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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