beneficial to Lippo Karawaci. The sponsors are holding on to retail investors by their neck. I would rather choose to liquidate the entire First REIT to scare off the sponsors into offering something better value for money instead of trying to milk the existing retail investors dry. 

Ultimately, Lippo Karawaci will the one that gets the most damage if there is a default in paying of rent to First REIT, across all their businesses. Based on the valuation report of the investment properties netting off liabilities after the proposed restructuring agreements, the NAV is S$0.51 per unit. It thus makes sense to just go for liquidation unless Lippo Karawaci offers a better deal rather than letting the share price drop to S$0.26-S$0.27 with the detrimental rights issue proposal. Lippo Karawaci should come back with a better deal for retail investors instead of taking the easy way out.

Last but not least, my other personal thought is that breaking lease agreements once means that the senior management of Lippo Karawaci group will simply repeat the same act of default and another rights issue again if there is another economic crisis. Toss a coin Head or Tail but Lippo Karawaci wins either way....strange isn't it? 

(P.S: Please also see my last posting on First REIT below

Saturday 26 December 2020

Starlink By Elon Musk For Satellite Internet Broadband Services Operational Soon- Possible Threat to Singtel, Starhub and Netlink Trust?

Elon Musk is planning to launch its SpaceX's Starlink services soon. Starlink is actually a satellite internet constellation being constructed by SpaceX providing satellite Internet access. The constellation will consist of thousands of mass-produced small satellites in low Earth orbit, working in combination with ground transceivers. An estimated investment of more than US$10 billion has been pumped into this decade old project from Elon Musk. This space internet broadband project actually went on track as per forecasted with various beta testing being done already. It is scheduled to launch soon in USA and Canada this year and to rapidly expand to attain global coverage of the entire world by 2021. I was rather surprised that Elon Musk managed to pull this off and they are in the midst of going live soon. 

Will it pose a threat to 5G technology and fibre optic network of Singtel, Starhub and Netlink Trust?

Firstly, the original market segment for Starlink seems to be more for rural areas. In big countries such as USA, the vast geographical area makes it almost impossible to lay fibre optic cable to connect every home. I do not think that there will be many take up  in Singapore even if it is given regulatory approval by the Singapore Government due to the fact that Singapore is a tiny country that is already very well connected by fibre optic and also upcoming planned 5G base stations setup from the telecommunication/internet cabling companies.

Secondly, the technology of satellite connection based on beta testing has speed of only 150Mbps and latency rate of 20ms to 40ms. With 5G network deployment using high frequency bandwidth, we can get up to 1Gbps and latency rate of 1ms. Hence competitive services such as direct fibre optic cable and upcoming 5G network services are superior relative to the connectivity services offered by Starlink.

Thirdly, the reported cost seems to be US$99 per month and a one time USD500 setup kit. SpaceX expects to generate US30 billion per annum from selling this internet services globally. In Singapore, the US$99 is a lot more expensive than what the main telecommunication companies, Singtel, Starhub and M1 are offering. Hence I think there is a lack of competitive advantages for such services in certain countries which are small and already built up extensive fibre optic cabling infrastructure.

Parting Thoughts
Satellite internet connection seems to be an upcoming technology ready for deployment. There are also other players like Amazon and OneWeb (went into bankruptcy but subsequently rescued by UK government and India Bharti Group). Elon Musk's Starlink seems to be leading ahead in the global deployment of thousands of satellites to beam high speed internet from anywhere in the world. My personal thoughts are that it should not pose a threat to Singtel. Starhub and Netlink Trust in our Singapore market due to the aforesaid mentioned 3 points. 

What are your thoughts?

Wednesday 23 December 2020

SPH REIT Still Undervalued by 30% from Peak- Fear of new COVID-19 Outbreaks on Retail Landscape

SPH REIT and other retail REITs are still reeling from the mall closures and rental waivers during the worst season of the pandemic in Singapore from April'20 to May'20. Since 2017, the market valuation of SPH REIT on SGX has always been hovering between S$1.00 to S$1.10 per unit. The current unit price of S$0.840 per unit represents a 30% potential capital upside that still has not priced in much optimism on recovery but still sinking in extreme pessissim by the market. Fear is driving many investors away from SPH REIT citing potential future severe outbreak of COVID like the European countries, Korea & Japan and the end of retail at shopping mall as e-commerce (driven by e-marketplaces such as Amazon, Shopee, Qoo10 etc) continues to grow rapidly. This actually represents the best opportunity to continue scoping up units in SPH REIT while most folks are still fearful in order to reap the reward by waiting for the eventual retail recovery over the next 3-5 years. 

1. COVID Vaccines will be rolled out in early January 2021 in Singapore- First batch of vaccines received this week already. 
Singapore is the first country in Asia to receive the COVID Vaccine. As more and more vaccines became available to the general population, this allows for herd immunity (70% to 80% of population target) to be achieved without substantial fatality and thus reduces the probability of another "circuit breaker". 

The current "mutant" and more infectious UK COVID strain should not be a grave concern as the vaccines will be able to offer protection for it as per the leading CEOs of the respective vaccine developers.

2. E-commerce will end retail malls and their relevancy in Singapore?
I disagree with such belief. The retail scene is very different in Singapore compared to other countries such as European countries or the United States. Unlike in Europe and the US where cities were built around outdoor commercial streets and plazas, shopping malls in Singapore form an integral part of the urban landscape and consistently achieve high footfall especially at suburban neighborhood areas. 

Singapore is a land-scarce nation where the government controls the supply of commercial space through long-term planning policies and government land sales. This thus limit the supply of shopping mall relative to the residents living in a certain district.

In addition, shopping malls in Singapore have been adapting to shifting trends well by including more F&B outlets & educational centers into their tenant mix. Many malls are also experimenting with new retail stall concept. For example at Capitaland Funan shopping mall, the tenant Courts opened its first IoT-themed store, which retails the latest smart home, AI and voice-control technology from leading brands, incorporates interactive in-store experiential concepts and robotics. Swiss sewing machine brand Bernina’s flagship store at Funan offers a new lifestyle concept that includes themed sewing workshops, machine rental service as well as gift personalisation service.

