Eagle Hospitality Trust

[valueinvestor]

Hi Karlmarx ,


Once again, many thanks for your sharing .

[karlmarx]

This good piece of journalism has uncovered important facts.

1) So the two Yuans who have been selling their stake were also the previous owners of at least 6 of EHT's assets. And also possibly the previous owners of 5 more, indirectly, since they advised UC on the acquisition of 5 other hotels.

2) The last known transaction for QM was US$43m, in 2007.

Questions for investors:

1) So now you have a "sponsor's sponsor" who is also a cornerstone investor. What is the nature of relationship between UC and the Yuans? Are they in it together, or was UC double-crossed?

2) UC couldn't have paid much more than US$43m for QM. More likely, they would have paid less, since it was a distressed sale. And so, UC's valuation of QM at US$159m is probably too rich. Was the difference of US$116m spent to improve QM?

It looks like more of the 'cockroaches' which some have mentioned earlier, has appeared.

---

THE man who became Eagle Hospitality Trust's (EHT) single largest shareholder during its lukewarm initial public offering (IPO) was also the man who sold EHT's sponsor six of the 18 hotels that eventually formed its IPO portfolio, EHT confirmed on Thursday.


But as the seller, ASAP Holdings, had sold the six hotels to the sponsor's founders, who subsequently injected them into EHT soon after, there is no legal requirement to disclose their relationship, EHT also said.

Frank Yuan is EHT's largest shareholder and the chief executive of ASAP, a California-based acquisition advisory and asset management firm specialising in hotel assets.

Apart from the six hotels it sold, ASAP has also advised EHT sponsor Urban Commons on at least five other hotel acquisitions, said its website.

https://www.businesstimes.com.sg/compani...t-investor

For the complete article:

https://twitter.com/@MarissaLeeBT

---

Insider selling continues.

https://links.sgx.com/FileOpen/_Form%203...eID=583940

https://links.sgx.com/FileOpen/_Form%203...eID=583942

[valueinvestor]

Looks like the assets were grossly overvalued for the IPO  , now market is doing a revaluation exercise for the assets .

[tonylim]

This sponsor really make a killing in their IPO . Winner takes all !

[karlmarx]

It is not likely that the Yuans and UC "did not know each other" prior to the IPO. Though, they may not have trust each other very much, either.

A possible narrative is that UC agreed to buy Yuan's 6 hotels at a higher than market price, and in exchange, Yuan agreed to subscribe to EHT shares during the IPO.

UC, having bought the 6 hotels at slightly inflated value, sells it to EHT at a yet slightly higher valuation. The basis of the higher valuation, as stated by EHT, was due to the master leases with UC. So in other words, UC may have offloaded the hotels at a higher valuation, but in exchange, had to agree to pay higher rents to EHT. 

The Yuans, who may have at first felt quit good about the deal, were alarmed when the reports surfaced on the potential liabilities that EHT is exposed to, due to UC possibly defaulting on the rectification works required for QM.

Possibly feeling quite upset that they were had by UC's possible overvaluation of QM, the Yuans decided to cut their losses by reducing their stake.

All these are, of course, just my speculation.

---

The QM has long been known to be an old and ageing ship. The gulf in the estimated maintenance bill can be understood to represents different interests. 

On the one hand, there is UC, which is only interested in the ship being able to float, with plumbing and electricity; the bare necessities to function as a hotel. So you can expect them to want to keep capex as low as possible.

On the other hand, there are people who perceive UC and the City of Long Beach as being responsible for restoring the ship to  near seaworthy state.

The truth is probably somewhere between the two extremes. The ship may not need new hulls, but corrosion is an important issue which needs to be addressed, especially for a vessel which carries hundreds of people at any time.

---

The larger concern for EHT, which should now be clear to most, is the long-term intent of UC. 

Does UC hope to create long-term value to unitholders? 

Was it UC's intention to offload assets at overvalued prices, and just slowly walk away? 

Will UC renew the master leases with EHT at more or less favourable rates, when they expire?

The hotel properties may be physically in existence. But will they fetch as much if put on the resale market?

