Investing with some common sense for peace of mind.

This blog is in reply to a comment by a reader who wants to know my opinion on what he thinks are "poor governance and regulatory oversight by MAS, DBS (its sole bookrunner) and SGX" in the case Eagle Hospitality Trust. 

Read his full comment: HERE.

Hi HH Low, 

Unfortunately, we cannot always be right and I have been wrong more than a few times myself. 

With Eagle Hospitality Trust (EHT), I was probably in the minority in sounding the alarm as many investment bloggers and analysts were saying the Trust was severely undervalued as its unit price declined. 

Many bought into the Trust and many more followed. 

The importance of not riding on coattails and to do our own due diligence really cannot be overemphasized.


Also, it pays to remember that: 

"We might have different requirements and certainly different circumstances. 

"So, it is probably not a good idea to ride on someone else's coattails, no matter how famous that someone is." 

See: Good time to buy now or should I wait?

For example, many have been buying into Alibaba since its stock price went into a tailspin and this has lasted many months.

There is a saying that stock prices flow down a river of hope and it certainly has been the case for Alibaba.

Low can go lower and if we do not have deep pockets like Charlie Munger and have to borrow money to invest in Alibaba, we might be in for many sleepless nights. 

Regular readers know where I stand on such matters. 

See: Investing and peace of mind. 

Not many have the stomach for volatility and fewer still have the stomach for constantly declining stock prices with no bottom in sight. 

It might be a better idea to wait for prices to bottom before buying and that was what I did in the bear market last year. 

I might miss out on some gains but I would have spared myself quite a bit of mental agony.

For example, see: 

Buying DBS, OCBC, UOB and cheering for IREIT Global.

Anyway, I digress. 

In the case of Eagle Hospitality Trust, for better or for worse, like always, I stuck to my views and it turned out I was right about EHT. 

The lesson? 

We have to remember that there is no free lunch in this world and nobody cares more about our money than we do.

Although I think that people who have done wrong should be punished, in the real world, evil is not always punished while the good and the innocent often pay heavy prices. 

So, instead of depending on regulators and experts to do a good job, it is probably a good idea for us to be a bit cynical and if something is too good to be true, take a closer look because it could indeed be so.


I am not the smartest person around but I like to think that I have some common sense which I believe is common enough that most people have it. 

I just happen to use my common sense a bit more, maybe. 

For anyone who might be interested, these are some of my past blogs on Eagle Hospitality Trust: 

1. Is Eagle Hospitality Trust worth it? 

2. Eagle Hospitality Trust: Financial engineering. 

3. Eagle Hospitality Trust: My philosophy. 

4. Eagle Hospitality Trust: Extinction?

Eagle Hospitality Trust: In danger of extinction?

AK likes buying things on the cheap.

What is cheap?

If we can easily afford something, is it cheap?

Well, it simply means that it is affordable.

It might not be cheap.

Cheap to me means value for money.

Affordability and value for money.

They are not the same thing.

For a refresher, read this blog:
Affordability and Value For Money.

So, AK likes buying things which are value for money.

If I can tell something is definitely value for money, I will buy some and, sometimes, I will buy a lot of it.

This is the same for anything in life whether it is for consumption (especially if it is a need) or for investment.

"Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down." - Warren Buffett

Good old Warren Buffett.

Now, I bolded one word in that quotation.

The word is "quality".





When Eagle Hospitality Trust's unit price crashed last year, many readers as well as some friends of mine thought I would be interested in buying.

After all, many respectable financial bloggers also invested in the Trust then.

Many people thought Mr. Market was overly pessimistic on Eagle Hospitality Trust.

Well, AK is growing older and as he grows older, he grows more timid.

AK wasn't pessimistic about Eagle Hospitality Trust.

AK was afraid, very afraid.

I thought Eagle Hospitality Trust was a risky investment and I didn't feel like taking on more risk in retirement.

What really steered me away from investing in the Trust was the fact that the Trust was imploding as insiders sold at ridiculously low prices, willing to take hefty losses in the process.

This is something that is still happening!





In their latest announcement, the manager of Eagle Hospitality Trust said that "the Security Price meaningfully under-represents the underlying value of EHT’s portfolio."

See recent announcement #4 at the end of this blog.

If that's the case, perhaps, insiders should be buying more or maybe make an offer to take the Trust private.

Why isn't this happening?

Why, indeed, is the opposite, more or less, happening instead?

Why is the manager thinking of an asset sale now?

