An FAQ released by Eagle Hospitality Trust’s REIT trustee makes for painful reading. Most of it is a summary of the ill-fated stapled-security’s brief time as a listed entity on the Singapore Exchange. (EHT was a stapled security, comprising of an inactive business trust and EH-REIT.)
However, there are interesting snippets. The REIT Trustee confirms that minority stapled securityholders will most probably not be getting any of the Chapter 11 sale proceeds. “Even though results of the sale process for the sale of 14 of EHT’s properties yielded US$478.6 million in net proceeds, it is unlikely based on the debt profile of the Chapter 11 Entities, and subject to the claims resolution process, that claims of all unsecured creditors of the Chapter 11 Entities will be satisfied in full from the sale proceeds, after accounting for various secured claims. The sale proceeds are therefore not expected to result in a recovery for Stapled Securityholders.”
According to another question, EHT had US$89 million of cash in April 2020. What happened to the cash? The answer is telling on how irresponsible the sponsor - who was also the Master Lessee of EHT’s 18 properties - was. The cash, it appears, was used for various payments under the Master Lease Agreements which were not paid by the Master Lessees which was Urban Commons, the sponsor. Among other unpaid dues, these included real estate taxes and transient occupancy taxes, as well as penalties and interest; premiums for mandatory insurance; the need to defend against litigation brought against EHT in the US for various defaults and actions of the Master Lessees (ie Urban Commons); and funding of certain expenses related to the franchisors’ unpaid fees and expenses dating back to as early as 2019.
The Trustee also revealed that its fees remain unpaid. And of course there were costs related to the Chapter 11 proceedings and an EGM. The REIT Trustee revealed that DBS Bank was a lender to the US$341 million syndicated loan graned to EHT.
See also: Eagle Hospitality Trust's pain is almost over, with lessons learnt
In an answer to the inevitable question on whether sufficient due diligence was done by the investment bankers and regulators, the REIT Trustee says: “It is clear that that the post-IPO issues facing EHT are the result of, amongst other things, multiple delinquencies on the part of the previous Master Lessees with regard to the Master Lease Agreements for all 18 properties in EHT’s portfolio. Whether these delinquencies could have been avoided by pre-IPO processes is not something that the REIT Trustee is in a position speculate on. In particular, the REIT Trustee was not directly involved in the due diligence process for the IPO.”
Finally, the REIT Trustee says that as EH-REIT still does not have a manager in place and no further viable proposal has been received for EHT to date, the REIT Trustee and its professional advisers will most likely need to engage the regulators (including the SGX) to facilitate the proposed delisting and winding up of EHT from the Official List of the SGX.
With the sale of the Chapter 11 entities, EHT is a shell. Back in 2016, following the sale of Saizen REIT’s Japanese residential assets, it too was a shell and ready to be delisted. Sime Darby attempted to use Saizen REIT for a reverse takeover (RTO) of its industrial properties in Australia. But this was called off subsequently. For now though, nothing resembling an RTO is on the horizon for EHT, so delisting is the most likely route.
