If the options for Eagle Hospitality Trust’s investors were stark prior to the EGM on Nov 30, 2020, they are even more stark after the EGM. Investors may have to rely on the goodwill of the investment banker that brought the trust to Singapore for any reimbursement.

Of the 872.7 million stapledsecurities in Eagle Hospitality Trust, only around 469 million stapledsecurities voted. Of these, 43% voted against the four resolutions that would have enabled SCCPRE Hospitality Management to be the new manager. Resolution 2, which temporarily changed the fee structure, was a special resolution requiring 75% of the votes present to pass. And hence, SCCPRE was not voted in as the new manager.

EHT is a stapled security comprising EH-REIT and EH-Business Trust. The latter is dormant but SCCPRE had plans to activate it in order to operate some of EHT’s hotels.  

What happens next? “The EH-REIT Trustee will carefully consider all available options for EHT with its advisers, and more details will be shared with Stapled Securityholders in due course,” says an EHT spokeswoman. “Given the EGM outcome and the present circumstance and challenges faced, EHT does not have sufficient resources as a going concern and its options are limited,” the spokeswoman warned.

SEE: More twists and turns at Eagle Hospitality Trust

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The EH-REIT Trustee commenced an exhaustive RFP (request for proposal) process over the course of three months that explored all options available to EHT to protect the interests of the stapled securityholders. As a result of the RFP Process, the EH-REIT Trustee, upon the recommendations of its professional advisers, identified SCCPRE (part of the SC Group) to have put forth the most credible and only actionable proposal acceptable to the lenders.

Interestingly, very few securityholders voted for resolution 5, a liquidation option. Some investors suggested that EHT should have an internal manager. However, EHT has run out of cash, and would be unable to pay any staff on its payroll. The trustee could divest of a couple of assets to raise the cash to run an internalised trust so that the hotels, of which 15 out of 18 (including Queen Mary Long Beach) are closed, can start to operate and provide some revenue.

In other jurisdictions, class action suits against the sponsor, bookrunner and financial advisers would have materialised in situations like this. For instance, Luckin Coffee and its bookrunner are faced with a class action suit. China's Supreme Court has approved regulations and amendments that would permit millions of investors to file class-action lawsuits and serious action on capital market crimes.

It says it's in line with a "zero tolerance" policy on capital market crimes, following recent fraud scandals involving some big-name Chinese brands.

If China can do it, surely, our own regulator and judicial system should allow such a path forward for EHT’s investors. For a REIT or trust though, the trustee acts on behalf of unitholders or securityholders. In the case of EHT, DBS Trustee would be acting on behalf of investors against Urban Commons and DBS Bank which was the manager, financial adviser and bookrunner for the IPO in 2019.

SEE: Urban Commons tries to win investors' trust after defaulting while SCCPRE awaits EGM vote on Dec 30

Urban Commons sold Queen Mary, capitalising her cash flow of around US$12 million a year for 20 years, while paying just US$300,000 in ground rent, raising alarm bells in the investment community in Singapore when this came to light. Subsequently, Urban Commons defaulted on the security deposit to EHT, the master lease rentals, and also failed to pay certain local taxes as far back as May 2019, when EHT listed.

In 2019, the IPO of EHT raised US$565 million. The original 20-year master leases at IPO clearly boosted valuations when the IPO prospectus claimed that the 18 properties, including an 80-year old ship were valued at US$1.2 billion raising questions on due diligence by the investment banker. A sharp knife has been taken to this valuation and the portfolio was last valued at US$726.9 million, and US$899.6 on a stabilised basis.

EHT’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, translating into net asset value per security of US$0.171.

Investors await answers from the investment bank that brought EHT to IPO, and whether it is prepared to reimburse investors for the IPO monies raised.