3. SPH REIT maintained a strong balance sheet and operating financial metrics

  • One off non-recurring (touch wood-unless there is another lockdown) rental waiver of S$39.9Mil given to tenants in Singapore and Australia thus leaving FY2020 Net Property Income ("NPI") of S$182Mil. Non-recurring rental waiver thus comprises 21.9% of NPI.
  • As at year end 31 August 2020, occupancy rate remains high at 97.7%
  • As at 31 August 2020, SPH REIT’s gearing was stable at 30.5% while its debt maturities were well-staggered with no refinancing due till June 2021.
  • Net asset value per unit as at 31 August 2020 was S$0.91 per unit a decline of only 4.2%.

4. Most of the shopping malls under SPH REIT (with the exception of Paragon) has recovered to near pre-covid levels and Phase 3 launch on 28 Dec 2020 to further boost traffic.

4.1 Suburban local shopping mall (Clementi Mall etc) and Australian Shopping Malls
On 19 June 2020, the Singapore Government relaxed the COVID control measures and most businesses were allowed to resume trading. Progressively, businesses have started to show signs of recovery. With Phase 3 to commence soon on 28 December 2020, it is anticipated that dining capacity and overall shopper traffic will increase, which will in turn will benefit SPH REIT tenants’ businesses.

In the initial months when COVID-19 hit Australia, tenant sales declined in SPH REIT Australian malls in the continent. Unlike Singapore, in the cities where SPH REIT assets are located, there were no lockdowns, but there was some form of restricted trading, in particular, those with “touch points” such as cinemas and massage services. Since May 2020, both of SPH REIT’s assets in Australia started to show signs of recovery and from July 2020 onwards, tenant sales are almost back at pre-COVID-19 levels.

4.2 Paragon shopping mall in Orchard Road
Paragon’s location on Orchard Road appeals to locals as well as tourists. Its well-established premier upscale positioning continues to attract the target market from the local community. However, with the border restrictions imposed since February 2020, international tourist arrivals declined 97%. 

Without the tourists’ consumption along Orchard Road, which is the most visited free access attraction in Singapore, Paragon’s tenant sales were inevitably impacted. Paragon’s tourist visitation closely mirrors the Singapore Tourism Board’s report that about 30% of Orchard Road consumption is from tourists. 

The Medical tower of 90 specialist were also affected by the border restriction on the Medical Tourism industry and also circuit breaker which only allows essential medical procedures. However, Singapore is expected to open up gradually in 2021 to international visitors once vaccination rate improves for the general population. Personally, I expect Paragon businesses to recover close to pre-COVID levels in the 2nd half of 2022.   

5. High forward dividend yield based on $0.840 per unit price
Using 2019 quarterly dividend average of S$0.014 per unit as future operations norm, annual dividend expected is S$0.056. At current price of S$0.84, this represented a dividend yield of 6.7%-7.0% from good quality assets such as Paragon and future M&A pipeline of Seletar Mall and upcoming Woodleigh shopping mall for inorganic growth. Investors who went in now will have another capital upside potential of at least 30%. The world will not be defeated by COVID and medical advances with vaccines and better treatment will definitely lead to an eventual economic recovery. 
The Seletar Mall

The COVID-induced recession is one of the worst that the world has ever seen with economies coming to a virtual standstill. However, it also presented an opportunity to purchase retail assets at such a huge discount to their potential valuation. Buying into SPH REIT now is like buying into an Orchard Road prime property at 30% discount off. Investors who stay the course of their investment and who dare to make additional purchases this year and even early next year will see substantial returns on their retail REIT investments over the next 3-5 years. 

(P.S: On the subject of valuation, there are many variables and factors. For skeptical folks whose narrow mindset "understanding" of valuation concept is based on current known conditions only and not forward looking into the future and treat the REIT as a non-going concern and undergoing immediate liquidation, then the valuation will approximate to the last known NAV of S$0.91 per unit based on fair value of its investment properties on again known prevailing market conditions as at financial year end. A more logical valuation method would be to view the present value of net future inflow of economic benefits isn't it?)

Sunday 20 December 2020

A Game Of Thrones in Condominium Disputes And Filing of Case With The Singapore Strata Title Board

This is a follow-up posting from the last one on "Problems With Living In Singapore Condominiums- Not As Glamorous As One Think It Is". When communication breaks down between residents and the Management Committee of the MCST, all hell breaks loose, in particularly, with many egos being at stake, some estate issues will definitely escalate out of control. This is where a group of very pissed off resident group will get together to campaign to overthrow the incumbent Management Council team by mudslinging on social media and tit for tat went on between the 2 parties This is also whereby some residents will file a case with the Strata Title Board ("STB") to take on their own MCST.

1. Procedure of Filing to STB and whereby all residents gets punished from depletion of management funds in the legal dispute.
From my last posting, one typical problem will be whether 2nd and 3rd car can park for free issue in most condominiums  or whether the MCST can enforce stringent wheel clamping rules against fellow residents.

The proceedings at Strata Titles Boards consist of 4 main stages:

(1.1)  Application: The Applicant will file an application against the Respondent.

(1.2) Mediation: All parties (Applicant and Respondent) are required to attend mediation session(s) fixed by the Board. The matter may stop at mediation if parties resolve the dispute at that stage.

(1.3) Hearing: If the matter cannot be resolved at the mediation stage, the Board will give directions to the parties to prepare for a hearing and fix the hearing date.

(1.4) Post-hearing: The Board’s orders is binding on parties and may be enforced at the Singapore State Courts.

1.1 Cost of Application Stage- Money commences burning
An application fee of S$500 is required to submit the application along with the "prayers" being sought. Prayers here is not referring to the religious prayers but rather a specific request for judgment, relief and/or damages at the conclusion of a complaint or petition. The applicant/applicants will typically hire a lawyer at this stage to help prepare the filing and incur additional cost of between S$3K to S$5K.

