Eagle Hospitality Trust

[Ray168]

Sponsor will pay for Queen Mary repairs: Eagle Hospitality Trust
30 Oct 2019 09:00
By Marissa Lee

URBAN Commons, the sponsor of Eagle Hospitality Trust (EHT), is responsible for all the repair work that EHT's Queen Mary floating hotel requires, and these expenses will not come out of EHT's own pocket, the trust clarified on Monday.

EHT also clarified that a 2017 marine survey of the Queen Mary that resurfaced last week in an article published by The Edge Singapore is now more than two-and-a-half years old, and "grossly overstated the nature, scope and cost of the repairs required at the Queen Mary".

The Queen Mary is a retired British ocean liner docked on the shores of Long Beach, California, upon which sits EHT's iconic 347-room hotel.

EHT said: "The Reit manager believes that the marine survey's estimate of scope of work and costs was grossly inaccurate and does not reflect Urban Commons' actual obligations at the property. Urban Commons has been working with the City (of Long Beach) since 2016 to address any needed repairs."
The 2017 marine survey had estimated that total repairs for the Queen Mary could range from US$235 million to US$289 million.

However, in a letter that Long Beach sent to Urban Commons on Oct 1, the City was concerned mainly with five "minor" items of work, EHT said. "Presently, the City only requires repairs with respect to the noted items, which have a total estimated cost of up to US$7 million; such items will be paid for by Urban Commons utilising the multiple capital-reserve mechanisms built into the leases."

The US$7 million cost estimate was based in part on a bid of US$4.8 million received from Roberts Construction to complete the side shell repair and lifeboat removal, which is the "most significant component in terms of cost and safety", EHT said. All five items of work are expected to be completed within the next two years.

EHT also gave other reasons to explain why it felt the 2017 marine survey was inaccurate. "The marine survey estimated the total cost for 'urgent hull repairs' to be between US$175.4 million and US$212.7 million. Urban Commons was in fact able to address substantially all of such urgent hull repairs at a cost of less than US$1.1 million. The cost differential was attributable to a completely different scope of work and a more thorough and scientific analysis than the estimate for work purported to be required by the marine survey."

EHT added: "The work required by the marine survey was determined not to be necessary and the repairs that were ultimately undertaken by Urban Commons were substantiated as appropriate from a structural and safety standpoint by (an engineering report from John A Martin & Associates) and confirmed by R Maddison CEng. MPhil, the naval architect."

Meanwhile, the City of Long Beach has clarified in a letter dated Oct 25 that the Oct 1 letter it had sent to Urban Commons should be considered "a formal request for information by the City and is not a notification of default".

John Keisler, the City's director of economic development, wrote last Friday: "Formal documentation of issues between landlord and tenant is a normal practice of good lease management but does not establish default. I am happy to report that the City has received Urban Commons' written response to its Oct 1 letter and is currently reviewing the proposed plans to cure issues of concern."

He added: "The City is confident that Urban Commons now has a plan in place to resolve the remaining structural issues … The City values the continued progress Urban Commons has made to improve the structural integrity of the historic Queen Mary on behalf of the residents and visitors to Long Beach."
EHT stressed on Monday that "the Queen Mary benefits from multiple capital-reserve mechanisms to support continued investment in the ship". Capital expenditures associated with the ship are "not the responsibility" of EHT, it said.

Current repair works are not expected to have any material adverse impact on the operations of the Queen Mary, and the ship remains operational and open to guests, EHT added. "The Reit manager does not believe that these repair costs have any negative impact on its valuation of the Queen Mary."

Last Friday, in response to negative media reports published first in the US and in Singapore a few days later, EHT had clarified that it was not losing its lease to run the historic Queen Mary. But a knee-jerk reaction shaved 10 US cents off EHT's stapled securities, which closed 15.5 per cent lower at 54.5 US cents that day.
EHT clarified that a 2017 marine survey of the Queen Mary that resurfaced last week
in an article published by The Edge Singapore is now more than two-and-a-half years old, and "grossly overstated the nature, scope and cost of the repairs required".

* This article was published in The Business Times on 29 Oct 2019 and is reproduced here with permission in its entirety.
Source: Business Times

[cfa]

But after clarifications , market don't buy their story . They just have to try harder to convince the investors .

[wonghw12]

But after clarifications , market don't buy their story . They just have to try harder to convince the investors .

Perhaps the market isn't confident that QM is the only potential problem. Were all issues at QM surfaced during IPO? What's the chance that there are more issues but not surfaced? Can the management be trusted as a result? Why are the major shareholders cashing out on the lows?

[corydorus]

But after clarifications , market don't buy their story . They just have to try harder to convince the investors .

Perhaps the market isn't confident that QM is the only potential problem. Were all issues at QM surfaced during IPO? What's the chance that there are more issues but not surfaced? Can the management be trusted as a result? Why are the major shareholders cashing out on the lows?

Who decides what needs to repair ? :-)

[valueinvestor]

I have written to RegCo@sgx.com , it seemed sgx was responding fast in following up with Eagle HT. Eagle should be under their spot light now .
Hope more people write to SGX , so that the sponsor of EHT will behave in the right direction.