If EHT's valuation is impaired, for whatever reasons, will there be a rights issue to maintain the gearing ratio?

And when EHT's loans are due for renewal, how will their bankers reprice them?

Investors should find out the P&L of the hotels leased to UC, to ascertain whether the rents that UC is paying to EHT is sustainable. This will then give investors a hint on how much rent UC will likely pay, when the master leases are renewed. If they are renewed.

---

https://links.sgx.com/FileOpen/EHT%20-%2...eID=584184

[tonylim]

http://voyagela.com/interview/meet-frank...-ca-91770/
JANUARY 22, 2018

Meet Frank Yuan of ASAP Holdings in Rosemead

Frank, let’s start with your story. We’d love to hear how you got started and how the journey has been so far.
We start to acquire hotels from last economic down turn 2012 – there are so many distress Hotels in the market place. The first few hotels are in Los Angeles and Northern California, such as Marriott Downtown L.A. Universal Sheraton, Doubletree San Pedro, Holiday Inn Disneyland, Embassy Suites Disneyland, and Doubletree Berkeley…etc. total around 17 hotels in California.

From 2012 to 2015, These California hotels we bought were way below replacement cost and our appreciation just for few years are more than 300% – 400%. From 2015 till now, we change our focus to out of states hotels with same buying criteria: Full Services Branded Hotel, Below Replacement Cost, Higher than 15% cash on cash return per year. Now we bought total 32 hotels all over United States of America, 12,000 or more rooms with total asset value more than $1.2 Billion.

[Shiyi]

http://voyagela.com/interview/meet-frank...-ca-91770/
JANUARY 22, 2018

Meet Frank Yuan of ASAP Holdings in Rosemead

Frank, let’s start with your story. We’d love to hear how you got started and how the journey has been so far.
We start to acquire hotels from last economic down turn 2012 – there are so many distress Hotels in the market place. The first few hotels are in Los Angeles and Northern California, such as Marriott Downtown L.A. Universal Sheraton, Doubletree San Pedro, Holiday Inn Disneyland, Embassy Suites Disneyland, and Doubletree Berkeley…etc. total around 17 hotels in California.

From 2012 to 2015, These California hotels we bought were way below replacement cost and our appreciation just for few years are more than 300% – 400%. From 2015 till now, we change our focus to out of states hotels with same buying criteria: Full Services Branded Hotel, Below Replacement Cost, Higher than 15% cash on cash return per year. Now we bought total 32 hotels all over United States of America, 12,000 or more rooms with total asset value more than $1.2 Billion.

Urban Commons are owned by Howard Wu and Taylor. Howard Wu is the university buddy of Jerome Yuan, son of Frank.
Both Jerome and Howard made a fortune from investment in Silicon Valley. On the advice of Frank, they dabble into hotel investment.
And in 2016, Frank negotiated on behalf of Urban Commons with Long Beach City Council to secure the lease of Queen Mary.

[Shiyi]

http://voyagela.com/interview/meet-frank...-ca-91770/
JANUARY 22, 2018

Meet Frank Yuan of ASAP Holdings in Rosemead

Frank, let’s start with your story. We’d love to hear how you got started and how the journey has been so far.
We start to acquire hotels from last economic down turn 2012 – there are so many distress Hotels in the market place. The first few hotels are in Los Angeles and Northern California, such as Marriott Downtown L.A. Universal Sheraton, Doubletree San Pedro, Holiday Inn Disneyland, Embassy Suites Disneyland, and Doubletree Berkeley…etc. total around 17 hotels in California.

From 2012 to 2015, These California hotels we bought were way below replacement cost and our appreciation just for few years are more than 300% – 400%. From 2015 till now, we change our focus to out of states hotels with same buying criteria: Full Services Branded Hotel, Below Replacement Cost, Higher than 15% cash on cash return per year. Now we bought total 32 hotels all over United States of America, 12,000 or more rooms with total asset value more than $1.2 Billion.

