Eagle Hospitality Trust to scrap all master leases after 'multitude of defaults'

SINGAPORE (THE BUSINESS TIMES) - Troubled Eagle Hospitality Trust (EHT) has issued notices of termination of master lease agreements (MLAs) to the master lessees of all its 18 properties, describing the current arrangement as "unviable".

The termination is slated to occur 10 days after the delivery of the notices, said the stapled group's managers on Wednesday.

They cited "multitude of defaults" under the MLAs by the master lessees, which are part of EHT's sponsor Urban Commons.

Among the ongoing events of default are the "substantially unpaid" monthly fixed rent, variable rent and additional rent for January to August this year for all properties; the repeated failure to pay outgoings such as insurance premiums; and the failure to furnish the full amount of the security deposit required under the MLAs by the due date for most of EHT's hotels, the managers added.

Regarding the "unviable" MLA construct, the managers claimed they have had to 'fund millions worth of necessary and critical operating expenses" of EHT and its portfolio as a result of the master lessees' continuing defaults.

"Over the past few months, the available funds of EHT have been decreasing in order to fund such expenses, a substantial portion of which are the obligations and liabilities of the master lessees under the MLAs," they noted

The latest termination notices came shortly after the managers served "pay/perform or quit" statutory notices to some master lessees.

The "pay/perform or quit" notices, issued on Sept 17, implied that the master lessees should pay the outstanding rent and/or perform the defaulted non-rent obligations within a deadline of between three and 15 days, or they should "peacefully vacate" and surrender the property.

On Wednesday, the managers said that terminating the MLAs was a required condition of the lenders' consent to continued extension of further forbearance arrangements, and it is crucial for EHT to take control of the hotels so it can implement potential temporary arrangements for the properties.

Notwithstanding the termination, the managers said the master lessors - subsidiaries of EHT's real estate investment trust (Reit), EH-Reit - will not be waiving any rights or remedies relating to the liabilities and/or obligations of the master lessees under the MLAs, including those accrued before the agreements are scrapped.

The EHT managers added that they continue to be in dialogue with the master lessees on possible resolutions to past defaults and/or obligations.

In the interim, EH-Reit and the master lessors will continue to provide oversight of the hotels until longer-term replacement lessee solutions are found.

This arrangement is necessary and integral to facilitate [ITS]the stapled group's restructuring process, according to the managers.

Meanwhile, the request for proposal (RFP) process announced on July 23 is underway. The RFP process seeks new investors to inject fresh capital into EHT as part of the stapled group's restructuring and rehabilitation plan.

While just three out of the 18 hotels in its portfolio remain operational currently, the managers envisage that all of EHT's hotels will eventually reopen to the public, barring any unforeseen circumstances.

They added that their efforts "may not necessarily lead to the successful rehabilitation of EHT", as there are also external factors in play such as the time and process required to implement the termination of the MLAs, having a third-party investor inject capital resources into EHT, and the market conditions of the US hospitality industry.

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