Eagle Hospitality Trust

[angtc11]

I think the worst case scenario depends on the various agreements of QM lease.
My layman understanding is
1) the city leased QM to UC with the responsibility on UC to maintain the ship.
2) UC sold this QM lease to EHT
3) A UC subsidiary leases it back on a triple net lease to operate the hotel.
4) This triple net lease is the basis of EHT assertion that UC (subsidiary i suppose) is liable.

However 3) might be flimsy as there are lease termination clauses. If the lease is terminated, is UC still on the hook? I think that depends on what was sold to EHT in 2)
Please correct me if i am wrong, appreciate any further insights too.

Not vested

[valueinvestor]

Hot stock: Eagle Hospitality Trust sinks 14% despite assurance on Queen Mary lease

https://www.businesstimes.com.sg/compani...mary-lease

[karlmarx]

REITs are fund/portfolio managers. And so their success relies on the same principles of a fund/portfolio manager; by buying assets that will appreciate in profit and dividends, and paying a price that is cheap vis-a-vis the future profits and dividends.

The REITs that have performed better than their peers is largely due to this. 

But buying good assets at cheap prices is doubly difficult. Good real estate is hard to come by because of the physical limitations of space; there can only be so many offices in a CBD, or malls in a heartland. Physical geography is a moat that can only be destroyed by changing demographics or traffic patterns. So owners of good real estate will have little incentive sell, unless they are offered very high prices. 

A 'good sponsor' is often one of the criteria mentioned by REIT investors. What this really means is that the REIT sponsor sells good assets at cheap/reasonable prices to the REIT, with the effect of giving the REIT's fund manager a high probability of future profits and dividends. 

In other words, the REIT's fund manager (and hence the unitholders) outperforms because of its sponsor's benevolence (or generosity). The sponsor's loss, by selling good assets at cheap/reasonable prices, is the REIT fund manager and unitholder's gain. 

This 'benevolence,' which creates a track record of success of the fund manager and REIT, is reflected in the price premium to the fund's NAV. This is an infrequent occurrence for close-ended funds, which are more often priced at a discount to NAV. 

Another well-known 'close-ended fund' that trades at a premium to NAV is Berkshire Hathaway. But unlike the 'good sponsor' REITs, BH earns its premium to NAV from its track record of superior ability to buy the correct business at cheap/reasonable prices; WB does not have a fairy godmother 'good sponsor' to throw him sweet deals.

In any case, it is quite likely that the 'good sponsor' REITs will continue to enjoy the benevolence showered upon them by their sponsor, since a premium to NAV and yield compression is a necessary ingredient to grow by raising more funds and acquiring more properties.

And in an alternate Singapore universe where owners of good real estate do not securitise and sell their prized assets for cheap on the public markets, the current REIT marketplace will unlikely attract as much issuers and capital, and be as large as it is today. So here is another example of Temasek performing its national service.

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EHT trades at very high yield and discount to NAV. Naturally, this attracts  the attention of investors looking for a good bargain.

The two questions for (prospective) unitholders of EHT should be whether its fund manager is capable of, and has in their mind the desire to, create long-term value for them.

There are already hints to these questions.

1) The fund manager does not seem to be able to prospect for good assets, whether on its own or from its sponsor. As evidenced from the QM debacle.

2) The fund manager does not seem to like to eat his own cooking. As evidenced from the far lower than average holding in the REIT, and insider selling subsequent to IPO. 

It looks like EHT's unit price reflects the market's belief that EHT is not likely to create value for them. It looks cheap, but it might not be a bargain.

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As for the QM debacle, I have not acquainted myself with the details. But there are some very good points raised here on further potential liabilities for EHT if the sponsor/leasee defaults on meeting those liabilities, even if QM is valued at zero.

In any case, my policy is to never put money in companies of questionable intent/integrity, regardless of how attractive the bargains may appear.

[valueinvestor]

 The Queen Mary remains safe and structurally sound. Urban Commons, LLC, (UC) has confirmed that they are not in default on The Queen Mary ground lease. Reserves are sufficient and have been planned to ensure long-term preservation of the ship.

 US$200+mn estimate in capital expenditure overstated.
Management has confirmed that the estimated ship repair costs from 2-3 years ago took into account repairs needed to ensure that The Queen Mary is sea-worthy – that it is in a good enough condition to sail on the sea. It also included costs such as bringing in a team from the UK and housing them in the US for a year to assist with said repairs. However, we note that as the ship will not be sailing on sea, it is only most imperative that the ship remains structurally sound – and UC has been “very responsive, and they intend to not only meet those deadlines, but they want to make sure they fulfil those obligations.” as quoted by the Long Beach Press Telegram in an article dated 19 October 2019.

https://s3-ap-southeast-1.amazonaws....pdf?1571985585

https://s3-ap-southeast-1.amazonaws.com/...1571985585

[GreedandFear]

I have ploughed through the prospectus but I cannot find any financials for Urban Commons LLC, so their credit worthiness is an unknown. It does say that they manage more than USD 1B of assets but I believe that this includes the portfolio sold to Eagle Hospitality Trust.
 
Surprisingly, I also did not find any information about the potential large capex bill for Queen Mary as per the study from 2 -3 years ago that has been  mentioned in the press (and the magnitude of which Urban Commons LLC disputes, arguing that this bill would be required for Queen Mary to become sea worthy again – ie to start sailing – whereas they only need the ship to be safely docked). I may have missed something in this long prospectus but, if I have not, then I am surprised that Queen Mary capex was not listed as a risk factor. Of course, this could be an oversight or the due diligence team could have agreed with Urban Commons that the report grossly overstated capex requirement. What is annoying, as an investor, is that we don't have access to the information to evaluate the risk...

[cfa]

It mentioned the high repair costs of about US$289M was required . Is the replacement costs of  a brand new QM more than 289M ?
Engine and  sea-worthy standard are not required, because it will be permanently anchored there .

[lonewolf]

It mentioned the high repair costs of about US$289M was required . Is the replacement costs of  a brand new QM more than 289M ?
Engine and  sea-worthy standard are not required, because it will be permanently anchored there .

I think the appeal of the QM goes beyond just the physical structure.

A 'replica' QM structure is unlikely to cost that much but it's rich history and supernatural appeal cannot be easily replicated.

[cfa]

What I was trying to say  the repair costs can not be more than replacement costs, the 289m was not a realistic figure just to repair some vital parts of the ship .

[angtc11]

What I was trying to say  the repair costs can not be more than replacement costs, the 289m was not a realistic figure just to repair some vital parts of the ship .

Might not be a valid assumption since repairs likely have to be carried out on site and probably have to dismantle existing infra vs building a new standard ship from scratch at the shipyard with resources in place. 

The earlier budget of 23.5m for critical repairs (which I presume is on the same basis of the 289m estimate) was also blown, probably demonstrating the challenges of repairing outside a sbipyard

[valueinvestor]

Why Mr. market don't trust a P.E. from a First World Country ?


'' The Queen Mary remains safe and structurally sound.  Shane Fitzgerald, SE, DBIA, partner at John A. Martin (“JAMA”) & Associates, Inc, the marine engineering company which UC had hired prior to Eagle’s IPO has reassured that “JAMA used a 3D finite element model (FEM) to accurately evaluate critical structural components of the ship which led to a nominal amount of steel plate reinforcements in the hull and tank tops, but overall and as a result of these structural upgrades, The Queen Mary remains in excellent structural condition.”.  "

http://www.johnmartin.com/about/people/shane-fitzgerald