At this point, the MCST is known as the respondent. The Management Council Members may also be named by the applicant/applicants individually as additional respondents along with the MCST. To get ready a respond, the MCST will typically incurr legal fees for crafting the respond. This can cost anywhere from S$3K to S$5K depending on the number of issues, its complexity and hours spent by the legal counsel.

 1.2  Mediation- Extra money burnt for legal counsel to attend Mediation session on behalf of Applicants/Respondent
The lawyers representing the applicants and the MCST at this stage will be very happy as they can bill around S$3K to attend the mediation session. 

So applicant wasted S$3K out of their own pocket if they hired legal counsel at this stage and the respondent will also waste S$3K. 

Normally, there will be at least 2 mediation sessions before all stakeholders either resolve the issues or decided that mediation is useless and to move on to full hearing. If there is another mediation session, another S$3K will be wasted at each side.

Therefore, at least S$6K will thus be burnt by applicants and respondent respectively at the mediation sessions.

1.3 to 1.4 Hearing and Post Hearing
There will be an STB hearing cost here as well as individual legal counsel cost. This stage typically cost around S$10K to S$20k for each respective party depending on the number of hours spent by the legal counsel on hearing preparation and submission.

One import thing to note here is that many people have the wrong notion that if they win the STB case, they can get back all legal consultation and mediation costs from the losing party. This is totally wrong concept. Only party to party cost and panel hearing cost can be recovered. To give an example, I have known of MCST who spent S$50K in legal fees overall to defend against the prayers sought by the applicants and won the case but in the end only got back S$10K in cost recovery. 

A typical STB case may thus cost up to S$20K to S$30K for applicants and respondent respectively depending on the number of prayers and the complexity of the issues. This is a lose lose situation as this means that S$40K to S$60K would have been wasted by both parties. The only winners out of this will be the legal counsels. Unfortunately, such incidents are not isolated. There are many people with different personalities and principles living in any estate. Residents should thus participate actively in the Annual General Meeting and ensure that they elect their council members wisely. 

Most importantly, more residents should step forward to take up the thankless job of being a management council member lest the council is left in the control of an extremist group of residents who can then make numerous house rules to turn the entire estate into an army camp or prison which will have negative repercussions such as the estate getting into multiple lawsuits with vendors at Small Claims Tribunal/State Courts or cases lodged by fellow residents at STB. 

Friday 11 December 2020

COVID Vaccine Will Only Be Successfully Developed in 10 Years Time According to Colleague Who Worked As A Nurse Before.

Yesterday, I was working from home and had a very interesting tele-conversation with one of my colleagues in Sales and Marketing team. We were talking about the current work from home situation and how I find it not that effective but have to adhere to Business Continuity Planning.

"I wonder when will the COVID vaccine be imported by our Ministry of Health for use by Singaporeans," I said.

"Aiyo, not so fast one. I tell you this. I worked as a nurse in a hospital before and know about such thing. Successful vaccines take as long as 10 years to develop. So we will need to wait at least 2-3 more years fastest before a successful tested vaccine is rolled out for mass inoculations. Also viruses keep mutating, so a successful vaccine may never be developed," exclaimed my colleague confidently.

When I heard the above, I was stunned for a moment and bewildered. Is my colleague, Sarah, working from home or more of "sleeping from home" for a few months to be so out of touch with the biggest global news this month?

"Sarah, Moderna and Pfizer vaccine have concluded their phase 3 trial and both are more than 90% effective and safe for use. As a matter of fact, UK had already started their mass vaccination programme for covid. The US is not far behind and they expect an emergency authorization as soon as this week or early next week by their FDA for Pfizer followed by Moderna," I remarked.

"Oh, I didn't know that....haha...I was very busy with business development work hence did not see the news," Sarah replied hastily.
Apparently, some folks maybe too relaxed with working from home and lost touch with reality. Luckily I updated her on the latest news else it will look bad on the image of our organisation if she meets clients and tells them the weirdo theory and misconceptions of hers.

Thursday 10 December 2020

7 Things Eagle Hospitality Trust Unit-holders Need to Know About The Upcoming EGM (30 Dec 20) and Restructuring Plan

Eagle Hospitality Trust ("EHT") finally released the details on the restructuring plan on Dec 9, 2020, along with a 194 pages circular. The proposed new REIT manager is SCCPRE Hospitality REIT Management Pte Ltd ("SCCPRE"), a member of SC Group

7 key highlights EHT unitholders need to know:

1. SCCPRE rescue plan is straight forward and does not involve equity raising at the kick off stage. They will negotiate for an 18mth bridging loan of US$125Mil @ around 10.25% interest rate per annum from a group of lenders led by the Bank of America to re-start hotel operations in the stabilization phase before moving on to the growth phase. This represented the best proposals received so far as it preserves value within EHT with minimal dilution impact due to current weak market sentiment.  

2. If Resolutions 1, 2, 3 and 4 associated with the appointment of SCCPRE fails, then unitholders will need to move on to Plan B (final resolution number 5) which is the voluntary winding up of EHT and an immediate liquidation.

3. The name of EHT will no longer exist and amended to SCCP Hospitality Real Estate Investment Trust if the change of new REIT Manager is approved by unit-holders (pls refer Pg 39/194 of Circular). This actually bodes well for all stakeholders as EHT branding is now negatively associated with breach of numerous listing regulations and also famous for the 2 USA based directors who make decisions such as signing non-disturbance agreements that has conflict of interest by transferring liabilities from lessee to the lessor as well as unauthorized loan application on behalf of EHT for US COVID Loan programme- pls see pt 5 below also. 

4. By opting for a new REIT manager, the key risk here is a potential litigation risk from the creditors of outstanding hotel liabilities, the lenders of EHT under the Bank of America Facilities Agreement as well as Sponsor (Urban Commons) and the Master Lessees. Litigation are expensive and may burn up existing working capital and lead right back to square one.