[Ray168]

But after clarifications , market don't buy their story . They just have to try harder to convince the investors .

That's marriage trade at $0.55 with 12.8M shares. Some BB is off loading some BB happy to take over. 

I view it as mis-pricing and an opportunity to invest.

[valueinvestor]

But after clarifications , market don't buy their story . They just have to try harder to convince the investors .

That's marriage trade at $0.55 with 12.8M shares. Some BB is off loading some BB happy to take over. 

I view it as mis-pricing and an opportunity to invest.

 
The BB who bought can't be that naive to buy when so many '' negative news around the QM repair issues " . Guess the BB who sell need to sell cheap otherwise the other BB will not buy from him . If the BB sell in open market to hundred and thousand of retail buyer , than we really have to worry .
EHT is a '' buyer's  market '' now .
I went in to buy after receiving very positive reply and reaction from sgx .
What will be the consequence of the manager and sponsor of EHT if they lied in their clarifications to sgx ?

[karlmarx]

Not all 'BBs' are as smart as most people perceive them to be, or better at generating above-benchmark performance than the average investor. Take a look at the list of cornerstone investors of the IPOs of the past few years, and see how they're doing now. SSH share movements of various companies in the past few years is also another source of information on the decision making abilities of 'BBs.'

Some of them may also be fronts for other parties, and wouldn't be considered as bona fide investment professionals.

Instead of focusing on the action of others, or speculate on how much liabilities EHT may potentially be exposed to -- which has no clear conclusion -- perhaps investors can take a closer look at the other real-estate assets in EHT. Most of what has been said makes the assumption that the real-estate assets are 'good.' Are they?

[valueinvestor]

Not all 'BBs' are as smart as most people perceive them to be, or better at generating above-benchmark performance than the average investor. Take a look at the list of cornerstone investors of the IPOs of the past few years, and see how they're doing now. SSH share movements of various companies in the past few years is also another source of information on the decision making abilities of 'BBs.'

Some of them may also be fronts for other parties, and wouldn't be considered as bona fide investment professionals.

Instead of focusing on the action of others, or speculate on how much liabilities EHT may potentially be exposed to -- which has no clear conclusion -- perhaps investors can take a closer look at the other real-estate assets in EHT. Most of what has been said makes the assumption that the real-estate assets are 'good.' Are they?

Hi Karlmarx ,

Fully agree with what you said . For retail investors like us , not easy to know the values or qualities of the  assets, especially when the assets are in USA .We could only rely on valuation reports from professionals.
Hope you can share your opinion of the other assets of EHT . Thanks in advance .

[karlmarx]

I have not taken a closer look at EHT's other assets, so I cannot offer much useful comment on it.

Yet, even as we are thousands of miles away, EHT investors managed to find more information on the QM debacle. They went on to Tripadvisor to read reviews and so. So investors need not be physically present to have a better idea of the quality of the assets. 

As for valuation, it is always subjective so investors cannot expect find to a definite number; its not like solving a mathematics problem. 

But investors can see how much the assets are valued by the sponsor, and compare them to other similar assets, to judge the fairness of the sponsor's valuation. So I will suggest starting with the prospectus, and then googling to counter-check the key information stated in the prospectus. 

---

As mentioned, a 'good' sponsor will buy good assets at cheap/fair prices, and a 'bad' sponsor will buy lousy assets at expensive prices. This makes unitholders and debt holders of the fund wholly vulnerable to the actions of the sponsor. Just as opmi of a listed company is wholly vulnerable to the BOD/management. So you want to be on a ship with a captain who has a record of responsible sailing, and who will not be the first to head for the lifeboats in the event of an impending disaster.

Lets re-cap some of the facts surrounding the controversy:
1) The sponsors hold a small stake in EHT, and even then has been selling their shares. Some of the cornerstone investors are also selling their shares. 
2) The potential liabilities on EHT, as a result of QM's maintenance requirements, is inconclusive. 

Given these two facts, it looks clear to me that the probability of EHT earning higher profits and distributing more dividends, to say the least, is not higher. At least not when compared to one of the Temasek-sponsored REITs.

On the other hand, the shares have become cheaper. Which means the payoff, if the profits and dividends remained the same, has become more attractive. 

Such approach to investing -- where investors take higher risk for higher return -- is common. This is also a sign of the market pricing assets efficiently. 

Yet, these higher risk for higher return deals are not the kind that investors should be looking for. What they want are deals with higher probability of higher profits and dividends, and higher payoff. In other words, deals that are both cheap and good.

---

Investing in EHT at current prices may eventually generate large returns. But when such strategies are employed over the long-term -- repeatedly buying higher risk products for higher payoff -- the losses of some may well offset the gains of others, and not yield any out-performance against the market average, for the investor. Especially if the investor makes an outsized bet on a deal which goes sour, while only small bets are placed on the profitable deals. 

If one is employing such a strategy, my opinion is that one may be better off by buying an index and spending the time on other more enjoyable/productive matters. Unless, of course, you like the thrill and excitement of the market.