Wouldn't this be a really bad time to be selling their hotels?

It is basically going to be a fire sale.

In my first blog on Eagle Hospitality Trust, I said:

"Insiders probably know something retail investors or outsiders don't.

"If Eagle Hospitality Trust is a good investment for income, after a huge decline in unit price, insiders should be buying more.

"Even if they don't buy more, they should be holding on to their investments.

"They should not be selling."

It isn't rocket science.

It is common sense.

See related post #1.





My series of blogs on Eagle Hospitality Trust seems to have done something good as a reader who wrote to me late last year just told me that he cut losses after reading my blog in reply to his plight.

See related post #3.

He wrote and told me this after the trading halt in Eagle Hospitality Trust was announced.

He might have lost a big sum of money but in exchange, now, he has peace of mind.

Priceless.

Remember,

"Never risk what we have and need for what we don't have and don't need." - Warren Buffett

Eagle Hospitality Trust looks like it could be going extinct.

If we cannot trust it, we cannot invest in it.

When in doubt, it is better to stay out.

See related posts and recent announcements at the end of this blog to form your own conclusion.

AK is just talking to himself, as usual.





Related posts:
1. Is Eagle Hospitality Trust worth it?
2. Eagle Hospitality Trust: Financial engineering.
3. Eagle Hospitality Trust: His plight.

Some recent announcements:
1. Eagle Hospitality Trust: Resignation of CFO.
2. Eagle Hospitality Trust: Cessation of Substantial Shareholder.
3. Eagle Hospitality Trust: Resignation of Independent Director.
4. Eagle Hospitality Trust: Business Strategic Review and Update.

Smart money exiting US hospitality sector?

This is a blog to share some food for thought regarding the US hospitality sector.

It is going to be partly about what I picked up from someone who seems to be in the know.

It might or might not explain in part why there were two IPOs of US hospitality assets in Singapore earlier this year.

As usual, remember that it is just me talking to myself here in ASSI.

Of course, don't take everything in ASSI as the Gospel truth.

It is just my perspective most of the time.





The US hospitality sector has grown robustly for a decade but incumbents are facing increasing number of challenges and stronger ones too.

So, it is not surprising that some incumbents are letting go of their assets to lock in capital gains.

It could be that rather than deal with the challenges themselves, they are passing the risks to other investors when showing off a past robust growth trajectory is still enough to attract buyers.

It could also be the case that some of the challenges are insurmountable such as the possible ending of the hospitality expansion cycle.






Some pertinent points which I picked up:

1. Very real rising operating costs and, increasingly, operators are under a lot of pressure to keep a lid on expenses.

2. The expansion cycle in the US hospitality sector could very well be coming to an end after 10 years of consecutive growth.

3. Since the Global Financial Crisis, there is a strong sense of financial insecurity and US consumers are given to eliminating vacations altogether in a recession as was seen in the last recession as half of US households spent nothing on vacations then.

Any entity holding US hospitality assets who is thinking of going asset light would be very happy to have a REIT as a captive buyer at this point when discretion could be the better part of valor.







On hindsight, the lukewarm response to Eagle Hospitality Trust's IPO might have been a sign of things to come.

Especially so when the IPO launched with a lowered offer price of 78 cents a unit probably after a less encouraging book building exercise.

A lowered offer price was necessary to give a higher projected distribution yield to make the IPO more attractive to investors.

"In EHT's IPO, no applications were received for about 60 per cent or 26.6 million stapled securities out of the 44.9 million available to the Singapore public for subscription, at the close of the public offer on May 22. 

"The subscription rate for the public offer is therefore 0.4 times."

Source: 
The Straits Times.

An IPO in which the public offer was only 0.4x subscribed?

Eagle Hospitality Trust probably made IPO history in Singapore.

Memorable but not in a good way.






Eagle Hospitality Trust's DPU is partially shielded by Master Leases where fixed rents make up 66% of the Trust's total rent.

Of course, we have to remember that Master Leases are only as strong as the lessee.

Questioning the financial strength of the lessee is probably a prudent thing to do.

Master Leases also have the possible effects of inflating asset valuations and masking the real ability of an asset to generate income.

Without the fixed rents provided by Master Leases, ARA Hospitality Trust's DPU performance could possibly be a clearer indication of what things are probably like on the ground.

ARA Hospitality Trust's DPU missed forecast by a wide margin in the face of challenging conditions in the US hospitality sector and not due to any major internal issues.

