More twists and turns at Eagle Hospitality Trust

ENTITIES controlled by Howard Wu and Taylor Woods, holding 10.54 per cent of the stapled securities of Eagle Hospitality Trust (EHT), have requested that an extraordinary general meeting (EGM) be convened to offer securityholders of EHT another option for the revival of the currently suspended trust.

 

The request was made on Dec 14. Mr Wu and Mr Woods, who were, respectively, EHT' s non-executive chairman and non-executive deputy chairman, have proposed two resolutions.

 

The first is for a rights issue of up to US$50 million worth of new units in Eagle Hospitality Real Estate Investment Trust (EH-Reit) at US$0.075 each. EH-Reit and the dormant Eagle Hospitality Business Trust collectively constitute EHT. The second is to retain or re-appoint Eagle Hospitality Reit Management (EHRM), the current manager of EH-Reit, to " the fullest extent permitted by law" .

 

The Monetary Authority of Singapore (MAS) has instructed DBS Trustee, the trustee of EH-Reit, to remove EHRM by the end of this month.

 

In a statement provided to The Business Times, Mr Wu said there are " uncertainties surrounding the proposed plan" of DBS Trustee and its advisers.

 

DBS Trustee has put forward SCCPRE Hospitality Reit Management, a company that is linked to real estate investment management firm SC Capital, as the new manager for EH-Reit.

 

Securityholders of EHT will vote on the appointment of SCCPRE at an EGM on Dec 30. If resolutions required for SCCPRE' s appointment do not pass, then securityholders will vote on whether to delist and wind up EHT.

 

Mr Wu argued, in his statement, that as SCCPRE is not being asked to contribute capital and does not currently have a stake in EHT, its appointment is not in securityholders' interests. He also took issue with SCCPRE' s proposed management fee of at least S$4.5 million per year.

 

SCCPRE, if appointed, would receive its management fee for the next two years in stapled securities of EHT, as the trust has insufficient cash. SCCPRE could end up with a stake of between 5 per cent and 14.9 per cent of EHT, showed the circular released ahead of the EGM. " Unit securityholders should be given multiple options, and we believe our plan is simple and efficient," said Mr Wu.

 

In an announcement released on SGXNet, EHT' s managers and trustee said they have " requested for further information... to ascertain the validity" of the requisition request. They added that the scheduled EGM on Dec 30 will proceed " given the circumstances faced by EHT, including the limited cash resources currently available" .

 

EHT' s manager and trustee have asked for more details on the proposed rights issue, including whether the requisitioning securityholders have obtained approval for such an issue, and whether any financial resources are available to backstop such an issue if needed.

 

They have also asked for the basis on which the present manager is to be retained, particularly since EHRM has not fully complied with the Securities and Futures Act.

 

EHRM had on Thursday appealed to Finance Minister Heng Swee Keat regarding the directive on its removal, but did not provide further details. BT has reached out to MAS for comment.

 

At a dialogue with securityholders on Thursday, organised by the Securities Investors Association (Singapore), DBS Trustee stressed that the current proposal presents the " best chance to rehabilitate EH-Reit" , and strongly encouraged unitholders to " exercise their votes carefully" .

The sole shareholder of Eagle Hospitality Reit Management (EHRM), manager of Eagle Hospitality Real Estate Investment Trust (EH-Reit), has filed an appeal to Finance Minister Heng Swee Keat over a directive on its removal.

 

Mandarin West Holdings - the shareholder - noted yesterday that a Monetary Authority of Singapore (MAS) directive dated Nov 30 told the trustee of EH-Reit to remove EHRM and appoint a new manager.

 

" Mandarin West Holdings' position is that there are meritorious grounds of appeal with reasonable chances of success," it said in a statement. " Accordingly, the appeal against the MAS directive has been lodged with the minister under the Securities and Futures Act."

 

Mandarin West Holdings said it has " stressed the fact that it has injected millions of dollars of additional cash into the Reit compared to the income generated by its properties over the same time period" .

 

The MAS order last month for the removal of EHRM also came with a directive to DBS Trustee, the trustee of EH-Reit, to appoint a new manager " as soon as practicable" . SCCPRE Hospitality Reit Management was identified earlier this month as the proposed new manager.

 

" MAS continues to have serious concerns with EHRM' s ability and commitment to comply with MAS' rules and regulations, given the numerous breaches of the Securities and Futures Act, including recurrent and ongoing breaches of capital and financial requirements," the regulator said last month.

 

Trading in Eagle Hospitality Trust' s stapled securities, comprising EH-Reit and Eagle Hospitality Business Trust, was voluntarily suspended on March 24.

IN A bid to revive the beleaguered Eagle Hospitality Trust (EHT), the proposed new manager of EH-Reit says its immediate priorities would be to gain legal and physical possession of all 18 properties in the real estate investment trust' s (Reit) portfolio, and bring them back up to operating standards.

 

Only three out of the 18 properties in EH-Reit' s portfolio are currently operating.

