Singapore (Dec 9): Eagle Hospitality Trust (EHT) has released a statement today defending its property the Queen Mary, a cruise liner that was converted into a hotel. The statement, it added, is to provide context and clarification to an article published in the Long Beach Post last week.
In its update, EHT said the article had referenced sources made incorrect comparisons of “dissimilar terms” and "insinuates discrepancies thereby creating a significant misrepresentation".
EHT also clarified that the over US$6 million in net losses on operating costs and interest payments by UCQ refers to a net income statistic which takes into account all expenses of UCQ.
The article, published on Dec 5, reported that an “audit by the accounting firm of Grant Thornton LLP for 2018 showed that Urban Commons Queensway, which operates the Queen Mary under a lease agreement with the city of Long Beach, suffered net losses of more than US$6 million on operating costs and interest payments”.
Urban Commons is the sponsor of EHT. Urban Commons Queensway the entity that owns the Queen Mary according to EHT’s Dec 9 announcement. According to EHT’s prospectus Urban Commons Queensway is part of EHT’s IPO portfolio.
Queen Mary is EHT’s second largest asset by valuation. Her 66 year lease was sold into the trust at US$139.5 million and her adopted valuation is US$159.4 million.
Howard Wu, founder and principal of EHT’s sponsor Urban Commons, said in the statement that they have “committed significant resources into attracting additional businesses, which have resulted in increased revenues, income and sales tax revenue for the city. As a result, we have significantly increased income every year since 2016, with 2019 anticipated to generate more revenues than any year the Queen Mary has operated as a hotel.”
Urban Commons, together with the City, remains committed to ensuring the long-term preservation of the ship. Urban Commons has provided an updated plan outlining the next steps of repairs, subject to the City’s approval, and the REIT Manager will announce updates as and when appropriate.
According EHT’s prospectus, Queen Mary generated revenue of US$60.648 million in 2018, and had operating expenses of US$49.42 million (lower than FY2017’s US$51.252 million) giving gross operating profit US$11.228 million. Gross operating profit (GOP) – which excludes interest expense and non-cash expenses – is usually the equivalent to net property income for real estate investment trusts.
Based on Queen Mary’s GOP, her historic NPI yield is 8% based on the amount the unitholders paid for the lease of the ship.
EHT’s prospectus is forecasting y-o-y lower revenue of US$58.115 million in FY2019 and lower y-o-y operating expenses of just US$38.848 million to give GOP of US$19.266 million, a large jump from GOP of US$11.228 million in 2018. Based on a forecast NPI of US$80.17 million for EHT, Queen Mary should be contributing 20% to the REIT’s NPI.
In 3QFY2019, EHT’s first full quarter, total NPI of US$20.07 million was 2.7% below forecast.