5. The unauthorized loan of USD 2Mil taken out by ex-Directors Taylor Woods and Howard Wu using the name of EHT Master Lessor for the United States Paycheck Protection Program, has not been transferred to the correct party which is the lessee. There seems to be a hidden agenda by Taylor Woods and Howard Wu to transfer the liability to EHT unit-holders, that is, making EHT investors pay for their own Urban Common hotel lessee operations. There is a risk that EHT unit holders may have to bear the liability for this fraudulent loan application.

6. In order for EHT to eventually lift its trading suspension, sufficient progress would need to be made towards stabilising EHT's operations and EHT would have to ensure that it can operate as a going concern. This would mean the fastest turnaround for trading suspension to be lifted will be as at end of June 2021 if (i) SCCPRE managed to divest at least 1 hotel properties to raise cash on hand and to pay down the bridging loan and (ii) the hospitality sector starts to recover with the COVID vaccines for sufficient cashflow generation to at least breakeven point.

7.  In the event of a liquidation under Chapter 11 if unitholders choose not to vote in a new REIT manager, there is a probability that a further 14% to 43% discount off the last valuation report of US$727Mil maybe required to liquidate them immediately (Pls refer to Pg 69/194 of Circular) due to COVID.

Parting Thoughts:
Based on the aforesaid mentioned points, if the unit-holders choose to liquidate immediately, they will most likely get back nothing due to the current weak market. Hence the better option is obviously to vote for resolution 1, 2, 3 and 4 to appoint the new REIT Manager. In addition, the Trustee DBS is of the view that the proposed change of managers and related matters is the most credible proposal put forth to stapled security holders in the best interest of EHT.

(P.S: Please also "Follow" me on Facebook-Investment Income For Life.)

Wednesday 9 December 2020

Eagle Hospitality Trust New White Knight- SC Capital and EOGM Showdown Coming

The recent announcement of SC Global coming into the picture as White Knight is good news for Eagle Hospitality Trust ("EHT"). SC currently controls the managers of two listed real estate investment trusts in the region, Japan Hotel REIT Investment Corporation and Thailand Prime Property Freehold and Leasehold REIT. It is very strong financially and has the networking and experiences to restructure EHT.

The bad news now is how much will be the placement units issued to SC Global for them to re-capitalise EHT and at what price. Current unit holders will suffer from massive dilution in their original holdings if the new unit issuance is based on recent valuation report of the hotels. But no choice, given that SC Global need to have a significant stakes in order to water down the current units controlled by Howard Wu and Taylor Woods.

More details should be released soon on the re-capitalization plan and the Extraordinary General Meeting to be convened to formally approve the change in REIT Manager and acceptance of the rescue package. Perhaps the other interesting question is whether current unit holders need to also cough up additional funds in order to raise working capital. 

(P.S: Please also "Follow" me on Facebook-Investment Income For Life.)

LATEST updates on 10 Dec 2020: Please refer here for the key highlights on the detailed rescue plan and EGM.

Sunday 6 December 2020

First REIT Nightmarish Rental Restructuring- Good Buy Now With Huge Drop in Price and High Potential Dividend Yield of 12.2%?

First REIT has to be one of the most disastrous performing REITs over the past 3 years (the only worse one is Eagle Hospitality). From a record high S$1.40 per unit in 2018, it has now dropped to just a mere former shadow of itself of S$0.40 per unit as at 3rd December 2020. When the detailed rental restructuring plan was released on 29 November 2020, it crashed the previous week ending market valuation of S$0.475 per unit. What was released in the announcement on that fateful day was apparently worse than the basic expectation of most investors.

1. Sponsor and main lessees Lippo Karawaci & Siloam in trouble
Lippo Karawaci is having cashflow challenges due to COVID-19. It is having problems selling its properties in development amidst the current pandemic and also having problems divesting off assets such as retail shopping mall to raise cash. On 2nd December 2020, unitholders of Lippo Malls Indonesia Retail Trust (“LMIRT”) grilled the Trust’s manager over the pricing and timing of purchase of strata title units of Lippo Mall Puri in West Jakarta from Lippo Karawaci for S$336.5Mil. There are doubts by LMIRT unit holders on whether or not the valuation done at the end of 2018 is reasonable enough given the current adverse impact of COVID-19 in Indonesia. Hence there is a probability that Lippo Karawaci is unable to download the asset into LMIRT to raise fund.

First REIT Trust Manager’s rational for the new Master Lease Agreement (“MLA”) is to avoid the adverse consequences of a default by Lippo Karawaci if it maintains the existing MLAs. Personally, I thought that this move is as good as admitting that First REIT is undergoing a potential default by its tenants as it had already given 4 months of rental waiver to its tenants. 

2. Nightmarish terms of new MLAs for First REIT owners

(i) What are the main changes to the MLAs? 
The aggregate commencement base rent for the bulk of the portfolio, LPKR hospitals, will be reduced from S$80.9 Mil to approximately S$50.9Mil (or around IDR550.7 billion) per annum. This is a whopping cut of <58.9%> in base rent. The restructured MLAs will also feature a new performance-based rent mechanism where the actual rent paid will be the higher of either the base rent

The main changes is that instead of receiving the rental in Singapore dollars, the new MLAs changed this to Indonesian Rupiah. The commencement base rent will enjoy a fixed escalation rate of 4.5% per annum, compared to the previous base rent escalation capped at 2.0% per annum under existing LPKR MLAs.

(ii) Is the higher annual escalation rate of 4.5% relative to the current 2.0% per annum a much better deal?

The answer to this seems to be no better. Investors are generally worst off albeit the seemingly higher escalation rate of 4.5%. This is because the risk of foreign currency risk is now being passed on to First REIT investors as the rental denomination currency has been changed to IDR instead of SGD. The IDR lost around 32% of its value over the past 10 years. If there is hyper-inflation or changes in monetary policy such as printing lots of money by the Central Bank, then the IDR may face a substantial drop that is double digit and definitely more than 4.5%. 

