Eagle Hospitality Trust will use distribution to unitholders to pay sponsor's liabilities instead

SINGAPORE (THE BUSINESS TIMES) - Monies that were originally intended for Eagle Hospitality Trust's (EHT) maiden distribution to unitholders will now be redirected to fund critical expenses of the US-based hotel trust and its underlying portfolio.

This is in light of the "continuing failure" by the trust sponsor and master lessee Urban Commons to discharge its obligations under the Master Lease Agreements (MLAs), EHT said in a filing to the Singapore Exchange on Wednesday night (May 27).

EHT urgently needs to protect and safeguard the asset value of its portfolio, it said. "There is currently no alternative source of monies to fund the portfolio preservation expenses other than the monies originally intended to fund the distribution and the remaining security deposits."

The decision is believed to be in the best interests of EHT and its unitholders, it said, adding: "The managers and the Reit trustee consider that there is presently no other viable alternative but to utilise the available funds of EHT for purposes of preserving the value of the properties and funding the portfolio preservation expenses."

EHT did not share how much the portfolio preservation expenses are expected to cost. It noted however that these expenses will include significant liabilities incurred by Urban Commons under the Hotel Management Agreements in respect of EHT's properties which remain to date outstanding.

The liabilities include substantial outstanding payables to third parties, such as taxes, utilities, and payables to essential goods and services providers, EHT said.

Other essential payments relate to insurance policies, municipal fees, ground rent, maintenance and repair costs, and costs and expenses to be incurred in order to implement temporary caretaker arrangements at certain hotels, EHT said.

Such expenses are necessary to protect EHT's hotels from waste, damage and deterioration, and to reduce losses experienced at the property level during the Covid-19 pandemic, it added.

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 quantum of the aggregate portfolio preservation expenses will vary based on factors such as market conditions, the position taken by third-party service providers, and EHT's ability to achieve a successful restructuring 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 the value of the properties."

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

In an open letter to EHT's managers seen by The Business Times, one unitholder questioned why EHT should assume the liabilities of Urban Commons, the trust sponsor and master lessee.

This unitholder, 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?"

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

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