SINGAPORE (Mar 19): Units in Eagle Hospitality Trust (EHT) plunged 36.3% in early morning trading on Thursday, after the manager announced in a filing at 12.25am that it is preparing to launch several initiatives to “unlock value and create liquidity”.

As at 10.47am, the counter dived 7.8 US cents to yet another record low of 13.7 US cents, before the managers called for a trading halt.

This comes after the REIT managers revealed it is identifying assets to dispose in a bid to bolster EHT’s cash position. The managers say this is part of its portfolio reconstitution plan.

In addition, the managers are also initiating a “comprehensive strategic review” of its business.

As part of this review process, the managers will hire a financial adviser to review and analyse a range of strategic and corporate options for the trust.

The managers are also planning to draw down up to US$12.5 million ($18.0 million) of its US$28.7 million in security deposits from master lease agreements.

The managers say Urban Commons (UC), the sponsor of EHT, has indicated that there have been delays in certain third-party property-level receivables as a result of the Covid-19 pandemic, which has caused shortfalls in payments to EHT.

As affiliates of UC, the master lessees are obliged to replenish the security deposits within seven days of any drawdown.

These obligations are then subject to a 20-day cure period under the master lease agreements.

The master lessees are required to provide around US$15.0 million of incremental security deposits by June 8, though cash contribution or letters of credit.

These will bring the total security deposits to US$43.7 million, as stipulated in EHT’s IPO prospectus.

The managers say that, together with EHT’s independent directors, they have “elevated the importance of the deficiency in security deposits” to the sponsor and have “requested immediate remedial action”.

Under the master lease agreements, failure to replenish any security deposit drawdowns or provide the incremental security deposits within the stipulated periods would result in defaults.

“UC continues to take measures to navigate an adverse market environment. We are focused on managing operations during this trying time,” says Howard Wu, founder and principal of UC.

“Drawing on the security deposits to satisfy outstanding payments could help to create liquidity at the REIT without putting further strain on operations,” he adds.

Since its debut on the Singapore Exchange (SGX) in May last year, units in EHT have plummeted some 82.4% from its initial public offering (IPO) price of 78 US cents.

KGI securities Research on Feb 20 downgraded its recommendation on EHT, and slashed its target price, on the back of concerns over a lack of clarity and near-term catalyst.

“The lack of clarity and information is the main problem for investors. You don’t really know what’s happening,” analyst Amirah Yusoff told The Edge Singapore in an interview.

The downgrade came just days after EHT on Feb 17 reported distribution per stapled security (DPS) of 1.179 US cents for 4QFY2019 ended December, falling a whopping 24.4% short of its initial public offering (IPO) forecast of 1.56 US cents. The 4Q DPS also missed KGI’s estimates by 18%.

See: Lack of clarity makes Eagle Hospitality Trust a risky bet, says KGI

Income available for distribution to stapled securityholders stood at US$10.3 million ($14.3 million) for the quarter, missing the IPO forecast by 24.3%, while revenue amounted to US$20.5 million, some 13.1% lower than forecast.

The managers attributed the misses to less favourable US lodging market fundamentals, roof repairs at its largest asset – Holiday Inn Resort Orlando Suites – coupled with the impact by the ramp from the construction delays.

See: Eagle Hospitality Trust misses IPO forecast by 24.4% with 4Q DPS of 1.179 US cents

EHT was in the spotlight last year, following concerns that one of its key assets, The Queen Mary Long Beach, might have sunk into disrepair.

According to the REIT’s latest notice of valuation, as of Dec 31, 2019, The Queen Mary – a decommissioned ocean liner that has now been converted into a 347-room upscale hotel in California – is valued at US$168.3 million.

This makes it the second-largest asset in EHT’s portfolio – just US$1.3 million shy of Holiday Inn Resort Orlando Suites.

See: Eagle Hospitality Trust could get wings clipped as key asset The Queen Mary sinks into disrepair

According to EHT’s notice of valuation of assets on Feb 17, the trust holds a total of 18 properties in its portfolio, with a market valuation of US$1.26 billion.