(iii) What is the point of signing a new lease agreement if the tenant does not intend to honour it?
The important question here is what if there is another pandemic or major recession in another few years’ time? Will Lippo Karawaci come back to ask for another restructuring of MLAs? If one can dishonor an agreement one time, then one can surely do it again to the unit-holders a second or third time. They should have only changed the terms for the upcoming first batch of hospitals that have leases expiring and do for the rest later on upon expiry. Personally, I think this has seriously damaged their reputation and branding. They should have gone for a rights issue to raise cash at the holding company level back in Indonesia to meet future obligations instead of blatantly breaching signed lease agreements. 

3. Dividend trap with high yield or really good buy now?

Dividend yield look good with 4.44 cents after the restructuring. At the last traded unit price of S$0.40 per unit, this is an attractive dividend yield of 11.1%.. If we exclude the one off non-recurring restructuring costs of S$3.4Mil, then one will get an even higher dividend yield of 12.2%.

As at 30 June 2020, net asset value dropped from S$0.969 per unit to S$0.494 per unit after the restructuring exercise. Compare to the market price of S$0.40 per unit last traded on 4 December 2020, there is  thus a current discount of around 19% to NAV.

However leverage ratio jumped to 48.6% which is almost near the new ceiling of 50% by MAS. 

4. Parting Thoughts
I am not sure how First REIT will be able to get any yield accretive new properties acquisition at the current super high yield expected by investors and also the fact that it is near to bursting the debt limit of 50% hence unable to take advantage of the current low interest rate environment.

Hence despite the seemingly very attractive potential dividend yield of up to 12.2% per annum, I will give First REIT a miss due to the change in rental base (forex fluctuation risk) from SGD to IDR and an over-leveraged financial position. Perhaps most importantly, I looked at the sorry state of another Lippo Karawaci sponsored Reit, LMIRT, and can't help but worried that any investment in First REIT will go the same way in the near future. Last but not least, my personal thoughts are that breaking lease agreements means that the senior management of Lippo Karawaci group will simply repeat the same act once there is another economic crisis.    

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Thursday 26 November 2020

Eagle Hospitality Trust- Updates On Projected Salvageable Hotel Properties Value from Fire-sales (End 2020)

This is an update on the valuation of Eagle Hospitality Trust ("EHT") in the event of forced liquidation and also an estimation of the fair market value once it is removed from suspension.

Based on the Q3 financial results released, I have updated the various numbers on the statement of financial position.

Elaboration on Financial Projection
1. I have revised the valuation of the investment properties to S$734Mil from the original S$1.27Bil. This is a significant drop in fair valuation of S$533Mil amidst COVID-19.

2. Assuming no more hidden liabilities, then immediate liquidation if a buyer can be found will be around US$0.119 per unit. 

3. If the business can continue running and valuation recovers as denoted in the various columns on the right side, investors will be able to recover more money. Hence it is important for the new white knight to be appointed as REIT Manager to continue the business. The recent successfully tested COVID vaccines should lead to a gradual recover in the US hospitality industry.

MAS instruction to DBS Trustee to terminate REIT Manager and to appoint new one
EHT REIT Manager has responded to MAS on 13 November 2020. Since then, there have been no update on whether MAS decided to accept and retain the current REIT Manager or to carry on with the appointment of a new one that will be unveiled soon. Personally, if the current REIT Manager is retained, this means EHT will still be under the control of Howard Wu and Taylor Woods. I will rather EHT liquidate and end their current business under such scenario.  However, if the REIT Manager did indeed change to a new one, then it maybe worthwhile to carry on holding on to the units of EHT.
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Sunday 22 November 2020

Stock Investment Portfolio Updates-22 November 2020

It is coming to almost the end of 2020. COVID seems to have become part and parcel of our lives. Everyday, seeing everyone wearing masks and the non-stop reporting of ever increasing 2nd or 3rd wave record breaking infections and fatalities overseas reminds us that the battle with the deadly virus is far from over. Even right now, the travel bubble between Singapore and Hong Kong which was supposed to commence today got postponed by at least another 2 weeks due to a new severe outbreak declared by the Hong Kong government. SIA and Cathay Pacific are most likely to decline slightly in the opening of the stock markets Monday morning.  I remain optimistic that the immediate emergency approval of Pfizer and Moderna COVID vaccine in December 2020 will pave the way for an eventual defeat of the COVID virus and revert back to our normal way of life by Q4 of 2021. Changes since my last update in August 2020.

1. Rally in DBS, UOB and OCBC share prices
My investments in DBS, UOB and OCBC under cash purchase portfolio and margin portfolio roared back into life with the announcement of the successful vaccines against COVID-19. I intend to sell off part of my banking stocks and switched them into Retail REITs which are likely to be the next counters in recovery as the vaccines will signal the end of devastating economic lockdowns. 

2. Investing into CapitaLand Integrated Commercial Trust ("CICT") at average price of S$1.78 per share
The plunge in REITs pricing provided a rare entry opportunity to buy into a good quality blue-chip in CICT. I immediately invested S$5K into CICT when its prices hit around S$1.80 per share. When it fell below S$1.80, I switched out of SingMedical and  invested the proceeds into CICT. 

3. Additional investments into Capitaland Retail China Trust ("CRCT")
CRCT has been an integral stockholding in my margin account portfolio. Pumped in additional cash when CRCT announced a change in their investment mandate to include also industrial and commercial properties. Thereafter on 6 Nov 2020, CRCT announced a 1 billion acquisition of 5 business park properties in Suzhou, Xi'An & Hangzhou as well as the remaining 49% stake of Rock Square retail mall in Guangzhou. I will be participating in the upcoming rights issue as CRCT undergoes a transformation from pure retail play into an integrated properties holder.  I expect further growth from the strong China pipeline of Capitaland. The holding of different asset classes will also provide good diversification in future economy crisis.  