Urban Commons are owned by Howard Wu and Taylor. Howard Wu is the university buddy of Jerome Yuan, son of Frank.
Both Jerome and Howard made a fortune from investment in Silicon Valley. On the advice of Frank, they dabble into hotel investment.
And in 2016, Frank negotiated on behalf of Urban Commons with Long Beach City Council to secure the lease of Queen Mary.

Closer look at EHT's portfolio following Nov 2 replies to SGX
The Edge Singapore 3/11/2019, 11:09am

SINGAPORE (Nov 3): Since August, Claydon Hill Investments and Compass Cove Assets have been selling their stakes in Eagle Hospitality Trust.  On Nov 2, EHT’s manager announced that Claydon Hill Investments subscribed to 141.44 million units at IPO, Compass Cove Assets subscribed to 120 million units and Bounty Green Assets 28.3 million units. As at Nov 2, Compass Hill has sold its stake down to 94.2 million units, and Claydon Hill Investments’ stake is down to 130.18 million units.
According to EHT’s announcement, the beneficial owners of Claydon Hill, Compass Cove and Bounty Green have a family relationship. Based on reports in the US press, Claydon Hill and Compass Cove invested in hotels on behalf of Chinese clients. They are also the managers/part owners of ASAP International Holdings whose unit Third Party ASAP6 Portfolio Vendors divested six hotels into EHT for the IPO process.
These hotels are: Sheraton Denver Tech Center, Crowne Plaza Dallas Near Galleria-Addison, Hilton Houston Galleria Area, Hilton Atlanta Northeast, Renaissance Woodbridge and Doubletree by Hilton Salt Lake City.
Crowne Plaza Dallas was purchased by ASAP for US$27.6 million ($37.4 million) and sold the hotel into EHT for US$50.7 million. Its adopted valuation in the REIT is US$57.8 million. ASAP acquired Renaissance Woodbridge for US$30 million and sold the property into EHT for US$67.1 million; the valuation adopted in the REIT is US$76.6 million.
ASAP acquired Doubletree by Hilton Salt Lake City in 2017 for US$31.38 million, the REIT acquired it for US$53.4 million at IPO and its valuation in the REIT is US$60.9 million.
Separately, questions are being asked about the repairs needed to keep The Queen Mary Long Beach operational. The lease agreement signed in 2016 between the City of Long Beach and Urban Commons – who is sponsor of EHT – is an annual rent paid to the City based on certain prescriptions such as base rent, pass through rent, percentage of net revenues and so on. The lease agreement calculates that the initial rent is around US$3.3 million a year. The 169-page lease agreement says the rents have annual escalations built in, in line with CPI. The lease is for 66 years.
In May this year, Urban Commons injected Queen Mary into EHT for which the REIT paid US$139.7 million. The major unitholders started to sell down EHT when memos and letters between the City and Urban Commons emerged in Sept and Oct, and the word default was mentioned in relation to repairs that need to be carried out by Urban Commons.
According to the lease agreement, the owner of Queen Mary allows Urban Commons to sublease the premises with Urban Commons securing the Landlord's prior written approval of all major subleases of above 20,000 sq ft.
While it is clear that the City owns the Queen Mary, it is not clear whether Urban Commons received permission to sublet the ship to EHT for US$139.5 million. In the event of default, the ship – presumably – reverts to the City.
Units in EHT are down a third to 52 US cents since its IPO price of 78 US cents. There is market talk that EHT’s manager may appeal to MAS for an early distribution of distributions per unit to unitholders after the release of its 3QFY2019 results instead of waiting till March 30, 2020. In addition, the EHT may announce a strategic review.

Wow, "strategic review" barely six months after listing! 
More bad news to come?

[valueinvestor]

https://links.sgx.com/FileOpen/EHT%20-%2...eID=584509

CLARIFICATION IN RELATION TO RECENT MEDIA ARTICLES
 
Eagle Hospitality REIT Management Pte. Ltd., as manager (the “REIT Manager”) of Eagle Hospitality Real Estate Investment Trust (“EH-REIT”), and Eagle Hospitality Business Trust Management Pte. Ltd., as trustee-manager (the “Trustee-Manager”, collectively with the REIT Manager, the “Managers”) of Eagle Hospitality Business Trust (“EH-BT”), refer to recent media articles regarding EH-REIT.
 
