Eagle Hospitality Trust Continues To Be Haunted By The Ghosts Of Queen Mary

Eagle Hospitality Trust (“EHT”) continues to face woes on many fronts. On 6^th December 2019, EHT announced the resignation of its Vice President of Finance, Mr Cheah Zhuo Ye. Mr Cheah apparently left for personal reasons. The thing that caught my eye was his date of appointment to EHT was 25 September 2018 while his date of effective cessation was 30 June 2019 hence he joined for less than 1 year. The other mind blogging issue was why EHT announced this only in December 2019 when the effective cessation was June 2019?

1. Implication of resignation of key finance personnel

In addition, the leaving of the key finance personnel (VP Finance) is closely watched by many stakeholders because besides “leaving for personal reasons”, I personally think that this may indicate other potential undercurrent such as disagreement over certain subjective accounting policies such as revenue recognition or not recognizing certain expenses or dispute within internal senior management team on operational issues. But good thing is that the CFO is still with EHT.

2. Queen Mary bites again- Long Beach City Auditor joins into the fray

The other headache is those of the ghosts of Queen Mary which just cannot be exorcised. They continued to plague EHT constantly. There is another view that Urban Commons, the sponsor, had not done much to improve the safety conditions of the ship hotel, Queen Mary. On 3^rd December 2019, Long Beach City Auditor, Laura Doud announced that it will set out to investigate the ship’s finances and the lease that governs its operator. The last audit was conducted in 2012 which began with a call to the city’s fraud hotline that alleged improper accounting or the possible diversion of revenue by “Save the Queen” campaign.

Since Urban Commons took over the 66 years lease in 2016, the ship continued to languish according to assertions by a third-party inspector.

According to the Long Beach Press Telegram on 19 October 2019, Long Beach City's third party inspector, Edward Pribonic asserted in a phone interview that he has seen little evidence of maintenance and repair work being carried out on the Queen Mary and that there is no enforcement on the City's side to get that done. US$23Mil that were already  allegedly spent appeared to have nothing much done on the ship.

In response, John Keisler, Long Beach Economic Development Director said in an interview that it is looking into the hiring of another 3rd party consultant, a larger engineering firm with operational capacity to do a deeper dive to look at the specifics issues raised by Edward Pribonic.

Worse still, aspersions over the financial strength of Urban Commons were being persistently casted and EHT has to come out with further announcements to clarify on those assertions.

3. But what if nothing is actually wrong and it turns out to be a false alarm?

If everything turns out well, shareholders who invested at US$0.55 of recent pricing will be looking at an annual reward of 11.67% dividend yield based on projected US$0.0642 per unit by EHT. The current entry price of US$0.55 is also close to a 30% discount off the IPO price. Even if Urban Commons turns out to be in financial distress and defaulted on its lease obligations, it does not mean that the hotel assets under EHT are worth zero in monetary value. EHT would always have the option to appoint other new hotel operators or sell off some of the current assets. 

The upcoming 2nd half year closing is coming to an end. The financial statements and dividend payout by March 2020 will reveal whether there are really hard cash on the balance sheet of EHT for distribution to shareholders.

Please see my other previous postings on EHT:

1. Price Meltdown For Eagle Hospitality Trust- The Curse Of Queen Mary

2. Eagle Hospitality Trust Imploded From Within On Valuation Concerns Of Other Hotel Assets In Portfolio-Down 40% To All Time Low From IPO Debut In May’19

3. Eagle Hospitality Trust Q3 FY2019 Performance- Is Hurricane Dorian the only main reason for the underperformance against IPO forecast?