 

EHT, a stapled trust comprising EH-Reit and the currently dormant Eagle Hospitality Business Trust (EH-BT), has been suspended from trading since March. The previous manager of EH-Reit, EH Reit Management, is to be removed following a directive from the regulator.

 

On Dec 1, the trustee of EHT said it has identified SCCPRE Hospitality Reit Management as a potential new manager for EH-Reit.

 

Should SCCPRE be voted in by unitholders, EHT' s name will be changed to SCCP Hospitality Reit.

 

SCCPRE is part of SC Group. The latter is controlled and owned by Suchad Chiaranussati, a former banker and advisor to the Bank of Thailand.

 

Loh Hwee Long, who will be chief executive of the new manager, said the US market typically takes between three and four years to recover from the negative effects of a " major shock" . He is nevertheless committed to putting in " maximum efforts to beat the general market performance" .

 

SCCPRE will consider asset enhancement opportunities to improve the value of the portfolio and will also attempt to bring EHT' s cost of capital down, he said. He added that SCCPRE will, at the right time, raise money from the market to fund working capital requirements and accretive acquisitions.

 

Mr Loh brings with him more than 19 years of global real estate experience - accumulated across investment, asset and fund management functions, as well as across multiple asset classes.

 

He began his career at Keppel Land in 2001, and also served stints at GIC Real Estate, Mapletree Investments and Keppel Capital Holdings thereafter.

 

Other members of the SCCPRE team are chief financial officer Johnnie Tng, who has held roles such as the chief financial officer of EC World Reit and Keppel Reit Management as well as chief operating officer Michael Liu, who will be based in the US to spearhead the ongoing asset management functions of the portfolio.

 

EHT had debuted at an offer price of 78 US cents in May last year, but its units began to trend downwards not long after. They last traded at 13.7 US cents.

 

Following the trading suspension, EH-Reit has been on the receiving end of regulatory scrutiny - with the Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) issuing multiple queries and directives.

 

SCCPRE was selected following a request for proposal (RFP) process by Moelis & Company, which is acting as financial advisor to DBS Trustee.

 

Bert Grisel, managing director at Moelis, said the " fairly broad" request for proposal (RFP) yielded a total of 15 interested parties that made bids for either a part of or the entire portfolio.

 

SC Group was the preferred candidate by a stretch due to its demonstrated ability to turn Reits around, said Mr Grisel.

 

Mr Chiaranussati said Reit management is one part of SC Group' s businesses, and saw the RFP as an opportunity to expand in the area. SCCPRE currently manages two listed Reits: Japan Hotel Reit (JHR) in Tokyo and Thailand Prime Property Freehold and Leasehold Reit in Bangkok.

 

At JHR, which SCCPRE began managing in 2010, total asset values have trebled to 399 billion yen (S$5.1 billion) as at June 2020. Units of JHR have more than doubled in value over the same period.

 

SCCPRE' s appointment is conditional upon the approval of EHT' s unitholders at an EGM on Dec 30. At the EGM, unitholders will vote on four resolutions: the appointment of SCCPRE as the new Reit manager of EH-Reit, the appointment of SCCPRE as trustee manager of EH-BT, the proposed issuance of up to 140 million new stapled securities, and a proposed base fee supplement in order to pay the new Reit manager the higher of a minimum fee of US$4.5 million or 10 per cent of annual distributable income per year.

 

The new securities would be issued to SCCPRE in lieu of fees for FY 2021 and FY 2022. According to the circular, SC Group is expected to end up with somewhere between 5 per cent and 14.9 per cent of EHT' s securities in the near to medium term.

 

Responding to a question on the dilutive impact of the issue, Mr Grisel said: " Cash is a scarce resource in a company that doesn' t have any revenue that needs to get to the other side of Covid-19 and reopen hotels ... We' re saving cash, and stopping value dilution (through this) in a different form."

 

He argued that if the fees were to be paid in cash, EHT would have to go into an equity raising exercise " relatively soon" and the current market conditions would make it difficult to identify the true value of the Reit' s portfolio.

 

" An alternative would be to throw the towel into the ring and say let' s just sell (the assets). But from our perspective, selling in a deeply distressed market only attracts very opportunistic buyers, and I don' t think that' s a good investment thesis for the Reit."

 

If any of the four resolutions tabled are not passed, then unitholders will vote on a fifth resolution: to delist EHT.

 

Even if all four resolutions are passed, unitholders will have to be prepared for a long road to recovery.

 

EH-Reit is exploring entering into a US$125 million bridge facility loan from a consortium of lender banks led by Bank of America (BOA).

 

Mr Chiaranussati said that the award of the new loan was " not a walk in the park" especially after the Reit had previously defaulted on a US$341 million loan facility administered by BOA.

 

EHT unitholders will not receive distributions for at least 18 months, as the Reit pays off the bridge facility.

 

The facility comes with an extension of up to 18 months, which means unitholders may not even receive distributions for three years.

 

SCCPRE said the funds will be deployed " very judiciously" on immediate requirements, but will not provide the necessary capital expenditure needed for the entire portfolio.

 

The benefit from this facility would be to transform some current liabilities into long term ones, addressing auditors' " going concern" and liquidity worries.