In an article from The Business Times entitled “Eagle Hospitality Trust units hit fresh low as investors take flight” published on 5 November 2019 (“The BT Article”), it was stated that “EHT also told the SGX that the Yuans were introduced to Urban Commons by the IPO placement agents, although ASAP’s website suggests otherwise.” The REIT Manager would like to clarify that this statement, which suggested a negative connotation to EH-REIT, is factually incorrect.   
 
The actual response by the REIT Manager to SGX, which was announced on 2 November 2019 is as follows: “Mr Frank Yuan, Mr Norbert Yuan and Mr Jerome Yuan were introduced by the Sponsor to the placement agents during the bookbuilding process for the IPO and subscribed for Stapled Securities in the placement tranche at the IPO price of US$0.78 per Stapled Security as part of a bookbuilding process by the placement agents.”
 
To The Business Times’ credit, as soon as the REIT Manager informed The Business Times of the error, they promptly corrected the article and apologised for the error.

Separately, the REIT Manager would also like to clarify certain information which was put forth in The Edge’s article entitled “Closer look at EHT’s portfolio following Nov 2 replies to SGX” published on 3 November 2019 (“The Edge Article”).   By way of background, 6 assets in EH-REIT’s 18-asset portfolio acquired at the IPO are referred to in Eagle Hospitality Trust’s prospectus dated 16 May 2019 (“Prospectus”) as the ASAP6 Portfolio.
 
The Edge purported a deviation between: (1) the price at which EH-REIT acquired 3 assets within the ASAP6 Portfolio from Urban Commons (the “Referenced Assets”)1, and (2) the price that ASAP International Holdings (“ASAP”) originally paid for said assets (on average, 2.5 years ago in private transactions).
 
While ASAP’s original purchase prices for assets comprising the ASAP6 Portfolio have not been disclosed and are not known to the REIT Manager, the REIT Manager calls into question the values reported in The Edge Article, which we believe reflect the mortgage amounts at the time ASAP originally acquired certain of the Referenced Assets (and not the actual purchase prices). In this situation, the alleged purchase prices would not reflect the equity components of these transactions, thereby underestimating ASAP’s original purchase prices.
 
In addition, the REIT Manager does not think that the valuation comparisons made are representative, as it does not take into consideration: (1) a meaningful time lapse (again, approximately 2.5 years on average) since ASAP originally acquired the Referenced Assets, and (2) the significant capital invested and reserved since ASAP’s original acquisitions. As disclosed in the Prospectus, with respect to the Referenced Assets, approximately US$22.4 million2 was invested and reserved since ASAP’s original acquisitions.

Further, the REIT Manager would also like to highlight that the ASAP6 Portfolio has been valued by two independent valuers in connection with the IPO and that each of the 6 assets of the ASAP6 Portfolio were injected into EH-REIT at a discount of at least 12% to their adopted valuation as of 31 December 2018.  
 
The REIT Manager would also like to correct the following inaccurate statement made in The Edge Article: “While it is clear that the City owns the Queen Mary, it is not clear whether Urban Commons received permission to sublet the ship to EHT for US$139.5 million. In the event of default, the ship – presumably – reverts to the City.”  
This statement is incorrect in 2 primary ways: (1) as clearly articulated in the Prospectus, EH-REIT owns the leasehold interest to Queen Mary which it acquired at the time of the IPO (EH-REIT does not lease the ship from Urban Commons, but rather EH-REIT sub-leases the Queen Mary to Urban Commons with the express consent of the City of Long Beach), and (2) as referenced in the REIT Manager’s SGX responses on 28 October 2019 to clarify, in part, The Edge’s original article dated 23 October 2019 – in the event of a default by Urban Commons to make required repairs at the Queen Mary, EH-REIT reserves the right to cure the default and make the repairs itself at Urban Commons expense and/or to terminate the existing master lease and enter into a new master lease with a third party.

 Lastly, the REIT Manager also wishes to dispel a rumour reported in The Edge Article: there is no strategic review underway nor has any consideration of a strategic review been discussed with the Board.
 
