Eagle Hospitality Trust review turns up 'prejudicial' interested-person transactions

EMBATTLED Eagle Hospitality Trust (EHT) has uncovered fresh sets of interested-person transactions that the audit and risk committee has found not to be on usual commercial terms.

The inking of these transactions, which comprise agreements between two sponsor directors and master lessees involved in the trust's hotel assets, is thus prejudicial to the interests of EHT and its minority stapled security holders, the managers disclosed in a filing late on Friday night.

Bourse watchdog Singapore Exchange Regulation (SGX RegCo) asked the nominating committee to justify why the sponsor directors - non-executive chairman Howard Wu and deputy chairman Taylor Woods - are still considered suitable to serve on the board of the manager.

During an ongoing strategic review of EHT's business, the managers' United States legal counsel discovered that Mr Wu and Mr Woods, who are co-founders and principals of EHT sponsor Urban Commons, had done deals on behalf of the trust's master-lessor subsidiaries.

Under the so-called further non-disturbance agreements, the master lessors supposedly agreed to guarantee the payment and performance of all the master lessees' obligations, with some exceptions. They would also assume all the obligations of the master lessees if the master lease agreements were to be terminated - even obligations that pre-dated such terminations.

The managers' said that their US legal counsel believes that these terms "are not customarily included in non-disturbance agreements". Meanwhile, chief restructuring officers from business consultancy firm FTI found the value at risk to stand at almost US$48.1 million (see amendment note) in all, for FY2019 and FY2020.

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The audit and risk committee thus assessed the terms and rationale for the entry into the agreements and found them prejudicial to the trust and minority investors.

Reit trustee DBS Trustee and a five-member special committee set up to protect the interests of stapled security holders are now consulting their professional advisers on what to do next.

According to the trust's bourse filing, the chief executive and independent board directors of EHT, as well as DBS Trustee, were said to have been unaware of the non-disturbance agreements "until they were recently informed" of them by the US legal counsel.

"Despite requirements to do so pursuant to EHT's interested-person transaction compliance manuals, the further non-disturbance agreements were not internally reported, disclosed and declared in accordance with compliance policies," SGX RegCo noted in its query to the trust.

"Nor were copies of these further non-disturbance agreements provided to the board prior to their execution by the relevant master lessors."

Trading in EHT stapled securities has been suspended since March 24, 2020.

Amendment note: Due to a mathematical error, an earlier version of this article inaccurately stated that the value at risk was US$28.1 million. It has since been amended to reflect the correct figure.