4. Eagle Hospitality Trust ("EHT")- Notice served by Monetary Authority of Singapore ("MAS") to Trustee for removal of REIT Manager
This is one of my worst performing investment which I have been averaging down in buying in but got suspended due to defaulting of bank loan covenants. Subsequently, it also appeared that its REIT manager has breached various Securities Act as well as making decisions such as undertaking liabilities for its various leasee in direct conflict of interest with unit-holders. There was also a dubious COVID support loan taken out in USA under EHT but went to its sponsor Urban Commons instead. 

The current S$500Mil losses reported in 3rd quarter is due mainly to fair valuation losses of its investment properties under COVID adverse effect on the hospitality industry. How the future plays out depend on whether the MAS is firm in going ahead with the appointment of a new REIT hotel manager.  

If a new REIT manager takes over, it maybe worthwhile to wait a few years for the US hospitality industry to recover. But if the sponsor Urban Commons retains control of EHT, then I will choose an immediate exit option at whatever price upon removal of trading suspension due to management integrity issue.  Of course, the worse case here is the restructuring fails totally and EHT have to liquidate all investment properties at the latest valuation which means that investors will most probably get back at most USD 0.120 per unit assuming no further discount on the latest fair valuation of the hotels (and assuming no further hidden liabilities). 

In short, it does not make sense to liquidate/sell away any hotels at such lowly valuation as per the 3rd quarter report due to COVID. The best option for all stakeholders will be for a new REIT Manager to takeover the hotels and run it as a non-going concern business. 

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Sunday 15 November 2020

Undervalued Gem- Global Investments Limited Stable Valuation

Global Investments Limited ("GIL") has maintained its net asset valuation per share which hovers around S$0.1832 as at 30 September 2020. For October'20 and November'20, its stock price has also remained stable despite the recent market turmoil where most stocks plummeted, largely due to the daily share buy-back exercise.  The accounting for its investments are also marked to fair market value. Hence at market price of S$0.137-S$01.39 per share, this represented a discount of between 24% to 25% to its most recent fair valuation of S$0.1832. 
Based on total dividends of S$0.009 for this year, the dividend yield from holding GIL at S$0.138 (as at 13 Nov 2020 market price) is about 6.52% per annum with a potential capital upside of 24%-25%.

Risk Area to Note:
The bulk of the investment of GIL are held in the higher risk asset class of Bank Contingent Convertibles (CoCo). Coco is a fixed-income instrument that is convertible into equity if a pre-specified trigger event occurs. CoCo is actually a creature created to help under-capitalised banks and to prevent a similar global financial crisis in 2008-2009. Hence Coco is a high risk but high yield financial instrument. 

75% of GIL's CoCo are with banks in France, Switzerland, Germany and the United Kingdom. However, with the huge discount to Net Asset Value per share, it appeared that there is a compensatory margin of safety in event that the European banks sunk into bankruptcy should the COVID-19 2nd wave outbreak worsened the prevailing economic situation.

I believe that with the announcement of more and more successful phase 3 COVID vaccines being rolled out, the risk associated with holding some of GIL's financial instruments will be reduced going forward.

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Wednesday 11 November 2020

Problems With Living In Singapore Condominiums- Not As Glamorous As One Think It Is.


After buying a brand new condominium and waiting for the construction to reach Temporary Occupation Permit stage typically requires 3-4 years for an average 600 unit size development. Of course, many residents could not contain their excitement upon receiving their keys and moving in after renovating their dream home. But this is where the nightmare will start. 

1. Dealing with hardcore smoker neighbours staying above or below your unit smoking every 2 hours at Balcony
Many condo residents were sold by their property agent the idea of Alfresco dinning by utilising the balcony space. Hence they have planned for dinning tables to be shifted to the balcony area in order to free up inner space and a bigger allowance for the living room.  Alfresco is a style of dining that is casual and often offer a party-like ambience and looks cool. 

However, some condo residents are in for a rude shock when they discover that at lunch or dinner time, they often have to breathe in cancer causing harmful second hand smoke coming from their neighbours staying directly at the unit above them or under them. The effect of the second hand smoke is so bad that any units within a radius of 2 floors (approximately 6m) from that chain smoker unit will have second hand smoke drifting into their balcony.

Hence it is a fallacy to believe that upgrading from HDB to a EC or private condominium will mean the end of the 2nd hand smoke issue. This second hand smoke issue will never go away unless one purchases a landed property. Hence I am always amused when I hear property agents marketing Alfresco dinning to their prospective buyers at showflat. 

2. Lack of good talents who wants to volunteer to join the Management Committee after the end of the 1st year
During the 1st year, the developer will run the condo along with the appointed Management Agent. However, by the end of the 1st AGM, the MCST is supposed to elect its own Management Committee ("MC") members. Most of the good residents will not want to volunteer. In the Singapore SAF full time national service context, these are "extra duties" which snaps up valuable time especially for residents who are still working.  There is also no remuneration for being in the MC to look after the estate. One will also have to deal with countless complaints (where some are utterly unreasonable) and fellow residents demanding to be served by the MC in all their requests. Hence most residents do not want to take up such thankless job. 

Those who joined will have a few types, namely, (i) truly altruism folks (this group is a rare breed), (ii) power crazy folks, (iii) resident associated with the People's Association or government grassroot and (iv) residents who need to get their children into the primary school of their choice- type (iv) is actually a subset of type (iii) as the objective is to form the "Neighbourhood Committee" to promote grassroot outreach into the condo.

3. Carparking Woes
This is the most frequent issue in all condominiums. If there are insufficient carpark lots, this will create a problem. If there are ample carpark lots, this will also still be a problem and headache. The insufficient carpark lot scenario think everyone understands why it is a problem. So let me elaborate on why a condo with ample carpark lots will also be a big problem. 

In most condominium, carparking house rule will stipulate that every owner will be entitled to 1 carpark lot. Then there will be units without cars and units with multiple car ownership. Those with multiple cars will assert that since there are ample lots, they can park unlimited cars in the condo to save on thousand of dollars of annual season parking. The other non-car owner group will be unhappy and demanded that this is unfair as maintenance such as carparking surface epoxy paintings and carpark barriers maintenance is unfairly borne by them hence they will demand second car parking charges. 