In closing, the Board would like to highlight the following:
1. The portfolio is backed by master lease agreements for each asset comprising EH-REIT’s portfolio. Such master lease arrangements are typical for hospitality REITs listed on the SGX and are meant to enhance the stability of cash flow from the underlying hotel operations and provide a floor to protect investors from downside risk. The master leases in EH-REIT’s 18asset portfolio were designed based on each asset’s respective income productivity.
2. The income productivity of EH-REIT’s portfolio benefits from leading global hotel franchisors3 with the largest guest loyalty programmes and top independent hotel property management companies.
3. With regards to The Queen Mary, the Board stands by what was previously disclosed in the Prospectus and the REIT Manager’s announcements released on SGXNET, including previous clarifications to referenced media articles.
4. EH-REIT has been listed for less than 6 months on the Main Board of SGX. Prior to IPO, its portfolio underwent substantial due diligence conducted by competent and experienced professionals, including DBS Bank Ltd. as Issue Manager and other Global Coordinators.
5. To reiterate, EH-REIT’s portfolio is supported by valuations from two reputable independent valuers.
EH-REIT will be releasing its 3Q FY2019 results on 13 November 2019 after market close.

[valueinvestor]

An extensive comment written by " Silence" @Investingnote forum:

The Curious Case of Eagle Hospitality Trust  $Eagle HTrust USD(LIW.SI)

This locally listed REIT has been making the headlines for all the wrong reasons these last few weeks. The share price has plummeted from the IPO price of US0.78 to US0.46 (as of 6 Nov 2019), buffeted by concerns over its key asset (Queen Mary) and incessant selling by substantial shareholders, even at prices below IPO price.

The selling by substantial shareholders, in particular, has sparked concern on whether there are any other skeletons left in the closet. This is compounded by the less than transparent relationship between substantial shareholders (ASAP) and the sponsor (UC). There are gripes over the 6 properties that ASAP had sold to UC shortly before they were injected into EHT and concerns on whether the valuations are inflated.

Who is ASAP?

ASAP is the largest Chinese owned Private Equity firm that focuses on acquiring Hospitality and Commercial Real Estate with Asset Management throughout the entire U.S.A.

To put it simply, ASAP buys distressed property, stabilizes the portfolio before executing an exit strategy. The value that is created from turning a distressed property into a functioning one is captured by ASAP and its investors. ASAP is currently available only to AIs (accredited investors).

Check this out to see how ASAP makes money for their investors.
http://voyagela.com/interview/meet-frank-y...


Look at their buying criteria: high investors return, cities with high potential and way below replacement costs. This has led them a portfolio of more than 32 hotels all over USA with total asset value of more than US$1.2billion. Their capital appreciation of more than 300%-400% is also impressive.

If you consider that this is a private equity investment, the returns seem just about right and the investment is restricted to AIs only.

ASAP seems to have built up a commendable track record.


ASAP and EHT


Besides the 6 properties that are directly sold to UC, ASAP actually appears to be involved in some way or another in all 18 of EHT&rsquo s properties. The 18 properties were all mentioned as part of ASAP&rsquo s portfolio and also appear to part of the 32 hotels referenced in the earlier voyagela interview.

Interestingly, when ASAP pitches for new projects, it has also mentioned its unique SG REIT exit plan as a key differentiating factor which can provide more than 30% more premium than sale price in US markets.

Anyone wonders which REIT they are referring to?

I guess in practice, it is possible to pull this off legally through various structuring arrangements.

 

 

Just like it is possible for ASAP to legally end up with 33% off the IPO without appearing under any regulatory scrutiny. Does Singapore need to improve our disclosure regime?
https://www.businesstimes.com.sg/companies...


Why would ASAP subscribe for IPO if it is meant to be an exit strategy?

There are potentially several reasons that I can think of but we may never know for sure.

 

Do note that the public tranche for the IPO was very poorly subscribed and if the placement tranche is equally poorly subscribed, would the entire IPO be called off? This would mean months and even years of hard work and planning going to waste.

