THE managers of Eagle Hospitality Trust (EHT) on Tuesday announced it has named Moelis & Company as financial adviser as well as brought in temporary caretakers at five closed hotels after their hotel managers left.
The investment bank will assist the managers' special committee and EHT's real estate investment trust (Reit) trustee, DBS Trustee, in undertaking the strategic review of EHT's business, including advising on available options to achieve the best possible outcomes for the stapled security holders.
Moelis will complement the efforts of FTI Consulting, which was appointed last week to assist in the restructuring process of EHT. The immediate focus of the chief restructuring officers, who are from FTI, is to preserve the property portfolio value and evaluate EHT's hotel management agreements (HMAs) and the master lease agreements (MLAs). This will include the evaluation of unpaid rent, its underlying cause and its impact.
Formed on April 1, the special committee comprises all the independent directors and the chief executive officer of the manager, but excluding non-independent non-executive chairman Howard Wu and deputy chairman Taylor Woods for reasons for corporate governance and conflicts of interest. Mr Wu and Mr Woods are both co-founders and principals of EHT's sponsor Urban Commons.
For the same reasons of corporate governance, both FTI and Moelis will report to the special committee and DBS Trustee in respect of their advice, the EHT managers said in a filing on Tuesday night.
Meanwhile, five of EHT's assets in the US were closed by their previous hotel managers, which have since departed.
These hotel managers had earlier sent termination notices of the relevant HMAs to their master lessees, which are under Urban Commons, after the master lessees failed to cure their default of maintaining sufficient working capital for the hotels' operations. The hotel managers said then that they would terminate the HMAs if the five master lessees did not cure the defaults within the applicable cure periods.
In view of the imminent termination of the HMAs and the lack of remedial action by the master lessees to safeguard the hotels, each of the master lessors - which are Eagle Hospitality Reit's (EH-Reit) subsidiaries - thus entered into a hotel caretaker agreement with affiliates of GF Hotels & Resorts.
This was done at the direction of the Reit manager and with the approval of DBS Trustee, Bank of America (BofA) and a syndicate of lenders. BofA is the administrative agent for the lenders, which has demanded immediate repayment of EHT's US$341 million loan and restricted access to several bank accounts of the Reit and master lessees.
GF Hotels is to provide and implement temporary caretaker services at the five hotels, under the agreement with the master lessors.
The management of those properties has been handed over to GF Hotels after an "orderly handover transition" between the previous hotel managers and GF Hotels, which took place over the course of last week, EHT's managers said.
The EHT managers added that they believe the caretaker services by GF Hotels are "a cost-effective means by which to safeguard asset values and minimise losses during the Covid-19 period". The coronavirus pandemic has caused demand dislocation and temporary hotel closures across the US.
The caretaker arrangements are also intended to preserve the underlying value of the hotels, while the EHT managers and the Reit trustee, together with the assistance of Moelis and the FTI chief restructuring officers, continue to assess the appropriateness of the MLAs as part of the strategic review and longer-term plans post-pandemic.
The five affected hotels are: Four Points by Sheraton San Jose Airport, Crowne Plaza Danbury, Hilton Houston Galleria Area, Embassy Suites by Hilton Palm Desert and Doubletree by Hilton Salt Lake City Airport.
Trading in EHT stapled securities has been suspended since March 24, 2020.