Once the root of all evil (money) surfaced, then World War 3 will begin in the Condo estate. Hence if during the 1st AGM, the carparking and registration rule is not converted into by-law, some of the owners with multiple cars will start to "play around with the √čnglish" in order to argue the best case scenario for themselves.

Parting thoughts:
I am not sure whether the Singapore dream of "upgrading" to a condominium is really considered an upgrade in the first place considering the numerous woes of communal living in a private estate. The price of private properties have been quite resilient throughout this major recession unlike the 2008 property market crash. Still, many Singaporeans have been rushing to snap up a unit and will probably spend the next 25-30 years working tirelessly to support their banker. 

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Tuesday 10 November 2020

Double Dip Recession Fear Turns Into Frenzy Buying Spree- Regrets of Investors

What a turbulent one past month of volatility in the worldwide investment scene.  Local SGX receded till another low point during the last week of October 2020 and many feared a repeat of the March 2020 stock market crash. But with the sudden Pifzer announcement on 9th November 2020 of a 90% effective and relatively safe vaccine to be ready by December 2020, stock markets worldwide suddenly rallied and roared back to life upon opening today with more certainty that COVID will be defeated and that the devastating economic lockdowns caused by the deadly virus will be no more in the foreseeable future.

1. Selling off most of investments during October 2020 "to wait" for second stock market crash
One of my friends who invested hundred of thousand of dollars in stocks, told me in late October 2020, that he has sold off all his stocks while waiting for the SGX to crash further in November 2020 in view of the European countries economic lockdowns from 2nd and 3rd waves of COVID which signals that Singapore will also have outbreak of COVID and upcoming lockdown again. Unfortunately, he has changed his tune this morning and is on a wild buying spree today in order to catch the rally of stocks. The old adage of buying low and selling high appears to be easy to say but challenging to practice in real life. Some investors will always end up selling low and then buying back at higher prices.

Moral of the story is that it is very difficult to time the market perfectly. My preference is to remain invested with the bulk of one's portfolio intact and just add monthly investment top up and wait.  

2.  Retail REITs, Commercial REITs and Bank Stocks all rallied strongly but Data Centre REITs dropped in value.
With the macro-environmental risk premium dropping with a confirmed upcoming COVID vaccine, most stocks and REITs rallied in prices with the exception of Data Centre REITs which went the opposite direction. This is a rather interesting observation. Probably will sell off some of the bank stocks to accumulate data centres for stabilizing the volatility of my margin portfolio.

3. Don't waste your time with relatives, friends or colleagues who asked you when to invest
During this past 10 months, I noticed relatives, friends or colleagues who normally do not invest and whose investment risk tolerance maximum is at most fixed deposit accounts with banks will start asking me when is the best time to invest as they want to make a "quick killing" to take advantage of low stock market prices. This is usually a waste of time as such group usually have the mindset that the stock market is for speculation and extremely dangerous. After asking a million questions, they will say thank you and eventually still do not even bother to open a CDP or brokerage trading account.  

The most ultimate request I received was from a colleague who asked me to help him buy SIA shares using my own brokerage account and to hold on his behalf first. Once make money then sell and return him the profits. Basically, asking me to finance him while waiting for price to increase. What a great way not to cough up a single cent for investment. 

Parting Thoughts:
2020 has been a terrible and depressing year. I do hope that 2021 will be brighter and the global economy gets back on track for further recovery. Most importantly, hope that everyone will be able to get onboard a plane for overseas holiday trips! 

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Tuesday 27 October 2020

MAS To Kick Out Manager Of Eagle Hospitality Trust - Dramatic Plot Twist That Beats Korean Drama

What a dramatic twist that is even better than the Korean drama for the latest development at Eagle Hospitality Trust ("EHT") as announced by MAS on 26 October 2020. During my last posting, I have touched briefly on various issues including the possible agenda of MAS and the Commercial Affairs Department ("CAD") relating to the EHT Trust saga by kicking off with the arrest of the directors of EHT in order to send a message to 2 ex-directors Taylor Woods and Howard Wu of the sponsor Urban Commons and also as an announcement publicly to all stakeholders. It turns out that my hunch was correct, MAS has continued with a beautifully executed phase 2 of its strategic move, that is, to kick out the current Manager of EHT which is controlled by Taylor Woods and Howard Wu by quoting multiple breaches of the Securities Future Act.  

1. Intergrity seems to be at issue for ex-directors of Urban Commons- taking COVID loans in US under EHT without informing BOD of EHT; entering non-disturbing agreements with liabilities transferred from lessee to EHT and delay notificaiton of insufficient financial resources news to regulator 
Many unit-holders just want any rescue deal even if it involves people with possible integrity issue. Their main purpose is just to get the counter removed from suspension for trading resumption and to sell the units on hand immediately to salvage whatever residual cash leftover. It is a fallacy to think in such short-sighted manner. 

This will not solve any of the current predicament facing EHT unless the control held by Howard and Taylor are removed totally. As I mentioned earlier before, worst that could happen is getting nothing back as an investor. Hence if one wants to get the maximum value back from the upcoming restructuring, then the Manager of EHT controlled by Taylor Woods and Howard Wu must be eliminated immediately.

2. EHT REIT Manager's shareholder- Mandarin West Holdings
Mandarin West is indirectly owned by Howard Wu and Taylor Woods. Both Howard Wu and Taylor Woods resigned from their board positions at EHT's Reit manager as at May 2020, but both continue to wield substantial influence over EHT as joint owners of both Urban Commons - EHT's sponsor - as well as of the Reit manager.

How powerful and influential is EHT's Manager? Consider the removal of the independent director, Carl Gabriel Forian Stubbe just a day before the AGM where he was assigned by the directors and DBS Trustee to be the chairman for the following day's AGM. Stubbe was not re-elected by the Reit managers' shareholder, Mandarin West Holdings.