Perhaps this forced ASAP to take a higher stake then they would have otherwise be comfortable with?


Do also note that as an exit strategy, the premium for exiting though a SG Reit can provide PE investors more than 30% premium than other comparable exit strategies so ASAP is logically not losing out even as it pares down its stake at lower than IPO prices.

 

This would also explain why you keep seeing the Yuans sell as substantial shareholders &ndash because it is meant to be an exit strategy duh.


The intent, may have been to slowly sell down its stake hopefully without depressing the price too much to capture a greater portion of the SG listing premium. Of course, due to unforeseen circumstances, the price plummeted and once the price falls below a certain level, it may not make sense for them to keep on selling.

 

Tax reasons as a substantial shareholder may also be another valid consideration to reduce their stake.


Do note also that as ASAP entered through the placement tranche, it is not subjected to any lockup arrangements which gives it an advantage to liquidate its stake.


Is the REIT a dumping ground?


There are grouses that properties are being injected into the REIT which have a low cost base and some people speculate that the REIT is being used as a dumping ground for low quality or overvalued assets.

 

I think that this line of thinking is not necessarily true because it is precisely the nature of this PE to buy distressed property at a firesale price and sell it at normal pricing once the property is stabilised.  The price that the property is bought and the price that is being injected to the REIT is not necessarily indicative of any dumping as long as the transaction is at arm&rsquo s length. It represents the different value being captured at different parts of the value chain.


The premium that one can get from an exit strategy through a SG Reit vs other US exit strategy is also not necessarily indicative of dumping overvalued assets. Because of different tax considerations as well as structuring arrangements, it is conceivable that an exit strategy through a SG Reit can yield a legitimate premium over other US exit strategies.


To be honest, it actually seems to be a very clever way of structuring the whole deal.

Furthermore, it is in the sponsor&rsquo s interest to ensure the REIT does reasonably well so they can continue to use it to recycle capital. Based on how the master lease and management incentives are structured as well as the improvements done before IPO, it does appear that the sponsor is looking to make this a success.


Does EHT provide good value at today&rsquo s prices?

Well&hellip your guess is as good as mine.

 

I would say that the drastic fall in share price does provide some margin of safety, given that the operational performance of EHT seems to be stable. In fact the first earnings report was arguably slightly better than forecast and we will learn more in the next report due soon. Ultimately, the points discussed above relate to what happened in the past and may not be so relevant to EHT&rsquo s operational performance going forward which would be the key driver of the share price.


In fact, what has been demonstrated is that ASAP (and by extension UC) appear to be shrewed operators with a proven track record. EHT now looks like they have got &lsquo 2 backers&rsquo which is not necessarily a bad thing in view of the pedigree of ASAP. Given that they can turn multiple distressed properties into functioning and stabilised income generating assets, you probably want them on your side of the team to be involved in managing the properties.


As master lessee, the sponsor also has an incentive to run the properties well given that there is additional upside for themselves if the properties do well. Look at how the master lease is structured with fixed and variable rent components. EHT has stability in performance due to the fixed rent portion but it also means that relatively speaking, the master lessee has more upside from the properties doing well. The management fees of the managers are also structured to incentivise the managers to provide investors with stable and growing distributions.


So it appears that the incentives for unitholders and the managers are aligned. And as mentioned above, there is an added incentive on the sponsors to prove that this model works so that they can continue to use this as a vehicle to recycle capital.


P.S.

Insider sales without any &lsquo known reason&rsquo is likely driving uncertainty over the share price. Understanding the context of the entire situation provides plausible reasons why this could be so and it could purely be for an innocuous reason like recycling capital. Buying in by substantial shareholders or insiders could be a strong sign that the bottom has been reached.


It is also interesting to note that so far, the lowest price that substantial shareholders have been selling appears to be at US0.55. Anyone recognise the 30% discount from IPO price corresponding to the ~30% value premium from a SG REIT exit.


The irony is that at this current level, EHT is trading at close to levels that ASAP looks for when it hunts for distressed properties: below replacement cost, close to 15% cash on cash returns etc.