"ARA H-Trust On Wednesday separately reported DPS of 1.77 US cents for its third quarter, 11.5 per cent lower than the 2.01 US cents figure forecasted in its IPO (initial public offering) prospectus.

"This comes after overall supply growth outpaced demand growth in the upscale select-service segment for the first three quarters of fiscal 2019, it said."

Source:
The Business Times.





Are these reasons enough to explain the seemingly irrational and repeated insider selling even at a huge discount of more than 40% from the IPO price and in large chunks?

Maybe but probably not.

Of course, we are referring to insiders of Eagle Hospitality Trust, specifically those who sold some hotel assets to be injected into the Trust.

Money should go to where it is treated best and smart money probably know where to go.

Eagle Hospitality Trust could be a good investment for income but just not good enough for the insiders who reduced their stakes aggressively.

Is this an optimistic statement about what has happened at this point in time?

Probably but maybe not.







I am ending the blog with a couple of video clips.

The first one is about hotels in the USA.

Titled "Selling Hotels 2020", the video clip has some interesting insights.

"The buyer pool for value add properties is a lot deeper than the buyers that are looking for stabilized income properties." 






The second video clip is just for fun and laughter.

Ho ho ho!

Alamak, how come like that?

Support SPH a bit lah. ;p








Related post:
His plight and my philosophy.

Recently published:
IREIT Global is going to Spain!

Eagle Hospitality Trust: His plight and my philosophy.

Since my last blog on Eagle Hospitality Trust, I have not looked at it.

I am looking at it again in response to a reader.

The reader who invested in Eagle Hospitality Trust left me a comment but requested that I do not publish it so as not to reveal his identity.

He bought into Eagle Hospitality Trust at 70c a unit this year in July, thinking that he got a pretty good deal.

He bought more when the unit price declined to 66c a unit later in October.

That time in October, he invested for his children using the money in their savings accounts.

When the unit price plunged later on in the same month, he looked on in horror.

Imagine his consternation as the unit price went on to hit new lows soon after.

The massive wealth destruction in such a short time would make any grown man cry.

It must have been horrible.






When the reader bought more at 66c a unit in October, he was unaware that Eagle Hospitality Trust's insiders were already paring down their investments in the Trust in August.

He is more vigilant now.

He has been closely following the news since the Trust's unit price crashed.

The following is the reason why he wrote to me.

Apparently, on 3rd December 2019, Compass Cove Assets Limited which is wholly-owned by Norbert Shih Hau Yuan, sold 35 million units at 52 cents per unit in a married deal, in the process ceasing to be a substantial unitholder as his stake became less than 5%.*









The reader was hopeful when Eagle Hospitality Trust's unit price rose from the depths but he is now in distress once more.

He believed that the Yuans would stop selling their stakes in Eagle Hospitality Trust.

With this latest news, he doesn't know what to believe anymore.

It seems that Norbert Yuan has taken full advantage of the recent recovery in Eagle Hospitality Trust's unit price to sell a rather big chunk of his remaining investment.

From here on, any further sale on his part need not be reported as he has ceased to be a substantial unitholder.

Will the selling continue?

Of course, henceforth, there is no way the reader or anyone of us, for that matter, will ever know.






Obviously, my blogs on Eagle Hospitality Trust last month did not provide the reader with any comfort.

So, why write to me?

What can I say to comfort him now?

Why did I not invest in Eagle Hospitality Trust?

Will I ever invest in Eagle Hospitality Trust?

Is there something wrong with the Trust?

Is that why AK is not investing in it?

Well, to be perfectly honest, I don't know if there is definitely something wrong with the business.

However, I do know that I feel uncomfortable about what has happened which caused the unit price to crash.

I don't know if I will ever feel comfortable enough to invest in the Trust but usually if I am uncomfortable with what the insiders do, it will take a lot to change my mind.

I am not an insider and I don't know more than what has been made public.

For my own sanity, I am just staying out of something I am doubtful about.

Yes, when in doubt, I should stay out.

(If you have yet to read my past blogs on Eagle Hospitality Trust, they are hyperlinked at the end of this blog.)






Here in ASSI, please remember that I am only talking to myself about my perspectives on things.

I am not making any recommendations.

I am as fallible as anyone else.

Please read the disclaimer at the end of this blog page.

What readers do after listening to me talking to myself is up to them.

I will say that if an investment is causing us to lose sleep, we are probably overly invested or using money we should not be using to invest with.

