SINGAPORE (Apr 20): The Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) have stepped in to safeguard the interests of unitholders of Eagle Hospitality Trust (EHT).
In a joint statement today, MAS and SGX RegCo announced that they are looking into possible breaches of relevant laws and regulations as well as listing rules in relation to the issues surrounding EHT.
In particular, MAS has directed the manager of EHT to obtain the approval of its trustee, DBS Trustee Limited, before making any payments or transfers of the REIT’s funds.
EHT’s management has also been directed to restore its minimum base capital and financial resources to comply with MAS’ requirements. In particular, the authorities noted that the REIT has been in breach of these requirements since December last year.
“MAS has directed the trustee to ensure that the trustee’s approval is obtained before any payments or transfers of funds are made from EH-REIT to any person,” say MAS and SGX RegCo.
“The trustee is also required to set out the actions that it will take to protect the interests of unitholders,” the authorities add.
Trading of EHT units were voluntarily suspended on Mar 24 after the REIT defaulted on a loan of US$341 million. As a result, EHT was restricted by the terms and conditions of its loan agreement from making payment of declared dividends to its unitholders.
The loan default had reportedly followed the failure of Urban Commons, the master lessee of EHT properties, to either pay EHT the full sum of security deposits due under the master lease agreements, or to make timely rental payments since December 2019.
See: Eagle Hospitality Trust suspends trading, defers payment of latest distribution to unitholders
“The managers have decided to suspend the trading of the stapled securities on a voluntary basis to protect the interests of the stapled securityholders, and to ensure that no person trades the stapled securities without sufficient information required to make an informed decision,” said EHT in a regulatory filing.
This came shortly after the REIT announced a strategic review on Mar 19, saying that it was looking to launch several initiatives to “unlock value and create liquidity”.
As part of this review process, the managers would hire a financial adviser to review and analyse a range of strategic and corporate options for the trust.
See: Eagle Hospitality Trust sinks 36% as managers mull asset sales, strategic review
The REIT has been in troubled waters since last year following concerns that one of its key assets, The Queen Mary in Long Beach, might have sunk into disrepair. Analysts had also called the REIT out on its lack of clarity.
See: Eagle Hospitality Trust could get wings clipped as key asset The Queen Mary sinks into disrepair
See: Lack of clarity makes Eagle Hospitality Trust a risky bet, says KGI
Some investors, too, have begun scrambling to take flight from what appears to be a “debacle”.
From 28,000 units in December 2019, investor KK Goh tells The Edge Singapore that he has since pared down his stake in the REIT to a mere 100 units.
“[This] is to allow me to attend any meetings the REIT may call as a result of this debacle,” says Goh.
The way Goh sees it, EHT has only a few options to mull over: The REIT can either negotiate an arrangement with the Bank of America to allow deferral of payment, or sell its properties to satisfy its mounting debt. However, both these options are unlikely.
“This is unlikely to be a favourable outcome as you are conducting a firesale in terrible market conditions,” says Goh in reference to the REIT selling its assets.
“[EHT] will probably need to sell at pennies on the dollar, which will adversely affect net asset value,” he adds.
The only way forward, according to Goh, is for EHT to raise funds either through an equity raising exercise, or search for a ‘white knight investor’ who can pump in a significant amount of money to pull the REIT out of the doldrums.
“I generally invest in good quality REITs with a known track record and good management. However, I do take on more speculative positions from time to time. EHT definitely falls under that category,” says Goh.
“EHT is not for the faint of heart. If you're a conservative investor, stick to quality REITs and sell or avoid EHT,” he adds.
