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EHT: Media report misrepresents Queen Mary unit's financials

EAGLE Hospitality Trust (EHT) has responded to clarify another media report on its second-largest asset Queen Mary. EHT said on Monday a Dec 5 article on a 2018 audit of its unit Urban Commons Queensway (UCQ) misrepresented UCQ's financials due to a lack of context and clarity on earnings metrics. 

UCQ, which holds the lease of Queen Mary, was acquired by EHT from sponsor Urban Commons as part of EHT's initial public offering.

The article by the Long Beach Post, citing figures from a 2018 independent audit by Grant Thornton which covered the period before EHT owned the Queen Mary lease, referenced over US$6 million in net losses on operating costs and interest payments by UCQ.

In Monday's regulatory update, EHT said the article had referenced sources which reflected different circumstances and made incorrect comparisons of dissimilar terms, which "insinuates discrepancies thereby creating a significant misrepresentation".

EHT 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.

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This includes depreciation and amortisation – a significant non-cash expense, interest expense, and certain operating expenses relevant to UCQ as a property owner, which would not be incurred by the Queen Mary as part of the IPO portfolio, EHT said.

It added that the interest expense noted in the 2018 audit corresponds to a debt facility that has since been extinguished as part of the IPO.

EHT further clarified that UCQ's 2018 operating performance was hit by US$23.5 million of renovations and operational disruptions. The disruptions hurt revenue drivers Ghost and Legends tour and the Sir Winston's Restaurant and Lounge, which were out of service for significant parts of 2018, but have since become operational in 2019.

Long Beach Post's article also referenced a total profit of US$11.2 million in 2018 for Queen Mary from EHT's IPO prospectus – which EHT clarified refers to Queen Mary's gross operating profit.

It said that this figure, as defined in the master lease agreement, does not take into account certain non-operating expenses and non-cash expenses such as depreciation and amortisation.

As part of the IPO, an audit of the consolidated financial statements of 12 assets including the Queen Mary was completed. Selected statistics from the Queen Mary's consolidated financial information were then included in the prospectus, including gross operating profit.

In addition, EHT flagged a statement in the article on "substantial doubts" about UCQ's ability to continue as a going concern. It added that the "loss" referenced is less applicable to EHT as the 2018 debt held at UCQ had been repaid in full.

The 2018 audit by Grant Thornton is separate from an audit announced on Dec 5 to be conducted by the City of Long Beach's auditor relating to the 2017 and 2018 calendar years. 

EHT stapled securities were trading 1 per cent or 0.5 US cent lower at S$0.51 on Monday as at 12.46pm.

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