Thursday, 5 March 2020

Eagle Hospitality Trust CFO Suddenly Quit Less Than One Year On The Job For Personal Reasons


On 3rd March 2020 (Tuesday), Eagle Hospitality Trust (“EHT”) suddenly announced that its Chief Financial Officer (“CFO”), Fred Chee, has resigned for personal reasons. This does not bode well for EHT and lead to continued mass selling of units by many skeptical investors despite the announcement asserting that Fred Chee is leaving due to personal reasons. The leaving of a CFO is normally bad news for a business entity, especially when Fred Chee just joined EHT on 28 June 2019 and quit in just 8 short months. This is simply a public relation nightmare for EHT.
Extract from Announcement on 3rd March 2020

1.   The CFO is leaving due to “personal reasons”.
When an announcement states that a CFO is leaving due to “personal reasons”, it may be really nothing but the truth. However, personally, I think there are other possible undercurrents that hint at something else may not be right within EHT. When Fred Chee quit Sasseur Reit on 30 May 2019 to join EHT on 28 June 2019, he would have make a commitment to do his best and utmost in the new organisation and logically, who would quit in less than 1 year if one is happy there?

Hence my personal thoughts are that current investors who have invested money into EHT better be mentally prepared to write off their investment akin to what had happened at Hyflux where investors are only going to get back a fraction of their original investment amount if it happens to fall into bankruptcy and a forced liquidation calamity.

2.   What is the worst that could happen?
Some of the possible scenarios that could be happening at EHT from my personal perspective:

(i)                 There is a high probability that Q1 FY2020 results is going to be another disastrous one. The prospect are not good, hence time to resign.

(ii)                Work culture differences. Could not work with the CEO. Many underlying differences with the CEO with regard to the accounting and presentation of financial figures.


(iii)              The future prospect based on first hand internal information gained as a CFO may suggest upcoming going concern issue that are still not revealed to the public. Time to say goodbye instead of waiting around and doing lots of pointless preparation work and financial modelling for CEO’s review and then presentation to shareholders. If don’t leave now, sure get lots of scolding from CEO and also shareholders later on.

(iv)               Overworked and stressed out. Damn it, SGX regulators have written in not once but many times to query the EHT team since the not so long ago IPO. The extraction of numbers and crafting of answers are extremely stressful and no joke with all the various tight deadlines. Life is short, why do so much shit work? Time to resign.

(v)             The CFO is really leaving for “personal reasons” that has nothing to do with EHT in anyway. For example, acquiring stamp collection hobby full time or wanting more time to play golf with old buddies. Do you believe this as the likely scenario?
  
3.   Chiong to buy more EHT units at cheap valuation of as low as USD0.340 per unit (56% plunge in value from IPO price) or time to exit EHT before the shit rolls down the mountain further?
Unfortunately, I cannot provide an answer to this. Each and every one of us has their own risk tolerance level so as not to lose sleep at night. If you think EHT is going to go bankrupt soon due to imminent bad news disclosure from its sponsor Urban Commons, then it maybe time to just bite the bullet and salvage whatever value is left. If you are lion-hearted and thinks that EHT is oversold, then go and buy more as once market recovers from the COVID-19 crisis, you will be richly rewarded. If the price recover to just S$0.51 per unit, it will be a substantial 50% gain in valuation if one purchases many units at the current crazy Great Singapore Sales price of S$0.340 per unit.

I guess the only question is which scenario as alluded to Pt 2 is behind the real underlying reason why Fred Chee decided to throw in the towel. Do share your thoughts on the current EHT unit price that is in free fall.

 Pls also see my previous posting on EHT:
Eagle Hospitality Trust Announced Disastrous Quarter 4 Results- Distribution Per Unit Slashed by Whopping 24%
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5 comments:

  1. jonathan6 March 2020 at 00:55

    Hello, may i know if u are still holding EHT and what is ur strategy going forward? Thanks

    ReplyDelete
  2. Blade Knight6 March 2020 at 04:21

    Hi Jonathan, For me (personally), I am still holding on to my position. As a matter of fact, I accumulated some more units at S$0.385 this week but then EHT dropped further. My reasons for doing this are that:
    (i) ARA US Hospitality Trust also suffered from the same deterioration in overall US accommodation market. Hence the recent disastrous Q4 results is not just an EHT problem.

    (ii) The fixed rental income component for EHT's asssets is 66% fixed and only 34% variable. Hence it seems oversold even if Queen Mary's issue surface again. But the key risk here is that the sponsor Urban Commons may not survive the upcoming COVID-19 crisis that is worsening in US.

    However, I will not be adding on anymore EHT at this juncture as I hold quite a significant portion and have to diversify away the aforesaid risk of bankruptcy from weak sponsor and also risk of bank borrowings default for failing to meet banker's covenant.

    Presume you are also a unitholder of EHT. Will you be paring down stakes or holding on?

    ReplyDelete
  3. GlobalPassiveIncome6 March 2020 at 15:02

    Eagle /ARA hreits are just following the trend that US hospitality reit is suffering extreme weakness .Actually if you look at large US hotel reit PK with market cap of 5 billion and 12% yield , it has fallen 50% as well from 52 weeks high.Almost all travel related stocks listed in the US are falling at 30%+ from high. There is nothing wrong with Eagle fundamentally as an individual stocks despite all the fear mongering. The entire US hospitality sector is declining rapidly as a whole because the hotel occupancy will plunge and affect dpu/yield. I see no recovery in sight for at least 9 months..

    ReplyDelete
    Replies
    1. Blade Knight12 March 2020 at 05:42

      Thanks for sharing your insights....appreciate. For EHT, there is a high risk that their sponsor Urban Commons may not survive the current crisis hence the plunge in its market price is more severe than other hospitality stocks. In addition, FY2018 its financial statements was a loss. FY2019 as I understand is pending. FY2020 will be disastrous with Americans staying away from travelling in view of COVID-19.

      Delete
  4. Verseun20 March 2020 at 20:14

    Hi Blade Knight,

    I think a red flag usually would be with the resignation of the CFO.

    Also ,
    - REITs with parent backing , Capita- / Ascendas- / Frasers tend to have stronger backing. And sometimes we might need to pay a premium for that safety.
    - Hospitality sectors are rather volatile right now
    - Transparency by the company, which was highlighted in the business times report
    - Ability to service debt , interest cover of 4.5x and lowered DPU and distribution income

    ReplyDelete

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