The long awaited circular on Eagle Hospitality Trust&rsquo s options was issued late on Dec 8. Stapled securityholders get to vote on as many as four resolutions. The EGM is on Dec 30, but the last date and time to lodge proxy forms and to pre-register for the EGM is at 2pm on Dec 27. (EHT is a stapled security and comprises a dormant business trust (BT) and a REIT, EH-REIT.)

 

None of the resolutions are friendly to minority stapled securityholders. The choices are stark. In Resolution 1 EH-REIT&rsquo s trustee (which is DBS Trustee) proposes SCCPRE Hospitality REIT Management Pte. Ltd, owned by SC Group, be appointed as the new manager.

 

Resolution 2 is a vote to change the trust deed so that SC Group can get a base fee for FY2021 and FY2022. EHT&rsquo s base fee was originally 10% of distributable income of which there is none. The trust deed changes to base fee to a minimum of US$4.5 million or 10% of distributable income whichever is higher (clearly US$4.5 million). The independent financial adviser says the base fee is on " normal commercial terms and is not prejudicial to the interests of EHT and its minority stapled securityholders" .

 

  Resolution 2 is an extraordinary resolution and may need a 75% vote in favour to pass. 

 

Resolution 3 is to appoint a new trustee manager of EH Business Trust.

 

Resolution 4 is related to resolution 2 and asks securityholders for permission to issue 140 million new stapled securities - which is around 16% of EHT&rsquo s stapled securities in issue. The Issue price would be based on the NAV of EHT per stapled security which was US$0.171 as at Sept 30, if EHT remains suspended. The 140 million stapled securities will be for the payment of base fees to the SC Group and the new trustee manager for the BT (also SC Group) for FY2021 and 2022.

 

Resolutions 1 to 4 are interdependent and if any one resolution does not pass, then stapled securityholders get to vote on resolution 5, for a voluntary winding up of EHT.

EHT&rsquo s equity as at Sept 30 stood at US$148.9 million, as total liabilities are US$630.0 million and total assets are US$778.9 million. According to the circular, the net proceeds from a sale of assets at the very best would be US$0.171 per stapled security. 

 

The breakeven discount is 11.9%, that is if the assets are sold below book value by as much as 11.9%, stapled securityholders could get nothing. While nothing is certain, as a caveat, if the US hospitality sector gets going again during the sale period, the hotels could fetch more than NAV. But this outcome is unlikely.  

 

Minority investors may believe that resolution 5 offers them the best chance to get some cash back. But they may need to check the major securityholders list. Gordon Tang holds 8.57%, and Jane Yeo - through Gold Pot in which Gordon Tang has an interest - holds 5.88%. If these two securityholders vote for resolutions 1 to 4, EHT could get a new manager. We do not know who has been &ldquo brought over the hill&rdquo so to speak.

 

Another point to note is that some of the debt has been negotiated based on a change in manager. According to the circular a proposed bridge facility will be conditional on the appointment of the new manager and &lsquo definitive documentation&rsquo . Also, the issue of alignment in the immediate term may need to be addressed. In Singapore' s external manager model, REIT investors look for interests of managers and sponsors to be aligned with those of minority unitholders and stapled securityholders. It is not clear that the new manager' s interests are immediately aligned with EHT' s minority stapled securityholders.

 

Separately, for the purposes of the EGM. can minority investors get to vote for resolution 5? The arithmetic does not look in favour of this. We will know by the end of the year.   

 

SCCPRE Hospitality Reit Management has been identified as the proposed new manager for the troubled Eagle Hospitality Real Estate Investment Trust (EH-Reit), which is part of the stapled group Eagle Hospitality Trust (EHT).

 

The announcement was made a day after the Monetary Authority of Singapore (MAS) ordered EH-Reit' s trustee to remove the current manager within one month and to appoint a new manager " as soon as practicable" .

 

In a bourse filing on Tuesday morning, DBS Trustee confirmed that it received the financial regulator' s directive on Monday, and will remove the incumbent manager.

 

As for the proposed incoming manager, that was decided following the trustee' s discussions with EHT' s financial adviser Moelis. They evaluated proposals from interested parties after a comprehensive request-for-proposal (RFP) process " that explored all options available to EHT to protect the interests of the stapled securityholders" , said DBS Trustee.

 

It noted that the proposed manager is wholly owned by SCCPRE Nineteen (S) Pte Ltd, and both entities are part of the SC Capital real estate private-equity group controlled and owned by Suchad Chiaranussati.

 

The SC Capital group also includes Singapore-based SC Capital Partners, a fund manager focused on real estate investments in the Asia-Pacific as well as the managers of two listed real estate investment trusts (Reits) in Asia, namely Japan Hotel Reit Investment Corp and Thailand Prime Property Freehold and Leasehold Reit.

 

DBS Trustee said the RFP took place over the last three months with 15 interested parties participating, and yielded " several comprehensive proposals" . The process was concluded on Oct 28, after SCCPRE Hospitality Reit Management was selected.

 

The syndicate of lenders under the Bank of America (BofA) facilities agreement were receptive to engaging in discussions with SCCPRE Hospitality Reit Management on the proposal that the latter would be appointed as EH-Reit' s new manager, the trustee said. BofA is the administrative agent for the lenders, which earlier demanded EHT repay its US$341 million loan and restricted access to several bank accounts of the Reit and master lessees.