Stubbe, who had offered himself for re-election and was "willing and desired" to continue his role as independent director, "laments the decision" by Mandarin West Holdings which surely is to the detriment of stapled security holders but alas, there is nothing that can be done. This is just how powerful a REIT manager is and why it needs to be removed in order for the upcoming restructuring work to be aligned to the benefits of the majority of unit holders instead of the interest of only Howard and Taylor. 

3. The White Knight has been chosen apparently
I reckon that the White Knight from the  "Request for Proposal" has been chosen. Phase 3 by MAS and current directors of EHT will be to unveil this after the 10 days notification to the current Manager to exit. This will  move at lightning speed after the strategic phase 2 move by MAS is completed. Unit-holders should prepare for an EOGM soon to approve the rescue plan to revive EHT from near ashes. 

The move to eliminate the current Manager of EHT will also leave a clean slate for the white knight's management team to execute their turnaround plans without hindrance. 

Hopefully, the White Knight has extensive international hotel management experiences and an additional bonus if it has previous experiences operating in the US market.

It is no doubt a brilliant move engineered by the MAS, CAD and also the current directors of EHT. I just hope that the restructuring plan can be executed successfully by 1st week of December 2020. But taking into account the lead time for re-capitalization by the white knight, I would think EHT will earliest be operational only in the new year of 2021. The final hurdle would be at EOGM itself as Taylor and Howard still hold significant share holdings (15.2%) in EHT and may succeed in stopping the appointment of  the White Knight if other stapled security holders do not come out to vote for change. 

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Sunday 18 October 2020

Will Malaysia Change Prime Minister Again?

It is interesting to see that Anwar has met the Malaysian King to inform him that he has the majority now to form the new government. Muhuyddin had just been sworn in as new Prime Minister previously in March 2020 which is less than 1 year and to be more exact around 7 months only. There appears to be a musical chair politics being played out.

Personally, I am just glad that Mahathir will not be coming back as Prime Minister of Malaysia at any time soon. Mahathir has been adopting an antagonistic attitude towards Singapore such as wanting to walk away from signed agreement to raise the price of water supply to Singapore and the extension of Johor Bahru port limit which intrudes into Singapore's territorial water. This has undone many years of excellent win-win cooperation between the 2 countries. 

I look forward to better bilateral relationship between the 2 countries.  


Friday 16 October 2020

The SPH Share Price Disaster- Media Segment Needs Emergency Rescue

The terrible results announced by SPH of a first time loss led to its share price dropping to less than S$1 per share. Current price has recovered to around S$1.01 per share. If one has been holding on to SPH when it was S$4 per share, 75% of one's invested capital would have gone up in smoke. But then again, I think that SPH is oversold albeit its Media segment needing an emergency rescue.

1. Fair value accounting can be nonsensical and illogical
The main reason for the net loss of SPH is due to S$232Mil fair valuation loss of its investment properties. Accounting rule have been changed from a historical focus basis to the current fair value model. Unfortunately, this leads to weird "see saw" effect on the yearly profit and loss. This <S$232Mil> is an unrealized losses due to market valuation in the midst of COVID-19. Last year 2019 was a valuation gain of +S$82Mil. The fair valuation thus becomes a yoyo. 
Taking into account the difference in fair valuation variance, this amounted to S$310Mil differences. so if next year COVID-19 improves, one will see another S$100 Mil valuation gain. This is absurd for any analysis as we know that the going concern issue for SPH group should not be an issue currently due to the huge amount of cash maintained on its balance sheet.

The "Operating profit" line item will be a better indicator of the financial health of SPH. Current Operating profit is S$100.2Mil relative to prior year of S$186.9Mil which is a 41% decline in earnings due to the COVID-19 pandemic (before one-off items).
However, we will still need to normalise the Operating profit for one off gains and losses for (i)Jobs Support Scheme (-S$33.4Mil), (ii) other COVID government grants (-S$35.1Mil), (iii) retrenchment costs (+17.4Mil), COVID related grants expenses (+28.3Mil) and (iv) goodwill impairment and intangibles (+17.5Mil).  Hence normalised Operating profit is S$104.9Mil relative to prior year's normalised profit of S$210.5Mil which is a substantial decline of -S$105.6Mil and a drop of 50.2%.

2. Media Segment Woes and Solutions
The main problem currently is with the disruption in advertising revenue that keeps declining over the years and for this year, the COVID-19 pandemic further exacerbate the financial performance of SPH. Advertisements on Facebook for example are cheaper and more targeted thus leading to the declining trend.
2(i) Can SPH close the Media Business and just focus on the very profitable property business?
This is the ideal case. If SPH no longer has the competitive edge in media, it should probably closed down the Media Business and change the Group's name from Singapore Press Holdings to Singapore Property Holdings. Unfortunately, the Singapore government will need a local communication media. Hence the government should get a Temasek linked company to buy and takeover it since apparently, SPH is expected to do National Service.

2(ii) SPH should consider hiring a new CEO with overseas Media commercial experience.
SPH may have to consider getting a new CEO who is well versed with Media commercial working background to try to steer SPH back into profitability for Media segment. If the CEO cannot address the decline and the losses, then have to consider changing  a new one which is the norm in many other global MNCs.

2(iii) Government to provide funding to sustain Media segment if it not practical to terminate the Media business.
As alluded to 2(i), if the Singapore government wanted a loss making business segment of SPH to continue in business, it probably should look into providing additional grant to sustain it. A cost plus model can be worked out similar to the current public bus service routes being awarded. 

Once the economy turns around, and advertising dollars increases, any extra profit made can go back to the government. SPH will be allowed to only just retain the cost plus mark up portion agreed. This will be a fairer approach to both the Singapore Government and shareholders of SPH.

Shareholders of SPH should consider raising the above points at AGM or writing in to the SPH senior management. It cannot be letting the current management strategy continue for the Media segment and allow it to keep deteriorating and bleeding.