Don't let investments drive us insane.

It isn't worth it.

Trust me when I say we cannot put a price tag on peace of mind.

It is absolutely priceless.






Finally, this blog is not just about Eagle Hospitality Trust.

It is more than that.

I like to think that it is about philosophy which we can apply to all other investments we make in life as well.

Don't let something like this haunt us.







Related posts:
1. Is Eagle Hospitality Trust worth it?
2. Eagle Hospitality Trust: Financial engineering.

Also recently published:
1. Accordia Golf Trust: A 60% premium?
2. Accordia Golf Trust: Offer must be way above valuation.

*See Eagle Hospitality Trust's SGX announcement: HERE.

Eagle Hospitality Trust: Financial engineering and selling at 44.5 cents a unit.

When I analyse stocks, I am aware that I do not have the resources to do complete analyses.

Most if not all of my analyses are incomplete and I make decisions based on such incomplete analyses.

What?

Really?

Yes, really.

An example:
ComfortDelgro: An incomplete analysis.

I just have to decide on which bits of information are more crucial to my decision making process.

If I have access to those bits of more crucial information, I will be able to make a decision.

If I don't have access to what I think are more crucial, I should stay away until a time when things have changed.

Those few times that I ignored this advice to myself, I mostly regretted my decisions.






It is almost like a jigsaw puzzle.

We don't usually need to put every piece of the puzzle in its place to see the picture.

As retail investors, if we can be approximately right most of the time, we will probably do well enough in the long run.

When I blogged about Eagle Hospitality Trust recently, it was the same.

In the blog, I said "it is enough to stop me from investing in Eagle Hospitality Trust even now."

Of course, if you have read my last blog on Eagle Hospitality Trust, you know what I am talking about.






Yes, in the case of Eagle Hospitality Trust, what really struck me hard was the substantial shareholders selling at what seemed like ridiculously low prices.

Not just selling their investments at ridiculously low prices but also selling them in large chunks.

Guess what?

It has happened again.

Today, it was announced by Eagle Hospitality Trust that Compass Cove Assets Limited which is wholly-owned by Mr. Norbert Shih Hau Yuan sold 5 million units at 44.5 cents per unit on 7 November 2019.

See:
SGX: Eagle Hospitality Trust corporate announcement.






So, we see that even a selling price as low as 44.5 cents a unit is acceptable to this substantial shareholder.

I believe they are the people who sold 6 hotels to Eagle Hospitality Trust's sponsor who in turn injected the hotels into the Trust.

See: 
"Asset management firm ASAP sold six hotels to EHT's sponsor..."


We should ask how realistic are the valuations of these hotels?

Making an investment decision based on published NAV could be a bad idea as the valuation could be inflated.

Older readers of my blog would remember that I said the NAV of Saizen REIT was too low because they were able to sell their properties at a premium to valuation in the open market.

Newer readers might want to read this blog in which I talked to myself about Saizen REIT and Sabana REIT.

See:
Saizen REIT: Right price and luck.

If you would like to read more about Sabana REIT,

See:
Sabana REIT: History and current thoughts.





Anyway, we should ask if Eagle Hospitality Trust tried to sell these six hotels in the USA, could they get buyers to pay prices equal to the valuations by the "two reputable independent valuers" the manager of the Trust keeps referring to?

Good question, don't you think?

See:
Closer look at EHT's portfolio. 
(You can also go to the comments section at the end of this blog for a brief account.)

So, looking at the cash flow is probably a better way.

Really?

As more than 60% of EHT's cash flow is secured with master leases, there is some comfort there for investors.

However, as seasoned REIT investors know, master leases usually hide the real (usually lower) cash flow generated by the properties.

It was also probably the master leases that led to higher valuations for the properties.

Financial engineering.

Always amazing.





When Ascendas Hospitality Trust had its IPO so many years ago, I wasn't interested in it partly because of some financial engineering involved to make it more attractive.

Of course, older readers of my blog know that I usually avoid IPOs anyway.

So, how did Ascendas Hospitality Trust become one of my largest investments?

It was only after some time when the effects of financial engineering lapsed and when the unit price declined to a level that became more compelling that I nibbled.

When unit price plunged even lower, I gobbled as I had clarity.

As an investor, I need clarity.

Without clarity, I cannot be sure if something is clearly undervalued or not.

Of course, if we cannot trust, we cannot invest.

See:
Ascendas Hospitality Trust: More income.

