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Eagle Hospitality Trust eyes asset sales amid virus outbreak, to initiate strategic review

EAGLE Hospitality Trust's (EHT) managers on Thursday said they are preparing to identify selected asset sales as part of a portfolio reconstitution plan while initiating a strategic review of EHT's business.

This is in a bid to "unlock value and create liquidity" amid the novel coronavirus situation, according to a regulatory update after midnight.

The asset sales, if completed, would be able to boost EHT's cash position. As for the strategic review, the managers said they will be hiring a financial adviser to review and analyse a range of strategic and corporate options.

The initiatives follow a drastic selloff in global equity markets. EHT's security price had come under significant pressure, which currently "meaningfully under-represents" the underlying value of EHT's portfolio, the managers said. 

The counter was trading at 19.5 US cents as at 9.36am on Thursday, down 2 cents or 9.3 per cent and under a 52-week low of 22 US cents. 

In the face of the Covid-19 outbreak and the significant impact on the US hotel market, EHT's managers said they will focus on liquidity and capital resources, along with strategies focused on safeguarding value for stapled securityholders.

The managers also plan to draw down up to around US$12.5 million in security deposits collected from master lease agreements to increase liquidity and remedy delinquencies in payments from master lessees.

Currently, EHT has around US$28.7 million of security deposits.

EHT sponsor, Urban Commons, had flagged delays in certain third-party property-level receivables and referenced the impact of the novel coronavirus outbreak, which caused shortfalls in payments to EHT.

The master lessees, which are affiliates of Urban Commons, are also obliged to replenish the security deposits within seven days of any drawdown. These obligations are then subject to a 20-day cure period under the master lease agreements.

Around US$15 million of incremental security deposits need to be provided by June 8 through cash contribution and/or letters of credit. This will bring the total amount of security deposits to US$43.7 million, as stated in EHT's initial public offering prospectus.

In response to evolving market conditions, EHT's managers and independent directors have decided to continue with quarterly reporting, as opposed to semi-annual announcements.

EHT called for a trading halt on Thursday, nearly two hours after the market opened.