 

DBS Trustee on Tuesday added that the proposed manager' s proposal was more compelling than the others, given the SC Capital group' s track record in managing and delivering strong asset performances, including the turnaround of Japan Hotel Reit.

 

Besides, the group has a network of relationships with hospitality players, and has shown a track record of raising capital from its financial partners for its private fund and listed Reit platforms.

 

SCCPRE Hospitality Reit Management' s proposal also displayed a focus on the long-term rehabilitation of EH-Reit, according to the trustee.

 

The company' s appointment and confirmation as the new manager is subject to it agreeing with DBS Trustee on the proposals for EHT, among other things.

 

Other conditions include the proposed Reit manager obtaining regulatory approvals and the relevant licences, and EHT stapled securityholders giving their approval at an extraordinary general meeting (EGM).

 

DBS Trustee said that further details relating to the proposed appointment of the manager, the latter' s proposal for EHT and the resolutions to be tabled at the EGM will be provided in due course for stapled securityholders' consideration.

 

Regarding MAS' s directive to remove the current Reit manager, the trustee believes that complying with it would serve the interests of stapled securityholders, seeing as EHT' s present circumstances " require that any recapitalisation and restructuring proposal (which includes the appointment of the new Reit manager) be presented to stapled securityholders as soon as reasonably practicable" .

 

MAS' s directive followed a notice of intention (NOI) it issued on Oct 26, in view of multiple breaches of the Securities and Futures Act by the current manager, EH-Reit Management, as well as " serious concerns" over the manager' s ability to comply with rules and regulations.

 

The NOI gave DBS Trustee and EH-Reit Management 10 days to respond as to why the manager should not be removed. But MAS said the written submissions it received raised " no new material facts" .

 

Trading of EHT stapled securities has been suspended since March.

 

THE Monetary Authority of Singapore (MAS) on Monday ordered the removal of the manager of Eagle Hospitality Reit (EH-Reit), and to appoint a new manager " as soon as practicable" .

 

This move closely follows the issuance of a Notice of Intention (NOI) on Oct 26, which was in view of numerous breaches of the Securities and Futures Act (SFA) by the Reit' s manager EH-Reit Management, as well as serious concerns over the manager' s ability to comply with rules and regulations, said MAS.

 

The NOI gave the Reit' s trustee, DBS Trustee Limited, and the EH-Reit management an opportunity to provide reasons as to why the management should not be removed. The duo were given 10 days to respond, upon the receipt of the NOI.

 

MAS said that it had received written submissions from Reit managers' shareholder Mandarin West Holdings following the NOI, and had " carefully considered" these.

 

However, as the written submissions raised " no new material facts" , MAS had proceeded to issue the direction to the trustee.

 

" MAS continues to have serious concerns with EH-Reit Management' 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," said MAS.

 

EH-Reit Management had breached these financial requirements for the first time in the fourth quarter of 2019, but informed MAS only in April this year.

 

The management also again breached the same base capital requirement on Aug 31 and Sept 30, despite directions for it to rectify breaches and take steps to enhance the monitoring of its financials.

 

Other breaches include not seeking MAS' approval before providing financial assistance to a subsidiary, late submissions of regulatory returns, and the failure to present to unitholders audited financial statements of EH-Reit within the stipulated timeframe.

 

MAS added that it will take " stern action" against any financial institution which does not comply with its rules and regulations.

EMBATTLED hospitality stapled group Eagle Hospitality Trust (EHT) will probably not have income available for distribution for the year to Dec 31, the manager has said.

 

Given factors such as the trust' s loans and liquidity, as well as master lessees' inability to make rental payments, " it is highly unlikely that EHT will have distributable income for distribution in accordance with the distribution policy" , according to third-quarter financial results released last Friday night.

 

The outlook statement added that " the prospects of a consensual restructuring of EHT remains (sic) uncertain" , while the trust' s portfolio of 18 hotels in the United States are at risk should EHT lenders take enforcement action.

 

The manager declared no distribution per stapled security for the three months to Sept 30, compared with the payout of 1.649 US cents for the same period the year before.

 

That comes as EHT had no income available for distribution in the period, against distributable income of US$14.4 million previously.

 

The stapled group sank into a loss of US$556.9 million, reversing the post-tax profit of US$12.6 million in the year-ago period.

 

Net property income fell by 29.4 year on year, to US$14.2 million, while revenue dropped by 22.9 per cent, to US$16.6 million.

 

The bottom line was torpedoed by US$534.2 million in net fair value change in investment properties, after independent valuations by Colliers as at Aug 31.

 

EHT also recorded US$48.1 million in impairment loss on trade and non-trade receivables - no thanks to the master lessee' s inability to make rental payments - as well as US$9.05 million in net finance costs.

 

Besides the possibility that EHT properties may not be able to generate sufficient cash flow, the outlook statement also flagged that there cannot be any assurance as to EHT' s operations as a going concern.

 

Meanwhile, the Monetary Authority of Singapore (MAS) last month issued a notice to remove the manager of Eagle Hospitality Reit (EH-Reit), which, along with the dormant Eagle Hospitality Business Trust, comprises the EHT stapled group.

 

The MAS directed DBS Trustee to remove the management, citing breaches of Securities and Futures Act requirements such as base capital and financial resources.

 

Singapore' s financial regulator also said at the time that it had serious concerns about the management' s ability and commitment to comply with its rules and regulations.

 

" The operations of EH-Reit will be adversely affected if no suitable replacement manager is found or can be found in a timely manner," the manager has now said in the latest financial statements.