SINGAPORE (Oct 28): Following an Oct 23 report by The Edge Singapore titled “Eagle Hospitality Trust could get wings clipped as key asset The Queen Mary sinks into disrepair”, the Singapore Exchange queried EHT’s manager to quantify the total cost of ship repairs, provide further details on how this will affect the operations of the trust, the implication on the impact of the valuation of The Queen Mary and how the Trust intends to finance such costs of repairs.

See: Eagle Hospitality Trust could get wings clipped as key asset The Queen Mary sinks into disrepair

TES had reported that Urban Commons – EHT’s sponsor - is reported to have taken on the lease three years ago despite a marine survey that unveiled that the ship’s deteriorating condition was “approaching the point of no return”. According to that report, the total cost of ship repairs could range from US$235 million ($320 million) to US$289 million. In addition, it estimated that the work would take approximately five years to complete, with some 75% of repairs deemed “urgent”.

EHT’s manager replied on Oct 28 that “the Marine Survey’s estimate of scope of work and costs was grossly inaccurate and does not reflect UC’s actual obligations at the property. UC has been working with the City since 2016 to address any needed repairs. Presently, the City only requires repairs with respect to the noted items, which have a total estimated cost of up to US$7 million, such items will be paid for by UC utilizing the multiple capital reserve mechanisms built into the leases”.

The Queen Mary has been a source of controversy among investors since EHT was listed in May.  Based on EHT’s prospectus, The Queen Mary accounts for 12.57% of total portfolio value and is forecast to contribute 15.89% to net property income in FY2020. In 2018, The Queen Mary achieved ADR of US$144.40, occupancy of 69.8% and RevPAR of US$100.70. 

Analysts are estimating that should the value of the Queen Mary be written down to zero, and she no longer contributes to rental income, EHT’s FY2020 DPU would drop by 22% to 5.12 US cents from 6.6 US cents, and EHT’s NAV would drop to 69 US cents from 87 US cents. EHT last traded at 54 US cents, a discount of 21.7% to its lowered 69 US cents and at 37.9% to book NAV, and at a DPU yield of 9.48% based on its projected DPU excluding The Queen Mary.