EHT to use maiden distribution to pay for sponsor's liabilities

Funds originally intended for Eagle Hospitality Trust's (EHT) maiden distribution to unit holders will now be redirected to finance critical expenses of the firm and its underlying portfolio.

This is in the light of the "continuing failure" by the trust sponsor and master lessee Urban Commons to discharge its legal obligations, EHT said in a Singapore Exchange filing on Wednesday night.

United States-based EHT urgently needs to protect its portfolio, it said. "There is currently no alternative source of monies... other than the monies originally intended to fund the distribution and the remaining security deposits... The managers and the Reit trustee consider that there is no other viable alternative."

EHT did not disclose how much the portfolio preservation expenses will be but noted that they will include significant liabilities incurred by Urban Commons under the Hotel Management Agreements in respect of EHT's properties.

The liabilities include large outstanding payments to third parties such as taxes, utilities and for goods and services providers, EHT said.

Other essential payments relate to insurance policies, municipal fees, ground rent, maintenance costs and expenses to implement temporary caretaker arrangements at certain hotels to protect them from deterioration.

EHT said: "It is difficult for the managers and the Reit trustee to meaningfully ascertain the quantum and extent to which the available funds of EHT would be utilised to fund the portfolio preservation expenses at this juncture."

The amount of expenses will vary based on factors such as market conditions, the position taken by third-party service providers and EHT's ability to restructure and raise new capital, it said.

"Indeed, the managers and the Reit trustee continue to discover failures by the master lessees to pay liabilities to third parties essential to the good maintenance of EHT's properties, which may need to be settled to preserve (their) value."

EHT also noted that it is restricted from paying the maiden distribution to unit holders anyway, as a result of an event of default under the terms of a syndicated loan. This was due to Urban Commons' failure to pay rent to EHT in a timely manner. As such, EHT managers did not process the distribution originally due to be paid on March 30.

In an open letter to EHT managers, one unit holder asked why EHT should assume the liabilities of Urban Commons.

This unit holder, who requested that his name not be published, wrote: "Urban Commons has raised gross proceeds of US$566 million via the initial public offering of EHT - has there been any attempt to place the third-party payables onto Urban Commons, since they are the original responsible party?

"If not, is there any intention to place the liabilities onto Urban Commons in the near future?" (US$566 million is about S$804 million.)

EHT stapled securities last changed hands at 13.7 US cents on March 19 before trading was halted and subsequently suspended.

THE BUSINESS TIMES

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A version of this article appeared in the print edition of The Straits Times on May 29, 2020, with the headline EHT to use maiden distribution to pay for sponsor's liabilities. Subscribe