SINGAPORE (May 27): Unitholders of beleaguered Eagle Hospitality Trust (EHT) will not receive any distributions for the period of May 24, 2019 to Dec 31, 2019 as the trust scrambles to utilise its funds for “preservation and protection” of its portfolio.
“Given the present developments, it would no longer be feasible or practicable for the managers and the REIT trustee to effect the payment of the distribution in part or at all at this juncture,” says EHT’s manager.
EHT’s 4QFY2019 results had announced a distribution of 3.478 US cents per stapled security for the aforementioned period, which was slated to be paid out on March 30. On March 24, the REIT said it has to halt the distribution to unitholders on March 24, citing restrictions under the terms of the facilities agreement from making payment of the distribution.
See: Eagle Hospitality Trust suspends trading, defers payment of latest distribution to unitholders
The REIT attributes its inability to pay out distribution on “significant liabilities” incurred by its master lessees under the hotel management agreements of its properties which remain outstanding to date.
These liabilities reportedly constitute substantial outstanding payables to third parties that are “necessary and critical to preserve and maintain the underlying value of the properties in EHT’s portfolio”, including taxes, utilities, and payables to essential goods and services providers.
EHT is deemed to have defaulted on loans of some US$341 million, which led to its trading voluntary suspension as it tries to restructure.
Any last shred of hope from unitholders for some form of distribution has been axed, as EHT says in its May 27 statement that there is now the need to tap on the cash resources which were previously thought to be available to fund the distribution.
“The cash resources which were available as at 17 February, 2020 to fund the distribution, are now no longer available as they have to be used urgently to fund necessary and critical expenses of EHT,” says the REIT.
EHT claims that the decision was arrived at after much deliberation and discussion with the various professional parties, and is deemed to be in the best interest of the REIT and its stapled securityholders.
This announcement comes shortly after EHT’s non-executive chairman Howard Wu and deputy chairman Taylor Woods resigned from the board of EHT’s manager on May 26, following the discovery of interested party transactions that were inked by the duo on behalf of trust’s master-lessor subsidiaries.
These agreements, which were noted to be “not on usual commercial terms” and “prejudicial” to the interests of EHT and its minority stapled securityholders, were uncovered during an ongoing strategic review of EHT’s business.
See: Eagle Hospitality Trust's Wu and Woods to quit following discovery of 'prejudicial' transactions
“In light of the continuing failure by the master lessees to discharge their obligations under the master lease agreements (MLAs), there is currently no alternative source of monies to fund the Portfolio Preservation Expenses other than the monies originally intended to fund the distribution and the remaining security deposits,” stresses EHT.
Looking ahead, EHT warns unitholders against waiting for distributions as the REIT continues to “discover failures by the master lessees to pay liabilities to third parties essential to the maintenance of its properties”, which may need to be settled to preserve their values.
“Additionally, it is difficult for the Managers and the REIT Trustee to meaningfully ascertain the quantum and extent to which the available funds of EH-REIT would be utilised to fund the Portfolio Preservation Expenses at this juncture,” says EHT.
The REIT adds that the quantum and extent of these expenses would vary depending on various factors that would impact the aggregate expense amounts, such as market conditions, position taken by third party service providers, as well as the ability to achieve a successful restructuring and raise new capital.
“The managers will provide further updates if there are material developments including as to the utilisation of EHT’s available funds,” says the REIT.
“In the meantime, all rights of the master lessors against the master lessees under the MLAs have been expressly reserved, including the right to terminate the MLAs, which is under consideration,” it adds.
The suspension of trading of EHT units on Mar 24 caused concern among investors, but the REIT says its managers are working with professional advisers to assess the implications of the notices of default; engage in further discussions with the administrative agent and the lenders, as well as to develop a longer-term consensual strategy.
“The managers are currently working to assess the impact of the global Covid-19 pandemic and the multiple notices of default on EHT and its subsidiaries,” says EHT, adding that it endeavours to lift the trading suspension as soon as it is appropriate to do so without compromising the interests of unitholders.
