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Brokers' take: KGI downgrades EHT on missed estimates, no near-term catalysts

KGI Securities on Thursday downgraded its call on Eagle Hospitality Trust (EHT) to "neutral" and cut its target price to US$0.51 from US$0.61.

EHT stapled securities were trading at 52.5 US cents as at 11.57am, down 0.5 US cent or 0.9 per cent.

The hospitality group’s fourth-quarter results fell below KGI’s estimates by an average of 18 per cent, and EHT’s distribution per unit for the same period also missed its own initial public offering forecast by 24.4 per cent, the brokerage said in a report.

Moreover, KGI believes there is a lack of near-term catalysts for EHT. This is despite EHT having engaged a new parking management company and secured new contracts, and EHT's sponsor Urban Commons agreeing to amend master lease agreements, KGI said.

The new parking management company will begin operations and cost management at 12 of EHT's 18 hotels. The hospitality group has also won contracts for events to be held at the Queen Mary floating hotel in California.

In addition, Eagle Hospitality Real Estate Investment Trust (EH-Reit) - one part of EHT - will be able to receive more variable rents from any outperforming properties generating excess cash flow, once Urban Commons amends the master lease agreements. This is meant to provide relief to any shortfalls in rent from underperforming properties.

However, KGI still remains doubtful that these can adequately lift revenues from a dismal 2019, said analyst Amirah Yusoff.

Although EHT hotels are not directly affected by the novel coronavirus (Covid-19) situation - seeing as they are about 90 per cent backed by domestic demand - KGI still expects overall demand to soften. This is because the US-China trade tensions and the upcoming US elections at end-2020 are likely to weigh on consumer and business sentiment in the coming year, Ms Yusoff said.

EHT's assets also saw downward revaluations despite active asset management initiatives, KGI noted. Property valuations dipped 0.6 per cent year on year despite substantial capital expenditures, revenue management and profit initiatives.

In a separate report on Wednesday, Jefferies Singapore maintained its "buy" call on EHT, but lowered its target price to US$0.70 from US$0.80 previously. EHT's Q4 results had likewise missed Jefferies' forecasts.