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)

Investment Portfolio Updates-9th August 2020

It has been a long time since I last updated my investment portfolio. The March'20 market crash was very sudden. I have remained invested mostly throughout this dark period. The major change I made was to shift out more of my more stable REITs from my CDP account into the margin account to avoid the possibility of a margin call in the event of a sucker's rally and to prepare for another potential market crash.

1. Retail REITs

The retail REITs which I am holding in the margin account such as SPH REIT, Frasers Centrepoint Trust and Lendlease right now are still down by 20% to 30% from the pre-market crash. Dividends have been cut drastically also. I remain cautiously optimistic that once the COVID-19 vaccine become successfully rolled out by end of the year or early next year, the devastating effects of future economic lockdown can be eliminated with more certainty to businesses. I have placed a significant investment stake into Lendlease as I am convinced that it has a strong sponsor in Lendlease Group and is severely undervalued such that it will rebound in price after the pandemic is over.

2. Switching to more quality counters

I have took advantage of this crisis to also made a few switches out of some weaker counters and purchased DBS & OCBC bank stocks as well as Mapletree Commercial Trust in both my cash purchase and margin portfolio respectively. Going forward, I will be reducing the variability of the Margin account portfolio by dealing with only companies with strong financial and preferably with links to the Singapore government. 

3. Eagle Hospitality Trust and First REIT

EHT went basically close to bankruptcy and is undergoing MAS and Singapore Police Force investigation and is still being suspended by SGX. It is currently undergoing restructuring and a request for proposal from some renowned hospitality players. Hence there is hope that some value maybe salvaged.

(Please refer to Eagle Hospitality Trust- Updates On Projected Salvageable Hotel Properties Value from Fire-sales)

First REIT performed badly. I have to remove it from my investment portfolios as Lippo Karawaci (the main sponsor) is in great financial difficulties due to the current COVID-19 situation in Indonesia. The commercial charging mechanism where up to 80% rental subsidy by its sponsor for the Siloam hospitals is also clearly not sustainable in the long run.

(Please refer to First REIT Share Price Crash Again- Sudden Announcement of 2 Months Rental Relief to Hospital Tenants)

4. Singapore Press Holdings became "Singapore PROPERTIES Holdings"

SPH dropped out of the MSCI and STI index. Its media segment profit contribution has now dwindled into only a faint shadow of its former self. SPH had also made huge investment into Student Accommodation business in particularly in the UK. From the huge price drop, I have started using my margin account to accumulate additonal positions in SPH. From my perspective, SPH is now effectively a properties management and development group. There may also be possibility of SPH unlocking the intrinsic value by future listing of the Accommodation business into another REIT or injecting Seletar Mall and  the future Woodleigh shopping Mall into SPH REIT.  

From its net asset value of S$2 per share relative to the current market price of S$1.10 per share, I also think that we cannot discount the possibility of Corporate action by the Singapore Government (via Singtel & DBS) along with major shareholders OCBC/Great Eastern Life from privatizing SPH for a few years before repackaging it for re-listing in a new form on SGX later. 

(Please refer to Singapore Press Holdings Severely Undervalued- Possible New Growth Engine Into Fast Growing High Tech Industry Data Centres)

Last but not least, I do hope that the phase 3 clinical trials for Moderna and AstraZeneca Oxford produce successful results by October'20 for the vaccines to start rolling out by end of the year. The resurgence of COVID-19 in Australia Victoria state, China and Hong Kong is worrying. Similarly, Singapore could be under another 6 weeks economic lock-down.

Woodleigh Residences Offering Up Till S$250K Worth Of Discount- Property Prices Finally Going Down?

I received a promotional email yesterday (5th August 2020) on upcoming weekend sales discount of up till S$250K for a unit at Woodleigh Residences.  Is property price finally softening? This COVID-19 recession sure is different from the 2008 Global financial Crisis for properties. I recalled that properties price crash by 30% to 40% then. But the Singapore property market appears resilient during this COVID-19 period with only slight decline in prices so far. This is incredible. No wonder Germaine Chow of iQuadrant keeps saying in her advertisements that property prices do not fluctuate as wildly as the stock market (Anyway, I am having an overdoes of Germaine Chow-she keeps popping up on my YouTube videos-would appreciate if anyone can provide technical tips on how can I disable her advertisements). 

S$250K VVIP discount is a lot. Anyone thinking of getting a unit at Woodleight Residences? Or more discounts coming? Well, this appears to be good news for consumers but bad news for SPH shareholders.