KGI cuts Eagle Hospitality Trust target price on Queen Mary concerns

U.S. one-dollar and five-dollar currency notes; taken September 2018.

KGI slashed its target price on Eagle Hospitality Trust to S$0.61 from S$0.72, citing concerns over the trust’s Queen Mary property. The move was announced in a note released Monday titled, “This Battleship Is Not Sinking.”

“While management has clarified and reassured us with regards to many of the issues that have been raised over the past few weeks, we have been unable to fully rule out the risks related to the sponsor and The Queen Mary ship,” KGI said.

On Friday, the trust reiterated that its sponsor, Urban Commons, and the REIT have complied with the ground lease with the City of Long Beach, California, and are not in default on the Queen Mary property. The announcement was in response to recent claims in “Edge Singapore“ that the Queen Mary, one of its 18 U.S. hospitality properties, has fallen into structural disrepair and could be found in default.

The Queen Mary is a decommissioned ocean liner which has been converted into an upscale hotel and attraction moored in Long Beach, California.

Last week, Eagle Hospitality Trust reported its third quarter net property income came in at US$20.07 million, 2.7 percent below the forecast from its IPO prospectus. The distribution per stapled security (DPS) for the quarter was 1.649 U.S. cents, 1.3 percent below the IPO forecast of 1.67 U.S. cents, the filing said.

KGI said the DPS was in line with its forecasts, even with occupancy plunging around 27 percent for a couple weeks after news of the storm.

“Despite revenue underperformance, active expense management helped restore balance to distributable income,” the brokerage said, pointing to expense savings, including from interest rate swap arrangements. But KGI noted the trust won’t be covered by insurance becasue it wasn’t directly impacted by the hurricane.

KGI kept an Outperform call on the stock, noting revenue per available room (RevPAR) improved “considerably” in the quarter after the completion of renovations.

“Runway for RevPAR gains is still present as the RevPAR spread between EHT’s work-in-progress assets and upgraded properties remains at around 28 percent,” the note said.

Eagle Hospitality Trust units were up 2.80 percent at US$0.55 at 11:51 A.M. SGT.

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