SINGAPORE (Mar 24): Troubles have hit a crescendo for Eagle Hospitality Trust (EHT) and its investors, as the REIT requested for the trading of its shares to be voluntarily suspended before market open on Tuesday.
“The managers have decided to suspend the trading of the staples 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,” says EHT.
In a regulatory filing on Tuesday, EHT managers noted that both the US and global hospitality markets continue to deteriorate at an “accelerated pace” due to the Covid-19 pandemic, bringing about steep and unprecedented declines in national occupancy levels.
“The operating landscape has been changing on an almost daily basis due to the global Covid-19 pandemic and the managers continue to work to address developments arising from this fast changing landscape,” says EHT.
The REIT added that recent projections provided by its master lessees reflected significant operating dislocation.
“Based on the current market outlook, the productivity of the properties is expected to be insufficient as compared to the master lessees’ payment obligations to EHT,” says the REIT.
This comes shortly after EHT 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
EHT had hit the headlines 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
According to the lease agreements, the master lessees are expected to make rent payments to EHT, including a monthly fixed rent payment. The payments are supported by the income productivity of the respective underlying properties
But according to the managers, things have turned awry. The board has developed “material concerns” about the viability of the existing terms and agreements under the master lease agreements (MLAs) in the current environment, as well as the consequential impact on the master lessees’ ability to fulfil their commitments.
In a bid to increase liquidity and remedy delinquencies in rent payments from the master lessees, EHT’s managers had also planned to draw down on the REIT’s security deposits for the purpose of making rent payment in accordance with the MLAs.
Event of default
EHT had also entered into a syndicated credit agreement on May 16, 2019, which totals to some US$341 million being borrowed to date.
On Mar 20, EHT managers had reportedly received a notice of default and acceleration in relation to the facilities agreement issued on behalf of Bank of America.
Based on the notice, an event of default has occurred under the agreement, due to the master lessees’ non-payment of rent under the MLAs in respect of certain properties in EHT's portfolio.
In light of the notice, the managers sounded a warning that the REIT will not be able to draw on its security deposits as planned.
The managers are also in the process of seeking professional advice and will need more time to assess the implications of the notice including legal, financial, auditing, operational and business perspectives; as well as to engage in further discussions with the lenders.
EHT’s 4QFY2019 results had announced a distribution of 3.478 US cents per stapled security for the period of May 24, 2019 to Dec 31, 2019, which was slated to be paid on March 30, 2020.
See: Eagle Hospitality Trust misses IPO forecast by 24.4% with 4Q DPS of 1.179 US cents
This meant that the funds had to be paid to The Central Depository (CDP) by March 23, to allow for sufficient processing time for the Distribution to be credited to the accounts of stapled securityholders.
In light of the recent events and the notice of default, EHT has put a halt to the doling out of distributions to its unitholders. It says that the REIT is now restricted under the terms of the facilities agreement from making payment of the distribution.
Although the managers claim there are “sufficient funds” in the bank accounts of EHT to fund CDP and pay out the distribution in full, the managers have decided to defer any action to pay the funds for settlement of the distribution – at least for the meantime.
EHT adds that this decision was arrived at on the basis that the REIT is still pending both further discussions and negotiations with the lenders, as well as an overall assessment.
“Accordingly, in light of the above developments, stapled securityholders should note and expect that there is no certainty or assurance as to the period of the delay in receipt of the distribution or that such distribution will be made at all,” warns EHT.
However, EHT says it seeks to lift the trading suspension as soon as it is appropriate to do so without compromising the interests of the stapled securityholders, and will provide updates on its strategic review, status of distribution and discussion with its lenders as soon as practicable.
“We wish to reiterate our commitment to work in the best interests of and towards the long term sustainability of EHT and strive for the best outcome for the stapled securityholders,” says EHT.
Eagle Hospitality Trust had called for a trading halt on March 19 after the counter dived 36% following the announcement of its strategic review.
Units in EHT last traded at 14 US cents, which translates to a whopping 82.1% discount to the REIT's initial public offering (IPO) price of 78 US cents.