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Please note that this article should not be construed as formal investment or financial advice. Please conduct due dilligence and understand your risk appetite before making any investment decisions. If in doubt, always check with your financial advisor or stock broker!
The past few days have been really interesting.
It started with:
A report from the Edge alleging that the Sponsor was in danger of default on its obligations in the head lease for Queen Mary: https://www.theedgesingapore.com/news/reits/eagle-hospitality-trust-could-get-wings-clipped-key-asset-queen-mary-sinks-disrepair
The REIT then called for a trading halt, and responded that this was untrue: https://links.sgx.com/FileOpen/EHT%20-%20Clarification%20on%20The%20Edge%20Singapore%20Article.ashx?App=Announcement&FileID=582917
And this morning after the trading resumed, the REIT dropped around 13% to trade at about 56 cents.
It’s still open for debate whether the lease will get terminated (technically speaking, the sponsor should be responsible for repairs and not the REIT), so I won’t touch too much on that now.
But to put things in perspective, UOB came out with a really nice report this morning ( https://research.sginvestors.io/2019/10/eagle-hospitality-trust-uob-kay-hian-research-2019-10-25.html ) that is well worth the read.
Based on UOB’s numbers, it says that even if Queen Mary is completely written down to zero, it’s FY2020F DPU will drop to 5.12 cents, and NAV drops to 69 cents.
Using the current price of 56 cents, that works out to a 9.1% yield and a 19% discount to book, assuming Queen Mary is completely written down.
If the matter is fully resolved, then the FY2020F DPU will be 6.6 cents and 0.87 cents book value, or a 11.7% yield and 35% discount to book.
I’ll dig around for more information on the Queen Mary situation and try to do an update Patron post over the weekend. But for now, even assuming the absolute worst case scenario, the current price actually looks really interesting.
And if the worst case scenario doesn’t materialise, there could be a bit of upside here.
From personal experience though, I’ve found that when stocks fall this much on one day, they usually stay depressed for a bit (up to a few weeks). So there’s no hurry to buy this stock, and I’ll be taking some time to watch the price action and understand this Queen Mary situation a bit more before deciding whether to add to my position.
As always, this shouldn’t be taken as financial advice, so do understand your own risk appetite before making any investment decisions!
Cheers!
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I personally feel that the sentiments and fear are overly, and that has largely been reflected in the market pricing. However, I would still sit out and await for a possible further downside before taking stronger interest in this counter.
Thanks for sharing!
What is going on with this REIT! Could you perhaps do a follow-up analysis to share why the market is so skittish and the substantial shareholders have decided to dump their shares?
Sure will do so. I’ve done a couple of update posts on Patron on EHT so do check that out too if you’re keen: https://www.patreon.com/financialhorse