Troubled Eagle Hospitality Trust (EHT) has issued termination notices to the master lessees of all its 18 properties, describing the current arrangement as unviable.
The termination will occur 10 days after the delivery of the notices, said the stapled group's managers yesterday.
They cited a "multitude of defaults" by the master lessees, which are part of EHT's sponsor Urban Commons.
The defaults cited include substantially unpaid monthly fixed rent, variable rent and additional rent from January to last month for all properties, repeated failures to pay outgoings such as insurance premiums and the failure to pay the full amount of the security deposit by the due date for most of EHT's hotels.
The managers claimed they have had to "fund millions worth of necessary and critical operating expenses" of EHT and its portfolio, owing to 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," 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 last Thursday implied that the master lessees should pay outstanding rent and undertake defaulted non-rent obligations within a deadline of between three and 15 days, or "peacefully vacate" the property.
The managers said it is crucial for EHT to take control of the hotels so it can implement potential temporary arrangements for them.
They noted that they remain in dialogue with the master lessees on possible resolutions.
Eagle Hospitality 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 to facilitate the stapled group's restructuring process, which involves seeking new investors to inject fresh capital into EHT, said the managers.
While just three out of the 18 hotels in its portfolio remain operational, the managers envisage that all EHT outlets will eventually reopen, barring any unforeseen circumstances.
They added that their efforts "may not necessarily lead to the successful rehabilitation of EHT", as there are also other factors in play.
These include the time and process required to implement the lease terminations, having a third-party investor inject capital into EHT and the market conditions of the American hospitality industry.
THE BUSINESS TIMES