Eagle Hospitality Trust adds potential incremental rent in master lease agreements

THE managers of Eagle Hospitality Trust on Friday said they have made "certain improvements" to the master lease agreements for its 18 properties, including a potential incremental rent stream to the real estate investment trust (Reit).

Under each master lease agreement signed for its assets, the Reit component of the stapled trust will receive rental payments with fixed and variable rent components. While the fixed rent represents two-thirds of the total rent for the projection year 2020, the variable rent is pegged to gross operating revenue and gross operating profit, thus providing upside growth exposure.

In a regulatory filing on Friday morning, the managers noted that they have worked with the sponsor, Urban Commons, to put in place an amendment that will "provide an incremental rent stream from the lessee to the lessor under certain higher profit margin scenarios".

"In no situation would the amendment result in a lower aggregate rent payable to the Reit," the managers said.

Los Angeles-headquartered Urban Commons is a privately held real estate investment and development firm, with a portfolio of various property types comprising mostly hotels.

The managers added that the proposed amendment to the agreements will provide additional rent from any positive Ebitda (earnings before interest, tax, depreciation and amortisation) of each of the properties up to the budgeted gross rent.

The modifications have received the unanimous approval of the independent directors, which comprises majority of the board of directors, the managers said.

They also noted that the initial public offering (IPO) projections under the IPO prospectus remain unchanged, and that the amendment is not prejudicial to the stapled security holders.

Eagle is a US hospitality stapled group backed by Urban Commons. It has an initial portfolio of 18 full-service hotel properties, with a total of 5,420 rooms, and an aggregate valuation of about US$1.27 billion.

As at 9.40am on Friday, Eagle's units were trading flat at 72 US cents.