Eagle Hospitality Trust, despite being under a cloud of uncertainty over its Queen Mary asset, is looking like an opportunitistic buy. It is one of the "Top 5 Stocks / REITs for Singapore Investors" of investor Financial Horse. The other 4 picks are: DBS, Netlink Trust, S&P500 and China Banks (China Construction Bank / ICBC / Bank of China / Agricultural Bank of China). We excerpt, with permission, his latest take on Eagle Hospitality Trust, as follows: 

 

Financial Horse is a leading investment blog in Singapore, focusing on analysis on REITs, shares, fixed income and macro trends.

 

In the previous version of the Top 5 Singapore Stocks / REITs from February 2019, I selected DBS, CapitaLand, Netlink Trust, Mapletree Commercial Trust, and the S&P500. For very obvious reasons, all 5 stocks have done superbly well since. So let’s see if we can match the same record with this new round.

The rules of the game are simple:

  1. Select 5 stocks that I am keen to buy at current market prices
  2. They should be suitable for me as a Singapore based investor
  3. Minimum holding period is 1 year, ideal holding period is 5 to 10 years.


Eagle Hospitality Trust

Now I thought really long and hard about whether Eagle Hospitality Trust truly belongs on the list of Top 5 Stocks / REITs for Singapore Investors.

Crazy price

 ...it trades at roughly a 12% yield, and a 40% discount to book value. That’s crazy. It’s the kind of price you’d expect if the REIT was about to lose a key prized asset, or do a massively dilutive equity offering."

-- Financial Horse

It’s definitely a high risk investment, so if you’re looking for something safe, stay away. But if you have a healthy risk appetite, then this could be worth looking at.

Based on latest numbers, it trades at roughly a 12% yield, and a 40% discount to book value. That’s crazy. It’s the kind of price you’d expect if the REIT was about to lose a key prized asset, or do a massively dilutive equity offering.

And so far, I haven’t seen anything that really indicates this to be a material and credible risk.

QueenMary roomOne of the 347 hotel rooms aboard The Queen Mary ship.
Photo: queenmary.com

Sure there are lots of rumours floating around, but they’ve also been responded to by the REIT manager, and the responses are generally believable.

One important lesson that I’ve learnt about markets is that price gains reflect the difference between what the market is pricing in, and what actually happens in reality. As investors, our job is to understand what the market is expecting, independently assess the possibility of that happening, and decide whether there is a mismatch in expectations.

And right now, the market seems to be expecting a serious impairment to a key asset like the Queen Mary. Anything short of that, could indicate potential upside to the price.

The way I see it, it’s unlikely to be as bad as what the market is pricing in. For me at least, it looks like an interesting risk-reward at current prices.

But there’s no denying that Eagle Hospitality Trust is a risky one, so position sizing is important. I just can’t wait to come back to this in 2020 and watch how this investment played out.

For the full article on the 5 picks, click here.

Some background on matters that triggered a fall in Eagle Hospitality Trust -->

“There’s a lot of questions in my mind about Eagle Hospitality Trust. And investing is like crime-solving sometimes, where the hardest part is knowing what questions to ask. And the key question here for me, is where is all this new information on Eagle Hospitality Trust coming from? Let’s think about what information has been disclosed so far? The first bit of information was details of the letter from the City to the Sponsor. The next was the information on the vendor taking up a position in the IPO placement, and the sale being conditional on the IPO. Then it was the related party transactions that took place prior to IPO, including information on the valuations done in the preceding years.

"Perhaps the Edge and Business Times have become fantastic investigative journalists and dug up this information through extensive due diligence. Or perhaps someone with inside knowledge has been feeding it to them.

"Whatever the case, I don’t know where this information is coming from, and what is the purpose behind this information."

-- Financial Horse, in article "What is going on and when is a good time to buy?" (9 Nov, 2019)



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