Of course, Ascendas Hospitality Trust will have a new name soon.

See:
Ascendas Hospitality Trust: Bad deal?





Anyway, back to Eagle Hospitality Trust.

At this point, it is almost impossible to believe that everything is fine and nothing is wrong.

Of course, it is only my belief since it could also very much be that I am growing old and cynical.

We should ask why are substantial shareholders selling at such low prices?

Unless they issue a statement on why they are doing this, we can only guess.

Will they do this?

EHT is due to announce results two days from now on 13 November 2019 but it should not distract investors from important questions that need answering.







Related post:
Is Eagle Hospitality Trust worth it?

Is Eagle Hospitality Trust worth it?

On 24 October, a reader left a comment here in my blog:

"https://www.businesstimes.com.sg/companies-markets/eagle-hospitality-trust-calls-for-trading-halt-after-reports-on-possible-lease

"The yield is almost 10% now.

"When trading halt is lifted, price is likely to crash and yield will shoot up above 10%.

"Do you think the risk is worth taking ? Thanks."






In reply, I said that the risk looked pretty significant.

I felt that I shouldn't take on too much risk in my retirement.

Basically, that meant I wasn't going to invest in Eagle Hospitality Trust.

The following day, on 25 October, Eagle Hospitality Trust's unit price crashed from 64.5 cents to 54.5 cents.

Of course, it did not stop there as it further plunged spectacularly to 44 cents on 5 November.






People say that IPO stands for "it's probably overpriced".

Well, it seems to be the case here.

Eagle Hospitality Trust's IPO earlier this year was priced at 78 cents per unit.

It is certainly not an exaggeration to say that investors who got in during IPO have suffered massive wealth destruction.

What to do?

For those already vested, should they cut loss or buy more?






Well, when even substantial shareholders cut their losses, it is rather ominous.

In fact, it is because of substantial shareholders selling a substantial portion of their stakes that created massive selling pressure leading to the catastrophic crash in Eagle Hospitality Trust's unit price.

When elephants stampede, it is the grass that suffers.

As retail investors, keeping an eye on what insiders do is usually a very good idea.






When insiders buy, it is usually because they think they are getting a good deal.

When insiders sell, it might not be because they think they got a bad deal.

To be fair, there could be many rather innocent reasons why they sell.

However, I would say that this is probably true when the stock is doing relatively well.

Insiders might want to take some profit off the table.

After all, it is never wrong to take profit, as the saying goes.






When insiders sell a significant percentage of their investments and take big losses in the process, however, the reason for selling could be less benign.

Alarm bells should go off when more than one insider take big losses selling down their investments.

This is the case with Eagle Hospitality Trust.

Insiders probably know something retail investors or outsiders don't.

If Eagle Hospitality Trust is a good investment for income, after a huge decline in unit price, insiders should be buying more.

Even if they don't buy more, they should be holding on to their investments.

They should not be selling.

This kind of selling by insiders is ominous and it is enough to stop me from investing in Eagle Hospitality Trust even now.






Not investing?

What about doing a bit of speculating instead?

This is when we buy and hope that the unit price will go up in the (not too distant) future.

Well, the selling pressure has weakened but it has not disappeared.

The slight recovery in Eagle Hospitality Trust's unit price now is due to reduced selling pressure and not due to strong buying pressure.

This is quite obvious when we look at the trade summary.

There is much more selling down going on than there is buying up of units.






After so much damage, unless there is very strong and sustained buying pressure, it is likely that Eagle Hospitality Trust's unit price will stay depressed for some time to come.

If there is strong and sustained buying pressure, we could see a rebound that moves the unit price to test resistance provided by the declining 20 days moving average.

Lacking this, the unit price could move sideways and the declining 20 days moving average will catch up in time which could create more downward pressure then.

The RSI, a momentum oscillator, says Eagle Hospitality Trust is oversold but there is nothing to say that it won't stay oversold for an extended period of time.

The MACD, another momentum oscillator, is still declining in negative territory and from the looks of it, it will take a rather long time before this is repaired.

A trade is usually safer when we see a positive divergence and I do not see one now.






Remember,

"Never risk what we have and need for what we don't have and don't need." - Warren Buffett

Unless we have deep pockets like the substantial shareholders, whether we are investors or speculators, it might better to stay away from Eagle Hospitality Trust even now.

It could be that I am missing out on a fantastic deal but when in doubt, I should stay out.

I might be tempted but I don't need this.

Peace of mind is priceless.






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